How Can I Increase The Value Of My Sales?
This is the most important number. The bigger sales are, the more resources you need; all the other numbers move in line with sales.
Why not try something different to increase sales. Think of sales not as ONE number, but as several activities:
- What is your average sales invoice value?
- How many sales invoices did you issue last month?
- Identify your top 20% of customers.
- Are you serving them properly?
- Identify your most popular products/services?
- Work out which are your most profitable products/services?
- Do you really need more customers now?
Every business is different, having a unique business model and profit drivers, but there is a generic model which applies to most. Taking this concept on board in your business will help you to build a strategy to achieve better sales & profit growth. What we need to do is break down sales into components, so we can increase the number of ways we can sell.
Jay Abraham, a famous marketer, said there are “Three ways to grow a business”. Increase:
THE NUMBER OF CUSTOMERS
THE AVERAGE VALUE OF EACH TRANSACTION
THE AVERAGE NUMBER OF TRANSACTIONS IN A YEAR
Most businesses focus on the first component the number of customers when looking to grow, but in reality, the second & third can be much more powerful.
Let’s say:
SALES = CUSTOMERS x AMOUNT SPENT x FREQUENCY of SPENDING
And Profit is:
PROFIT = (CUSTOMERS x AMOUNT SPENT x FREQUENCY of SPENDING) – VARIABLE COSTS – FIXED COSTS
We can use this to grow our sales & profits, particularly if we can see the impact of changes on both costs and profit. Let’s concentrate on sales.
CUSTOMERS
To increase profits, the most popular focus is the number of customers. So, what is the number of customers? Below we list three separate components:
CUSTOMERS WE HAD LAST YEAR & KEPT
NUMBER OF SALES LEADS x SALES CONVERSION RATE
MINUS CUSTOMERS WE LOST
In other words, there are three ways to increase the number of customers:
1. Getting more sales leads (MARKETING)
2. Converting more of those sales leads into customers (SALES)
3. Reducing the number of customers that leave (CUSTOMER SERVICE)
Think of how you can get customers to spend more money with you every time they do business with you. Essentially there are two ways:
1. Buy more from you each time, for example, by creating some up-selling systems, or
2. Changing the price.
Both are great ways, but each has a different impact on costs. If customers buy more it means your variable (direct, costs) also go up. Changing price has NO IMPACT on costs; so, mathematically, price is the most powerful lever in the profit equation.
So, which sales levers should you focus on?
Try to work on all of them simultaneously. But if you were to pick one, start with price. It is the most powerful lever in the profit equation, because mathematically it has the biggest & most immediate impact on profit.
