Last week, I wrote about what we refer to at ActionCOACH as ‘the business chassis’. These are five key profit generating areas that are critical to running a business. This week we’re looking at which of the 5 areas to focus on first and why.
Whilst it is a very powerful concept, and can absolutely be game-changing in terms of your business’s profitability, (increase each area by 10% and bottom line profits increase a whopping 61%!) it’s worth knowing which area to tackle first. This depends on whether you are a new or existing business as the best strategy will vary.
So, consider addressing the 5 areas in this order:
Profit margins are critical to profitability. You must know your overall margins, but also by product or service type, so you are promoting and selling your highest margin products and services wherever you can.
There are then two primary ways you can look at improving the profit margins in your business, reduce your expenses or raise your prices. Most people are wary of increasing prices, but if you’ve positioned yourself right in your marketplace, this is often a very good strategy (more on this in another blog post).
Next, you need to look at how many of the leads you are currently getting are being converted into customers. The majority of business owners massively overestimate their conversion rate often thinking it is around 60-70%, only to discover when they begin accurately tracking the numbers, that it’s closer to an average of 30%!
The good news is, that once you start to dig in and evaluate your sales process, and implement some new strategies, it can be relatively easy to improve conversion rates.
Once you have improved your conversion rate, you need to look at maximizing opportunities within your existing customer base. Are they aware of everything you offer and gaining maximum value from your current product range? Are you able to upsell (increase the average transaction value) or increase the frequency with which they buy from you (no. of transactions)?
Simple factors like these are often overlooked (e.g. if they aren’t made clear to the team members responsible), but can make a big difference when multiplied by your customer base. One of the most obvious and well-known examples would be McDonald’s “would you like fries with that?“.
Finally, once all other areas are working optimally, you can begin to look at feeding new leads into the pipeline! And there are plenty of ways to look at lead generation, but that definitely requires a separate blog post!