I
was talking with one of my clients earlier this week on growing his $50mm
energy services company. These guys
process about 14,000 invoices per month with an average invoice ticket of
approximately $300.
The
only way to grow any business is to grow the number of customers, increase
the average sales value, and/or increase the frequency of customer
purchase. That’s it.
The
key is to focus on improving each component.
I have used this
simple formula with many types of companies including medical offices, construction companies, HVAC companies, truck
parts distributors, job shop manufacturers, and technology resellers. It's a formula and it works.
Once
you understand the power of this, it will help really grow your business.
I’ve
talked about this before, but consider the following formula.
Revenue
|
|
Number
of customers
|
|
x
|
Average
sale price
|
|
x
|
Frequency
of purchase per year
|
|
=
|
Revenue
|
I
put together a program for one of my client’s segment and had the following
results. Amazing, small growth
percentage with geometric results.
|
Number
of customers
|
1,000
|
1,226
|
|
|
x
Average sale price
|
400
|
456
|
|
|
x
Frequency of purchase per year
|
7
|
7.5
|
|
|
Sales
|
2,800,000
|
4,192,920
|
50%
|
Notice
the geometric growth – a 22% increase in number of customers and 14% increase
in average sales with small increase in frequency of purchase gives a 50% increase
in revenue.
For
the energy service company I was speaking to earlier this week, we outlined a
small increase in the number of customers 7% based on current growth trends and
an additional service offering to increase the ASP $100 as follows:
Current Plan Chg
|
Number
of customers
|
14,000
|
15,000
|
7%
|
|
x
Average sale price
|
300
|
400
|
33%
|
|
x
Frequency of purchase per year
|
12
|
12
|
0%
|
|
Sales
|
50,400,000
|
72,000,000
|
43%
|
I
will keep you posted on the actual results.
I
suggest you look back at the prior 12 months of sales and get your actual
numbers. Don’t make assumptions
here. Most business owners I talk to make
assumptions as to the number of customers they have and ASP, but when we get
the actual numbers, their assumptions invariably are really wrong. Dump your invoice register to excel. De-dup the customers or compare to sales by
customer. I also like to have average invoice
value as that may be an easier way for your sales reps to focus on.
Note
- I love the simple trick in Excel to de-dup a list (data menu, remove
duplicates), then use the sumif formula.
I use this trick all the time.
Once
you have your actual historical data, develop creative strategies / ideas to
increase each and EXECUTE a couple strategies.
Test and measure the results. Optimize,
then repeat.
It’s
the only way to grow your business.
Customers x ASP x purchase frequency = revenue.
Think
growth and think profit,
/jon
