There are 4 ways to increase revenue
- Increasing the number of customers.
- Increasing average transaction size. Get each customer to purchase more.
- Increasing the frequency of transactions per customer. Get each customer to purchase more often.
- Raising your prices. Add more value.
“Money is plentiful for those who understand the simple laws which govern its acquisition.” — George Clayson, author of The Richest Man in Babylon
REVENUE INCREASING FORMULA
here’s a simple formula:
(# * % * $) / t ~ Revenue
OK, it doesn’t look all that simple, but it is. Let’s break it down:
# = The number of leads you get per month.
% = The conversion rate of deals into transactions. For example, if 100 people call you, and out of those, 10 buy, your conversion rate is 10%.
$ = The average amount you collect from a customer in a single transaction.
t = The average amount of time it takes to close each deal.
~ (squiggly guy) = This symbol indicates a proportional relationship.
Revenue = The amount your sales pipeline generates per month.
To increase revenue you can increase #, $, or %; likewise, if you can decrease t you can increase revenues.
If you can make very small positive changes to each of these variables you are essentially leveraging the “Compound Effect” as described best by Darren Hardy.
REVENUE INCREASING FORMULA EXAMPLE:
Let’s say you’re a business consultant. You get 40 leads a month, and you sell to two of them. Your average sale is $5,000 and it takes you 10 hours to close a typical deal. Units aside (to simplify), your formula would be (40*5%*5,000)/10 which gives you the magic number of 1,000.
Now, let’s say you increase leads by 10 (25%), improve your closing ratio from 5% to 10%, up your average transaction size from $5,000 to $6,250, and decrease the time you need to close each deal from 10 hours to 7.5 hours (25%). Your magic number is now about 4,167, which translates to a revenue increase of about 400%. The compound effect at work!
REVENUE INCREASING ACTION STEPS
“The end goal is to break down revenue generation into specific, quantifiable action items. By making very small changes to each variable you can compound growth in your revenue streams and increase the throughput of deals through your pipeline. Once you get your revenue to where you want it, your focus should shift to maximizing profit margins (without sacrificing qualify) to truly scale your business.”