Imagine if you had a lever you could pull to increase the revenue – and profit – in your business… What if you had THREE levers you could pull that all got the same result?
Well, good news… Hold onto your hats. You DO have these levers!
In every business – yes, even yours – there are three major “levers” you have to increasing your revenue and profits, what I like to call your “FAQs to More Profit“.
Adjusting any one of these levers can increase revenue in your business.
F is for Frequency of Transactions, meaning how often a customer buys from you.
A is for Amount of Each Transaction, meaning the dollar amount of each purchase.
Q is for Quantity of Customers, meaning how many unique customers buy from you.
Your business’ sales volume is simply Frequency of Transactions x Amount of Each Transaction X Quantity of Customers or more simply:
Gross Sales = F x A x Q
For example, in a business, if a customer, on average, buys from you 4 times over their lifetime (F=4), the average sale amount is $250 (A=250), and you attract 1,000 customers (Q=1,000), then Gross Sales = 4 x 150 x 1,000 = $1,000,000.
If you have a subscription business, your average customer sticks with you for 18 months at $500/mo, and you have 200 customers, your Frequency (F) is 18, your Amount (A) is $500, and your Quantity (Q) is 200. Gross Sales is then 18 x 500 x 200 = $1,800,000.
What do these numbers look like in your business? Fill in the blanks below to find out.
___________ = ___________ x ___________ x ___________
Gross Sales = Frequency x Amount x Quantity
What happens if you adjust any one of these numbers?
Being conservative, what does a 10% bump in any area do?
A 10% increase in the dollar amount of each transactions ripples across the whole business and leads to a 10% increase in total sales.
A 10% increase in the quantity of customers you get ripples across, too.
A 10% increase in the frequency of transactions ripples across just like the others.
But this 10% doesn’t just add up like 10 + 10 + 10…
Revenue Multipliers Through Leverage
A small 10% increase in each F, A, and Q leads to a 33% increase in sales – not a 30%. A 20% increase in each F, A, and Q, leads to a 73% increase in sales – not 60%!
These multipliers increase each other – not just the base.
That’s what we call “Leverage”!
Implementing a few simple strategies – which we get into below – will allow you to adjust these levers, charge a premium, i.e. charge more than your competition, keep your customers with you longer, and get more customers just like them at little to no cost.
Customer Lifetime Value (CLV) = F x A
The higher your Customer Lifetime Value (CLV = F x A), the more you can spend to acquire your customers!
While your “competitors” are fighting over the scraps of low profit margin sales, you get the best leads as you outspend them.
Increasing the Frequency of Transactions
It costs a lot of money to acquire a customer. And hopefully you know exactly how much it costs you to get a new customer!
Once you have a relationship with your customer, however, it costs very little to keep them, and increase the Frequency of transactions.
There are a ton of ways that you can have your customers buying more frequently from you, but two super fast to implement strategies that you can go do today are adding in recurring revenue in the form of subscriptions and increasing your product portfolio.
You have a tremendous amount of value to offer your customers, more than you could ever deliver in one upfront purchase. A continuity subscription provides recurring revenue to you in your business and provides long term value to your customer.
Simply look at Amazon’s Subscribe and Save program where they deliver additional value to you by auto-shipping you what you need.
Look at the difference between a car wash selling you a one-time wash vs. a monthly package auto-billed to your card.
Consider a one-time software purchase vs. a monthly fee forever.
Or how about selling a property as compared to keeping it and renting it out long term?
Subscriptions are your key to automatic recurring revenue in your business that provide predictable cashflow and a hugely increased frequency of transaction.
The second easy-to-add strategy is to increase your product portfolio. This can come in the form of a new product launch, a differentiated tier of an existing service, or an affiliate offer for your customers.
The key is that you’re providing a new form of value to your existing customers so they buy from you again and increase their Frequency of purchase.
Our Mastermind members frequently add continuity programs to their businesses, launch new products, and share partner offers to their list and you can, too.
Increasing the Amount of each Transaction
You’re familiar with the classic “Would you like fries with that?” upsell from McDonalds. Because it works.
There are a dozen ways to increase the amount of each transaction, but your two easiest ones to implement – like today – are Upsells and Increasing your Prices.
Adding an Upsell is simply having an additional add-on offer with each of your transactions. Think how retail stores always have grabbable impulse buy items at the counter: gum, magazines, candy, and so on. These all increase the dollar amount of the transaction.
The same upsell strategy works in most any reputable e-commerce shopping cart platform.
Simply look at your existing sales funnel and add in an upsell offer at the time of transaction – whether in person or online.
Back to the car wash example above, think about how when you get to a car wash, you can pay for one wash now, or… for a higher price you can become a monthly car wash member. You were just upsold to a higher amount – that has more value and has a recurring transaction. That one upsell offer increased BOTH the Frequency and the Amount!
Increasing Your Prices comes with two big challenges. One is mental. The other is strategic.
Strategically, if you’re a commodity and you feel “I can’t charge more or my customer will just get the same thing somewhere else”, get out of the red ocean you’re in, differentiate your business so there’s no more competition, and bask in your blue ocean where you can increase your pricing. Most of that comes down to increasing the value that you offer.
Mentally, you likely have some head trash around increasing your prices. Most business owners do. You know what you’ve always charged, and have set the value there for yourself. Good news: you’re worth more! You are allowed to increase your prices unapologetically!
These are just two of a dozen plus strategies you can use to increase the dollar Amount of your transactions – and these are also the easiest you can go do right now. These are just a few of the kinds of strategies our members discuss all the time in our Mastermind groups.
Decreasing the Amount of Each Transaction?
The inverse of increasing the amount of each transaction is the fallacy of discounts. Discounts are disastrous to your business!
Read more about How Discounting Your Products is More Disastrous Than You Can Imagine…
Increasing the Quantity of Transactions
Most everything you read about marketing and sales focuses on Quantity of Transactions, i.e. getting MORE customers.
Get MORE ad impressions.
Get MORE clicks.
Get MORE page views.
Get MORE opt-ins.
Get MORE first time customers.
Anything you do to fill the top of your funnel (“ToFu”) increases the quantity of customers you have coming in and can grow your business.
Quantity is all about getting new customers in the door.
The good news is that when you have a higher Customer Lifetime Value (CLV) as we covered above, you can afford to outspend your competitors and get more customers into the top of your funnel.
All of our Mastermind Members are growth focused entrepreneurs.
Strategies to increase both the quantity and quality of leads into the top of funnel are a frequent topic at our meetings.
The best part of being in a group of like minded founders is that everyone shares what’s working well, what’s not, and the actual resources used!
Your Action Plan
So which lever are you going to work on first?
Increasing the Frequency of your transactions with subscriptions and new offerings?
Increasing the Amount of your transactions with upsells and price increase?
Increasing the Quantity of your transactions with more qualified leads?
Or… a combination of the above?
Who’s Your Peer Advisory Group?
Who do you bounce ideas off with, get expert insights from, and share resources with?
Ready to connect with like minded Business Owners, Founders, and Entrepreneurs who’ve “been there, done that” ?
Join us at the Bay Area Mastermind for a Test-Drive and see if our Mastermind is what you’ve been missing.