Lesson 1: Metrics: Business Growth Formula

“Growth is never by mere chance; it is the result of forces working together.” — James Cash Penney

Welcome to Lesson 1 of the B-Tribe Business Mastery Program.

In this lesson we’re going to jump straight in with the Business Growth Formula. The Business Growth Formula defines the high-level metrics that impact your business performance. By understanding the formula, tracking the metrics, and utilising the metrics to inform strategy, you’ll be able to predictably grow your business.

The formula states that there are only 3-ways to grow a business – any business.

These are:

1. Increase your number of clients.
2. Increase the average transaction value.
3. Increase the frequency clients purchase from you.

Let’s take a look at an example:

# Clients	X	Avg Transaction Val	X	Freq of Purchase	=	Sales
1,000	X	100	X	2	=	$200K

The power however in the Business Growth Formula is its compounding effect. If we grow each of the areas by just 10%, we don’t get just a 10% overall increase, sales increase by a compounded 33%.

For illustration:

# Clients	X	Avg Transaction Val	X	Freq of Purchase	=	Sales
1,000	X	100	X	2	=	$200K
10% inc.	X	10% inc.	X	10% inc.	=	33%
1,100	X	110	X	2.2	=	$266,200

As each of these processes - number of clients, transaction value and purchase frequency – are themselves the function of several processes, they can each attain compound growth through small incremental improvements.

For instance, number of (new) clients is a function of:

Number of Clients = Number of Leads x Conversion Rate.

Let’s now expand the formula:

	Now	+10%	+25%	+33%
Number of Leads: X
Conversion Rate: X
Avg Transaction Value: X
Freq of Purchase: X
Sales:

The power of the Business Growth Formula is in its simplicity. Bringing focused attention to these metrics allows you to formulate incremental strategy relating to each. Often in business we ask too high-level a question, such as “how can we increase revenue this year?”

The Business Growth Formula demonstrates that we should instead be asking questions such as “what’s one effective strategy we can implement this month to increase lead/improve lead conversion/consistently increase transaction value/frequency?” By focusing on the small, you affect the large.

Throughout the Business Mastery Program we’ll provide you with numerous strategies on how to positively impact each of the Business Growth Formula metrics.

Growing Your Client Base

You can grow your client base in 3-ways:

1. Increase lead generation
2. Increase conversion from enquiries
3. Improve client retention rates.

To increase your lead generation, you can:

• Add and/or improve advertising/ marketing systems
• Use loss-leader marketing – break even upfront and profit off the backend
• Introduce referral programs
• Develop host-beneficiary relationships
• Strike affiliate deals
• Introduce guarantees – reverse the risk
• Deliver special events – workshops, webinars, etc
• Buy, swap, rent, trade, acquire targeted lists
• Introduce telemarketing
• Use direct sales
• Use public relations
• Introduce social media strategies
• Publish, blog and educate.

To increase conversion of enquiry to sale, you can:

• Improve the competence of sales team members
• Use Social Proof strategies
• Implement Scarcity techniques
• Use loss-leader marketing – break even upfront and profit off the backend
• Develop host-beneficiary relationships
• Use guarantees – reverse the risk.

To improve client retention rates, you can:

• Communicate more frequently with clients
• Overtly communicate the value you deliver to clients (sell the invisible)
• Deliver better than expected service levels (under promise and over deliver).

Increasing Average Transaction Value

To increase the value of your average transaction, you can:

• Introduce backend products and services
• Package complimentary products & services together
• Use point of sale promotions
• Increase prices
• Introduce “gold standard” or “premium” versions
• Reduce or remove discounting
• Offer greater/larger units of purchase
• Introduce a membership program
• Bootstrap products and services to leverage development of new saleable products
• Sell other people’s products (until you have your own)
• Sell an ongoing maintenance/service contract.

Increasing Transaction Frequency

To increase your transaction frequency, you can:

• Communicate frequently and personally to relationship-build
• Price induce for purchase frequency
• Offer “closed door” or “preferred customer” buying programs
• Introduce backend products and services
• Introduce a membership program
• Bootstrap products and services to leverage development of new saleable products
• Sell an ongoing maintenance/service contract.

Bonus

Whilst the Business Growth Formula focuses on 3-ways to grow revenue, there’s an additional metric that can influence your profit. In fact, this metric can have more immediate and more profound impact on your bottom line than the others.

The fourth metric is efficiency (or leverage). When you are able to either: do things more efficiently (same process costing less); or more leveraged (same cost with greater outcomes), you improve profit. But not just improve profit – improve profit in a leveraged way, as we’ll demonstrate in a future lesson.

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Actions

1. Using the ideas provided above and the Business Growth Formula Worksheet, brainstorm ways you can leverage each of the “3-ways” in your business.