STRATEGY TO SUCCESS
Do the Math! 7 Drivers for Success
Prospects x Conversion Rate = # of new Customers + # of existing Customers x Retention % = # of Customers x Average Dollar Sale x # of Transactions = Revenues x Gross Margin = Gross Profits – Overhead % (of Revenue) = Net Profits
Okay, math time is over. Let’s look at why this is important. In business what follows the equal sign is also called the “result.” And we know that, just like in math class, you can’t just change results. So why are so many owners chasing the WRONG things: more rev- enues/sales, more customers, and more profits? You can’t get more of those directly. If you want better results, you must look on the other side of the equal sign. In math those are called “vari- ables.” In business, I refer to them as “drivers.” They’re the “things” that drive results.
Seven Ways to Change the Variables
In business many owners
are trying to just change the RESULT, without paying attention to trying to change
number of transactions, you’ll get about a 33.3% increase. And it keeps increasing at more than 10% each time you increase another driver by 10%. This is very reasonable for many companies due to neglecting these areas often over long periods of time. I’ve worked with clients to increase sales by over 500% and profits by over 2000% using this exact process, and many other clients to achieve results similar to those.
Focus on the Core of the Company These seven drivers are the core to any company’s
financial success, and most owners are not focusing on them, or not enough. Some businesses don’t even track where their leads are coming from. Many don’t use sales scripts.
Most have little or no customer retention strategies or plans.
Some businesses don’t even track where their leads are coming from. Many don’t use sales scripts.
Most have little or no customer retention strategies or plans.
the variables and letting the results come. What I mean is this: you can’t just change/increase the number of customers you have, or your revenues, or your profits. They are all results of other “variables” (drivers). They are the things that drive the increases in these areas. There are only a few ways to grow a business and/or increase profits. But most business owners honestly could not name them. I’ve found there are only seven drivers of growth and profits. Here they are:
Number of leads, conversion rate (%), customer retention (%), average number of transactions, average sale amount, gross profit, and overhead. So why are these seven drivers important? It’s because if you can increase these separate drivers by a certain amount, you’ll get EXPONENTIAL growth in your sales and profits. What does that mean? It means this: if you increase your conversion rate and your average sale amount by 10% each, you don’t get 10% growth, you get about 21% growth. And if you add in another of the seven drivers, like average
48 Automotive Recycling | January-February 2016
Nor do they measure and work to increase their average sale amount, their number of transactions with customers, their profit margins, or strate- gies to improve their overhead. It’s a real shame. Instead they
worry constantly about their revenues, their profits (or cash in the bank, often times –which is far worse to measure success or failure by!), or they focus on getting more customers but
don’t seem to implement new strategies to attain new customers (which means they probably are using the worst “strategy” of all time: hope – they passively hope more customers come to them). They’re chasing the three RESULTS, which they cannot directly increase. It’s a little insane, but it’s the way many businesses are run.
Remedying the Issues
So, what to do if you find yourself in this situation? First, ask yourself “What could my company look like if I increased each of these seven drivers by small amounts? What would it be like if we increased our sales by 75% and our net profits by 250%? It’s impor- tant to first have a clear idea of how things could be so we’re motivated to implement change. Second, your company needs to assess where you’re at in all of the seven drivers areas. Figure out what your current numbers are and record them. Thirdly, it’s important to develop a big picture game plan to grow each area, but then identify the
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