Russell Streeter

The Business Growth Formula

How to triple the size of your business in 12 months, and turn it into a money making machine that works for you…not the other way around!

What’s your business growth goal for the next 12 months? Is it 5%, 10% or even 15%?

Have you built a successful business doing something that you are passionate about, but are struggling to take it to the next stage of development?

The Seven Keys Formula

Your business cycle can be broken down into seven Key parts:

  1. Lead Generation – this refers to the number of new enquiries your business generates from advertising and other marketing activities.
  2. Conversion Rate – the percentage of leads that you convert into paying customers.
  3. Transaction Value – the average amount of each sale or invoice.
  4. Transaction Frequency – how often your customers do business with you.
  5. Profit Margin – this is the amount your business earns after deducting the costs related to the sale.
  6. Referrals – new customers that do business with you as a result of a recommendation from your existing customer base.
  7. Client Retention – how long customers remain doing business with you.

Each of these is explained in more detail in the following chapters. Substantial growth can be achieved by making even modest improvements to the average of each of these metrics.

At this point, you may notice that the picture above has eight sections. The final element of the Formula is Systemisation, which I’ll explain further down.

Illustration

Suppose your business currently gets 100 leads a year, converts 30% of those into customers, who buy twice a year, at an average transaction value of £100, giving you revenue of 30 x 2 x 100 = £6,000.

An overall profit margin of 50% gives you profits of £3,000.

Next, include people who are referred to you by existing customers. Let’s assume ten referrals per year, so total annual profits (from new customers) are now £3,000 + £1,000*= £4,000.

* Ten customers x £200 sales x 50% profit = profits of £1,000 + £3,000 = £4,000.

If your client retention is three years, the lifetime value of those customers is £12,000.

Next, let’s look at the impact of adding just 10% to each Key.

The business will then get 110 leads per year, convert 33% of them for a total of 36 customers. They buy an average of 2.2 times per year, at an average transaction value of £110, giving a revenue of £8,712.

An increased margin of 55% results in profits of £4,792.

Business from referrals adds another £1,464 in profits**. Client retention is 3.3 years, resulting in a new lifetime value of £20,645.

** 11 referrals x 2.2 transactions x £110 x 55% margin = £1,464

Your annual profit has increased by 56% and customer lifetime value (a key indicator of the value of your business) has increased by 72%!

Do you think that 10% is a realistic target? That’s less than one more lead per month, in this example, and less than one extra transaction per customer.

And that’s just for new customers – Keys 3 to 7 will apply to your existing customers as well. And it’s much easier and cheaper to sell to existing customers than it is to attract new ones, in most cases.

BUT, let’s be a bit more ambitious, because if you are starting from a low base, you may be able to achieve even higher increases for some of the Seven Keys.

So increasing the average of the each Key by 21% in the above example, would grow the customer lifetime value by 201% (ie, triple the current position)!

Systemisation

I use the term “systemisation” to include a range of supporting systems, processes and structures that are necessary to ensure that your business maintains quality and makes a profit and it grows.

For a small business this means automating what can be automated, outsourcing what can be outsourced, and ensuring that the remaining tasks are performed as efficiently and effectively as possible.

Systemisation is important not just for reducing your workload (and probably your sanity!) but also because if the business depends on you in order to function, it will be unable to grow beyond a certain point.

Systemisation helps to ensure that the business growth you achieve using the Seven Keys Formula is sustainable.

Think big!

Hopefully you can see how the combination of making ambitious but achievable improvements in several areas, while at the same time ensuring that your business can cope with the increased sales, will have a big effect on the overall value of your business!