Three Ways To Grow Your Business (The Gas Pedal)
Brett Fogle Tuesday, January 22, 2019
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Anyone can start a business online, but few people create businesses that generate millions of dollars per year in revenue. Even fewer will create and build a business online that provides over $1 million dollars in annual net income. The sad fact is that according to the Huffington Post, over 90% of online businesses fail in the first 120 days*. That’s an alarming statistic that you should be aware of.
At a basic level, it takes just three things to build a business with the potential to generate millions of dollars in revenue annually, and provide the owners with $1 million a year or more in spendable, personal income.
It also takes the same three things you need to drive a car successfully, without crashing and burning out on the road. I will help teach you these three principals by explaining these three things in the context of driving a car: The Gas Pedal, The Steering Wheel, and The Dashboard.
The Gas Pedal
The speed at which your business grows is determined by how many new customers you are adding to your business every day, every week, every month, and every year. Your customer acquisition process is the “gas pedal” that determines the speed with which your business grows. How adept you are at putting new customers into your business will determine your growth rate.
The gas pedal determines how fast your car goes. While there are many other factors determining whether or not you get to your destination, the gas pedal provides the speed for getting there.
Otherwise, it’s like going down the highway at 10 mph where you risk getting passed by everyone else trying to go the same place you’re trying to get to. You’re going to get there, but not nearly as quickly. If you invest the time and money in building a proven, optimized customer acquisition and sales systems for your business, you will have the opportunity to build a million-dollar business and get there faster. Think of this as your advertising, sales and marketing process.
The Steering Wheel
The steering wheel in your car is what helps you use your speed and momentum, and direct it towards your desired destination. Similarly, the steering wheel in your business is your ability to maximize your customer value by increasing: 1) The average sale value per transaction in your business and 2) the frequency with which your customers come back to buy from your business. Think of this as your testing, optimizing and upselling process.
Many business owners equate marketing with simply generating new customer traffic into their businesses. Its true new customer acquisition is your gas pedal, and it determines the speed at which your business propels itself to its destination. But you can’t safely steer around a corner if you’re just flying down the road at 70 or 80 mph… and if you aren’t steering your business, you are not very likely to arrive at your destination safely, if at all.
For example, if you don’t know your numbers and aren’t optimizing your advertising and marketing process, and instead just throwing more money at growing your business, you might find out that you’re actually going out of business.
What happens when you throw gas on a fire? It burns more quickly, and in a sudden burst of energy it’s all gone. Whereas, giving more gas to a finely tuned business engine can increase your speed and get you there faster in a more controlled way.
To do this, you need to maximize the value of each customer by increasing the average purchase your customers make (for examples using 1-click upsell offers, order form bump offers, follow up email offers, etc.) and also by increasing the frequency with which they buy from you (for example by offering recurring monthly subscription services, memberships, and other continuity offers).
McDonald’s is famous for increasing a customer's average purchase with its Value Meal. Instead of somebody walking in and just getting a hamburger and a drink, if they order a Value Meal, McDonald’s increases their average purchase by asking ‘do you want fries with that?’ or offering you a ‘super-size’.
Simply adding $.79 to the purchase price may not sound like a lot, but it added a 20-percent increase to each sale and billions of dollars to their bottom line. If you can increase the revenue of each sale by 20 percent in your business, you can potentially create a significant increase in profit for your business and that can mean the difference between success and failure. With rising advertising costs, it’s imperative to have effective strategies for increasing your bottom line.
How can you sell more to the customers you already have? What other products and services can you offer them? Are there impulse items (cheat sheets, templates, top 10 lists, PDF’s etc.) you can easily add to an existing purchase to increase the initial order value? Are there medium to higher priced up-sales, downsells or cross-sell products or services you can offer to them at the point of purchase? This is when they are most likely to buy again after just purchasing.
Do you have or can create big-ticket items some of your customers can buy? A certain percentage of your customers will also buy more expensive, high-end products. Are you offering those to your customers as part of your mix of products and services? If not, you could be leaving a lot of money on the table.
Next is increasing the frequency with which your customers are buying from you. Are you communicating regularly with your customers? Do you have an email list of customers who have bought from you in the past and can you offer them a ‘rewards’ program or incentive for repeat sales? Are you sending your customers information and following up with them regularly by email or social media to make sure you stay on their minds?
If you’re speeding down the road and don’t know where you are going, how likely is it you’re going to get to your destination?
Consider this scary scenario: Nothing looks familiar, you make a turn, you don’t know how fast you’re going, you don’t know how many miles you’ve gone, you don’t know if you’re any closer to your destination, it’s getting dark, and you don’t have any way of telling where you are. You’re driving your car down the road, you’re able to steer it well, but you have no idea where you are going, where you are, or how fast you’re going!
Without a dashboard with its different gauges providing you information on miles driven or the amount of gas you have left, there’s very little chance you’re going to end up where you want to be. This is why business metrics and key performance indicators are so important. They make up the dashboard of your business
You have to capture information about your business, so you are able to track how well you are getting to your destination. You may have a finance degree from a university, and be able to create an income statement and a balance sheet to tell you how much cash is in the bank and whether or not you made a profit last month. But those financial statements are looking at the past. This is like driving your car and only looking in the rearview mirror.
You can’t get to your destination if all you are doing is looking behind you so you need forward looking indicators, telling you in real time how your business is doing.
So here are the 3 best key performance indicators (KPI’s) that business owners building businesses generating $1 million in profit use to track their progress:
Average New Customers (ANC): This is your speedometer. Business owners need to track their new customer acquisition all the time. How many customers did you get today, this week, and this month? Compare this to your new customer acquisition goals, so you will know how fast you are traveling toward your target. This tells you exactly how quickly you’re reaching your goals. Without new customers, you won’t go very far.
Average Customer Value (ACV): This gives you information about one of your important metrics that over time helps you know whether or not you’re growing. If you’re able to continually increase your average customer value (ACV) in relation to your cost to acquire a customer (CAC), then you’re growing in the right direction.
Average Customer Frequency (ACF): This is another important gauge of how well you are steering your business. How often your customers are coming back and buying from you? Tracking this information is like having a “service engine” light on your dashboard. It gives you a warning if a customer hasn’t come back to you in a while, so you can follow up with your customer and find out why or try to fix that problem with a customer re-engagement offer.
It’s important to know if a customer has found a new company to buy from, if they had a bad experience, or if they have simply lost track of you. If you have a significant number of customers who haven’t purchased from you in a while, that’s an important warning sign you are steering off the road. If you pay attention to this warning, you can steer around issues you need to fix within your business.
Key Point: Increasing each of these by a factor of 2x doesn’t just improve your business by 6x (2 + 2 + 2), it increases logarithmically, so the end result is 8x (2 x 2 x 2) which can mean huge increases to the bottom line by improving all three areas:
Your Total # of Customers x Average Customer Value x Frequency of Purchase
The best way to monitor these three elements these days is with technology. What makes running a business enjoyable, similar to air-conditioning in your car, is a set of business systems to operate your business without your daily and direct supervision.
These kinds of systems also empower employees to run the business without direct daily supervision and allow the business owners to enjoy a stress-free lifestyle, without being permanently tied to their business. Running a business without these type of feedback systems can be extremely dangerous not to mention stressful.
This is similar to driving a car without air conditioning on a hot day. You’ll still get there but it will be a miserable ride. Running a business is much like driving a car in the sense that once you learn how to do it, it’s a skill you will have forever and can do without thinking about it.
Experienced drivers can drive for 30 minutes and then suddenly realize they haven’t even been thinking anything about driving. Maybe you’ve done this too. You’ve been stopping at lights, changing lanes, making turns, and travelling for miles and then realize that you haven’t been thinking about driving because it’s now second nature.
You’re experienced at regulating the speed of the car, knowing how to safely steer around other cars on the road, watching the gauges and monitoring your speed, and even have the A/C on to make sure you are comfortable. You can adjust all of those things at any time without giving it a second thought, because you have learned to trust your car’s indicators and dashboards.
You also know there are predictable outcomes when you do certain things. A specific action by you creates a known outcome. You as the driver know all you have to do is push a certain button, and the window will predictably go up or down without having to take your hands off the steering wheel and temporarily being distracted from driving by having to manually turn a knob or handle by hand.
Automation is key here as it is with any online business. Experienced business owners who know how to create million-dollar businesses, are like experienced drivers. They understand how to effectively use the gas pedal of their businesses; the marketing of the business - and how necessary it is to generate new customers.
They can increase the new customer flow if they need to accelerate a little bit; they can back off when they are going too fast. They keep the flow going because they understand how it works, and they know what is necessary to achieve their goals.
The most successful and experienced business owners know how to handle the steering wheels of their businesses like a seasoned race car driver. They know watching the average sale value and the frequency of sales are critical factors of running a business. When the average customer value gets off track, they know they need to make some changes.
If customers aren’t coming back frequently enough, they know they need to correct their steering. These business owners keep an eye on their dashboards and the information they need to know to succeed, and you can too. Not only can you… You must if you’re going to achieve sustainable success in your business.
There’s no better feeling in business than knowing that every $1 you spend or invest into your business will result in $2, $3, or $5 in return. If you know your numbers, and how changing these variables here will result in bottom line revenue improvements for your business, you have control of your financial future.
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