Multiply your Profit with the 5 Ways Formula. Successful companies know what differentiates them from their competitors. If you want to increase your profit, you need to find your niche and define what makes you unique amongst your competitors. If you are not unique in the market, you will have to compete on price to make a profit, which will not bring consistent growth in the long run.
Instead, you want to compete on service and value. So, find out what makes your business unique, market it, and charge your customers for the value that you bring.
This blog explains how to use the “divide to multiply” technique to generate 30X business growth. And it all starts with marketing and how you manage this area of your business.
Marketing is an Investment
Marketing isn’t an expense or a cost, but an investment: for money out, you should bring more money in. If you spend £100 on marketing, it should generate sales and revenues which cover that expense and also bring you a profit. In other words, marketing should do more than be cost-neutral, it should positively help you to make money.
For this to happen, you need to start seeing marketing in terms of what it can do for your business. Remember, 80% of marketing fails, mostly because people don’t want to invest the time, effort or energy into creating a marketing strategy.
How do you become a marketing genius?
There are two main elements: measuring and testing. You need to test a variety of ads, emails or newsletters and measure the responses. For example, you could create ten different versions of a Facebook ad and see which ones get better engagement. You will find that one or two outperform the rest. Then adapt and improve those two to get an even better response.
This strategy works if you are willing to put in the time and energy to test the market and measure the feedback from your potential customers.
Marketing is investing in lifetime customers. You invest money, time, energy and money to get customers to come and buy from you (and continue to do so), in order to increase profitability.
Marketing is an expense only if you do not test, measure and build a great marketing campaign to attract the right customers. Remember, to make a profit, the right customers are those that will spend more than your initial outlay.
Know Your Marketing Metrics
If you’ve read my blog “Six Steps to Business Success,” you probably know a little by now about your marketing numbers. You will have calculated your average sale value and your conversion rate to understand what you’ve achieved with previous efforts.
Moreover, these numbers help you identify the goals you need to set in business, to go from where you are now to where you want to be.
It’s essential to determine how your leads find out about you, and how much it costs you to get new clients — the acquisition cost: the money you spend on marketing, divided by the number of customers you get.
Besides these numbers, you should check out a series of other metrics that will help you break down your marketing efforts and fix bottlenecks. Luckily, you can use a specific formula that Brad Sugars, ActionCOACH founder and CEO, calls the “Chassis of Business.”
This formula can help you build an ordinary or extraordinary business. If you know enough about it, you can achieve great results:
Leads x Conversion Rate = Customers
Leads are the potential buyers, and the Conversion Rate is the percentage of leads who turn into customers.
Customers x Number of Transactions x Average Sale = Total Revenue
Total Revenue x Margins = Profit
In an ideal scenario, you will know all these numbers and be able to start working on improving them immediately. If you don’t know the numbers, go back and look at how many leads you get in a day, how many become customers, and how many times they buy from you. If you can’t easily find the numbers, make estimations or calculate them using whatever data you do have.
How the 5 Ways Formula Works
The metrics that matter the most in the ‘Chassis of Business’ are:
- Number of Transactions
- Average Sales
- Margins (Profitability)
The 5 Ways Formula shows that you can generate exponential business growth if you work on these five elements. So, you need a strategy for improving each component to make a profit.
Simply measuring your efforts and results should increase conversions and average sales. However, you want to do more than that to generate consistent growth.
Brad Sugars did the maths … and the results are impressive: just a 10% increase in each of the five areas can generate an overall increase of over 60% in profits!
BUT if you focus, apply the correct strategies, perhaps working with a coach, and are able to increase each area by 30%, your profits can grow by 370%.
When you learn the strategies and your marketing is working for your business, you will see real results. Put that ‘chassis’ up on the wall, calculate the numbers that make the formula, and break down each element into its components to see what you need to improve.
To recap, the three main lessons that will help you get better at marketing your business:
- If you want to make your business grow, you need incoming business and repeat business. Find clients and keep them.
- You don’t want to run your business and not make money. Come up with a suitable pricing strategy to make a profit.
- Never compete on price. Highlight how your business is unique compared to your competitors and compete on value.
You must master your marketing to master your business. So, measure the numbers and know your metrics.
Break down each metric and see what you have to do to improve in each of the five areas. Evaluate your current performance and ask yourself how you can do better. Learn and understand the implications of using the concepts. You must shift to an investment mindset – that way you will do a great job of building your business.
Write down one or two things you can do right away to improve (i) lead generation, (ii) the number of transactions, (iii) average sales, (iv) profits, and (v) margins. Teach the 5 Ways Formula to the people in your business and help them understand what “divide to multiply” means: breaking each goal down into the smallest tasks to build up your business.
When you properly know where you are with your business, you can start implementing growth strategies to improve and build a more successful company.