You reap what you sow in life and in business. Whatever you put your time, talent and energy into is what you get back. The health of any business is a mixture of three factors, cash flow, revenue and expenditure, and since cash flow is vital for a growing business here are several essential drivers for realising and releasing more cash in your business.
Believe it or not, there are only four ways to increase your revenue:
Increase the number of customers
Increase the average transaction size
Increase the frequency of transactions per customer
Increase your prices
I cover a range of strategies to boost each of these revenue drivers in more detail in my Book Value Dynamics, (Summer 2020 publication), but for now let’s apply these fundamental methods to create an immediate cash advantage.
Imagine you’re operating a marketing agency and you want to increase the amount of revenue the agency brings in. Here’s how to apply these strategies:
1. An increase in customer numbers is a boost to any business
This strategy is relatively straightforward: more customers buying your services will bring in more money.
2. An increase in average transaction size means each customer is purchasing more of your products and services
This is typically done through up-selling. When a customer engages the agency to design and build a website, you offer them additional services such as lead generation or social media content creation. The more of these services your customers purchase, the more they spend, and the more revenue you collect.
3. Encouraging your customers to purchase from you more often will increase your revenue
Many marketing agencies offer incentives and subscription packages to encourage repeat and more frequent business. The more frequently a customer buys services from you, the more revenue your agency will bring in.
4. Raising your prices means you’ll collect more revenue from every purchase
Assuming your customer volume, average transaction size and frequency stay the same, raising your prices will bring in more revenue for the same amount of effort.
If you’re able to implement more than one of these strategies they will have a multiplying effect on your revenue, let’s explore this through an example:
Number of customers = 100
Average transaction size per customer = £5,000
Purchase frequency per customer = 2.4
Price of most popular product = £3,000
Total: = £1,200,000
Now, increase each element by 10%
Number of customers per month = 110
Average transaction size per customer = £5,500
Purchase frequency per customer = 2.64
Price of most popular product = £3,300
Total: = £1,597,200
Increase: = £397,200
Through incremental tweaks on each revenue driver, a 33% increase in revenue has been achieved.
Up-selling in particular is an extremely effective strategy in almost all small business models and there are plenty of discussion panels online that are full of threads sharing experiences and results – instead of hard selling products, just look at what the customer is ordering already and see if you can get them to add a small related extra to it.
Of course, it’s important to note that not every customer is a good customer. Some customers will drain your energy and waste your time and resources without providing the results you’re looking for. It’s important to track the value of every customer: if they don’t engage with you often, have a low average transaction size, do not refer your business to others or complain about the price, it doesn’t make sense to attract more of those customers.
Always focus the majority of your efforts on serving your ideal customers and qualify your ideal customer by their buying habits and ability to help grow your business through referral and ability to pay a premium for the value you provide.
READ NEXT: 4 disciplines to reduce cash outflows
WANT TO LEARN MORE
Selina Bolton is a business strategist and the founder of Seed.Partners; a mergers & acquisitions firm specialising in attracting investment and creating opportunities for small to medium-sized businesses to scale and build value at pace.
Contact Us to find out how we can partner with you to accelerate your business growth.