Growing any business is about improving growth KPIs, and there are only 8 KPIs that are available to grow any business. Being aware of all 8 and using all of them when developing a Business Growth Plan is very beneficial.
- Increase Leads
- Decrease Leads to Quote/Meetings Conversion Rates
- Increase Quote/Meetings to Sale Conversion Rates
- Increase the Average Client Spend Amount
- Raise Prices
- Increase the Frequency of Client Transactions Per year
- Increase Gross Margins in Service Work
- Reduce Expenses
Just to clarify, the second one is relevant for businesses that have a free meeting, or “quote” step that leads to a discussion on price. In many businesses, in hindsight, a quote/meeting was a waste of time, which is where this KPI becomes relevant, to aim to decrease it.
The 8 growth KPIs all relate to “Types” of growth strategies that improve these figures.
For example, ‘Increase Leads’ - is a strategy ‘Type’ and has dozens of strategies relating to it. Every strategy Type has a range of strategies or actions to use to improve the KPI, and the strategy is what improves the KPI.
The Flaw in Traditional Business Planning
The flaw is that all of these 8 KPIs are often not accurately measured to be known before the traditional business planning process begins.
What’s typically the focus by way of strategies is; increasing leads (sales), reducing expenses and/or a small price rise to improve revenue and profit, so only 3 of the 8 KPIs are considered.
Also, the chosen improvements are rarely quantified by a percentage increase, nor are they used to accurately calculate the Revenue and Net Profit goals to match KPI improvement to actual goals. That means the income and profit projections are a ‘best guess.’
Assumptions and ignorance of the actual figures of the 8 KPIs prevents growth opportunities being seen to grow a business very fast.
“Assumptions and ignorance are the two biggest costs of a business”
In many clients business, after asking what their Quote or Lead to Sale Conversion Rates were, and being told - ‘about 50%’ – it was surprising for the business owner when it was accurately measured, and found to be 13%, 9%, 26%, and 19%.
Doubling 50% isn’t possible, but doubling those percentage figures has actually been achieved so that the revenue also double, and was achieved in less than six months each time.
Where Your Business Growth Plan Begins
The process begins by measuring to obtain the 8 growth KPIs in your business.
The next step is to identify all relevant strategy Types that can be used. Each strategy Type may have a few or dozens of strategies relevant to it. The strategy type ‘Raising Prices’ for example has 7 different strategies.
With the strategy Types identified, it’s time to look at which strategy Types have the most power to grow your business.
The priority for all business growth, I believe, should first of all be on increasing the Net Profit Margin because it’s easier than increasing revenue.
There are 3 of the 8 KPIs that directly influence the Net Profit Margin;
- Raise Prices
- Increase Gross Margin in Service Work
- Reduce Expenses
The biggest increase in the Net Profit Margin will usually come from raising prices.
A price rise increases the Net Profit Margin, but it’s not easy to calculate what a 5% price rise on a 4% or 12% Net Profit Margin will lead to for the new Net Profit Margin result.
For example, a 6% price rise for a business with a Net Profit Margin of 10% will increase the Net Profit Margin to 15.1% (assuming no sales/clients are lost from the price rise). A 10% price rise on a 5% Net Profit Margin will increase it to 13.6%
It’s not easy to work out the new Net Profit Margin after a price rise. This is a major reason why so few businesses rarely consider price rises as a primary strategy.
Balancing a price rise against potential lost sales with conversion rate or retention rate strategies is extremely effective and often overlooked.
“Increasing the Gross Margin” is achieved by measuring all the different services individually, to see the full ‘range’ of Gross Margins of each service type. Technical employee wages need to be considered as a Cost of Sale in this measuring for your own business.
The lowest Gross Margin figure can benefit from a price rise. Often the lowest Gross Margin is the highest volume, which pulls the whole business’ average down.
The highest Gross Margin service benefits from strategies to increase the volume, because this lifts therefore the overall average Gross and Net Profit Margin.
Your Business Growth Plan needs to consider lead generating strategies too.
Be aware that this isn’t so much about the choice of strategy, for example a new website or Google Ads, as it is about the execution of the strategy.
Poor execution is why 90% of lead generation strategies implemented fail.
A well thought out plan, with well executed strategies will definitely increase your business profits.
Find out more about a professional Business Growth Plan for your business.
Tim Stokes
Author Bio: Tim Stokes is a 36 year experienced business owner and builder of 7 in service industries. In 1997 he began mentoring business owners in all aspects of business growth and lifestyle success with results published in national magazines. He’s no accountant, but he brings a fresh, very practical, intelligent point of view to growing businesses that his principal clients enjoy. He’s authored 12 books and The Academy of Business Mastery business management course with its systems and management tools. He’s respected for his contribution to clients of accounting firms who see the results. Tim believes the most important figure in businesses is the net profit percentage and specializes in increasing it with a full suite of time-proven strategies. Visit Tim's website to learn more about him.