3 Ways To Grow a Highly Profitable Business
You may have a well-researched business idea that you know will be valuable to your clients. However, growing a business requires more than demand and passion. You need a strategy.
The basic strategy for growing a business includes the following approaches:
- Increase the number of clients
- Increase the average transaction value
- Increase purchasing frequency
Why Many Businesses Fail To Grow
Even if you have an established business, you’re likely leaving behind potential profits that aren’t difficult to access. Marketing strategist Jay Abraham says that businesses hold between $10,000 and $1 million worth of assets virtually in their pockets. However, they’re neglecting to capitalize on that wealth.
One of the problems lies in where you’re scouting potential growth. Most business owners work so hard to get new leads that they disregard the value of the relationships that they’ve already fostered. Moreover, you might not be ready to handle a huge influx of clients even if it’s going to drive up your revenue.
Another issue is that most businesses invest a set amount of funds into marketing, lead generation, and advertising regardless of the return. For example, you may pay your salespeople the same amount whether they bring in 20 or 2,000 new clients. You might put $1,000 toward an advertisement even though you’re not sure whether it will convert into 1 or 100 leads.
This occurs when you neglect to analyze your data and test your strategies. To grow your business in a way that maximizes your return and makes profits almost inevitable, you need to turn everything into a number. That’s not as challenging as it sounds.
Calculating a Customer’s Lifetime Value
You can start by determining the lifetime value of one customer. To do this, calculate the following:
- The average amount each customer spends the first time they buy from you
- The number of times the same customer makes purchases throughout the year and the average value of those purchases
- The number of years the average customer stays with you
Then, plug those values into the following equation:
First-time purchase value + [(purchase frequency * average value) * lifespan = Lifetime value
Once you know the lifetime value of a client, you can determine how much you’re willing to invest to secure new . Let’s say that you own a bakery and you try offering a free muffin to everyone who walks through your door on Saturday mornings. It costs you $0.50 to make each muffin.
You might get nervous when you see a line of 200 people outside your door on Saturday because you think that you’re going to lose $100. However, 100 of those people make a $5 purchase after receiving their free muffin. You’ve just earned $500.
If you know how frequently the average customer returns, you can add that to your revenue forecast. Maybe the typical client spends $10 once a week for two years. The lifetime value of that customer is about $1,040, and it only cost you $0.20 to acquire them.
Understanding this formula can help you feel like customer acquisition is a profit guarantee instead of a gamble. This number also relates to the other strategies that you use to increase your profits. When you’re aware of the details behind each transaction, you can determine whether it’s more beneficial to secure new clients, get them to spend more or encourage them to buy more frequently.
Three Profitable Ways To Grow Your Business
All of your marketing strategies should fall under the three categories that we discuss below. These three ways to grow a business don’t have to be conducted in this order, however. Of course, you’ll need to secure some clients to get started. Once your business is rolling, however, you need to analyze your books to determine which tactic produces the biggest return.
Increase the Number of Clients
There are several types of clients:
- Prospective clients
- Lost clients
Notice that we didn’t include completely cold individuals. You have to have an idea of the demographics that make up your target audience to develop a strategic growth plan.
That may seem obvious, but many companies value quantity over quality. They buy lists of leads and send out promotional materials indiscriminately. Sending a postcard advertising your pet-sitting service to every house in a certain area would be a waste of money because many of those households wouldn’t have pets.
Prospective clients are those that would be likely to buy from you. In the case of the pet-sitting service, your prospective clients would own a pet.
Leads are prospects who have reached out to you in some manner. Perhaps they have subscribed to your newsletter or called with questions about your services.
Clients have bought something from you. These are the individuals who are likely to hand over their money to you again.
Lost clients purchased from you in the past but have not returned.
How to Get More Clients
There are three ways to get more clients:
- Obtain more leads from prospective clients
- Convert more leads into paying clients
- Get your lapsed clients to return and buy again
You can’t exactly grow your target audience, but you can increase the number of leads that you get from that group by designing your marketing to hook them in. Offering something of value to people in your range can encourage them to make an inquiry and become a leader.
A lead generator could be one of the following materials:
- Blog post
Basically, a lead generator is something of value that entices your prospective clients. The key is to make sure that you get your prospects’ contact information in return. This allows you to nurture the leads, keeping them around and ultimately encouraging them to buy from you.
Nurturing your leads is vital for gaining and converting clients. According to Invesp, 80 percent of new leads never buy anything. That’s because many organizations don’t have effective funnels for enhancing their relationship with these leads and moving them toward a conversion.
Lead nurturing emails get more engagement than generic email blasts. Nurtured leads spend almost twice as much on purchases as non-nurtured leads.
You can nurture your leads by going beyond first impressions and building trust as you raise their awareness about your offerings.
- Personalizing your campaigns
- Sending emails that are relevant to your leads’ stage in the buyer’s journey
- Offering valuable free content that provides a taste of what you offer
Technically, the most valuable customer is the one who has exchanged money for your goods or services. Your goal should be to convert as many leads as possible. If your sales funnel is effective, you can gain more conversions if you generate more leads at the front end.
Fine-tuning the funnel is crucial for wringing the most profits out of your marketing strategy as possible. Don’t sit back and let things roll on autopilot. One of the best ways to grow a business is to constantly analyze and tweak things. Although you think that you’re performing well enough, you can probably scale up and do even better.
Finally, a successful customer acquisition strategy should involve lapsed clients. Many companies simply let these individuals slide. In many cases, simply reaching out can bring these clients back into your wheelhouse. Inc. details five tactics for winning back lost clients that can help you maintain your client base.
Increase the Average Transaction Total
If you have all the leads that you can handle, you can work on getting the clients that you already have to buy more at one time. This is a cost-effective method of boosting your sales revenue without shelling out much capital.
Before you can increase the average transaction size, you need to know the average transaction price. To calculate this, divide the total sales amount by the number of transactions. If 50 transactions totaling $15,000 in one month, your average transaction total is $300.
Raising your prices is not always the best way to increase the average transaction total. This strategy could frustrate your regulars, sending them to your competition.
Comcast Business suggests using the following tactics to make clients buy more at one time:
Promote an Add-On at the Point of Sale
McDonald’s notoriously did this by asking, “Would you like fries with that?” Amazon shows you what other clients purchased along with the item that you’re interested in.
Place Related Items Nearby
Grocery stores group together products that can be used for the same recipe. You’re more likely to add ice cream to your dessert when it’s located next to the pie.If you’re an e-commerce business, you can sell quick-start guides to go along with your workshops or group related products based on search queries.
Hold Flash Sales
Urgency encourages people to spend money. If you tell people that they can score a deal if they make a purchase within the next 20 minutes, they’ll spend more money trying to save money. You can create flash sales on your website or send out emails that publicize time-restricted promotions.
Offer Discounts for Bulk Purchases
Group purchases into discounted packages. This can work for businesses that sell products or services. It can be tricky when you’re analyzing your numbers, however. You could lose money if a customer that normally spends $50 a month on a haircut buys a five-haircut package at the discounted price of $175. On the other hand, some people who purchase the package up front won’t use it all.
Focus on the Upsell
Get your clients in the door with a low-ticket item, but offer an upsell to a more expensive product when possible. Forbes offers a few successful methods for upselling.
Increase the Purchasing Frequency
Now you have plenty o fclients, and they’re spending more money than before. You can further boost your profits by getting them to buy more often.
- They spend more money
- They’re easier to engage
- They cost less to keep compared to the cost of acquiring a new customer
- They refer new clients
- They buy other products from you
Here are four ways to get people to buy more often:
Connect With Your Clients More Regularly
One of the easiest ways to increase buying frequency is to increase your communication frequency. Sending out just one more promotional offer or targeted email in a given time period can remind your clients that you offer something valuable. Make sure that your communication is relevant so that people don’t feel like they’re being spammed.
You can also encourage people to buy more often by capitalizing on their fear of missing out, or FOMO. Research shows that this real phenomenon encourages people to engage online.
- Some examples of FOMO marketing include:
- Special offers and limited-time sales
- Show that other people are making purchases
- Display low stock levels when applicable
- Reward clients for buying early
Establish a Loyalty Program
Loyalty programs reward members with incentives to make purchases. If you run a coffee shop, you might offer a free beverage for every eight that the customer buys. These rewards can entice clients to shop with you more often so that they can get their incentive faster. If your program is based on points, clients might spend more at each visit to maximize their return.
Give Clients What They Really Want
If you understood the conscious and subconscious desires of every customer, you could play into their emotions and offer exactly what they’re looking for. Although you’re not a genie, you can get a sense of what your clients want by offering surveys and asking for feedback.
When you have a detailed sense of your client’s needs, you can play on their emotions to get them to spend money with you more often. Send out holiday and birthday cards with offers that they can’t pass up.
Also, understanding what keeps clients away may help you take actions that encourage them to return. If location is an issue, holding a pop-up somewhere else might be the way to provoke repeat transactions.
If you run a cleaning company, your clients might not need more frequent service. However, doing some market research might lead you to find out that your best clients feel overwhelmed during the holidays or those on a budget want a quick way to spruce up their home between cleanings. This could help you develop additional offerings that make clients want to buy from you more than ever.