The Formula for Business Success

Most small business owners I speak to tell me that they wish there was a formula that could guarantee their business’s success. The good news is that there is. I have based my own business on it, and I teach people from around the world how to boost their profitability, and get the life they want, simply by applying it to their business.

The great thing is that because it is a mathematical formula, it applies to every type of business out there – regardless of what you do or what you sell.

Here is the formula: Leads x Conversion Rate = Total Customers x Transaction Rate x Average Dollar Spend = Turnover x Margins = Profit.

Let us look at each individual component on its own.

Leads are the prospects that come into your business, whether it is through the doors of your store, through a referral network, or via your website. They are any person who might potentially buy from your company.

Conversion rate is simply a percentage, also known as your strike rate, which tells you what percentages of all your leads actually buy from you. For instance, if you have 100 people coming into your store, and ten buy from you, then you will have a 10% conversion rate.

Your total customers are those people who have decided to buy from you. They are the leads that actually made the purchase from you, rather than those who came in, looked around and left again.

Transaction rate is the number of times they have decided to buy from you. Remember, in business, it is all about building repeat clients who are loyal, rather than chasing individual sales from new customers.

Average dollar spend is exactly what it says. You take the amount of revenue you are making, and divide it by the number of customers you have had overall, and calculate how much, on average, each one is spending.

Your turnover is the total amount of money that is flowing into your business, before you have paid any bills, or salaries.

Margins are the percentage of your turnover that is pure profit. Every business has a profit margin – the money that is left over once they have paid the bills, and salaries, and any loans or other obligations they may have.

Finally, there is profit. Profit is what every business owner wants more of. It is the money that your business makes from doing business, and it is what determines whether your business will succeed or not.

The secret that I teach my clients is how, using this formula, and by making simple changes to the way, they do business, they can earn more money than they ever believed possible. Let us try it though. Lets assume that you have 8000 leads. Twenty five percent of those leads become customers, and each one of those customers buys from you on two occasions. On average, they spend $100 per transaction, and you have a twenty-five percent margin. Your business, using this formula, would look like this:

Leads (8000) x Conversion Rate (25%) = Total Customers (2000) x Transaction Rate (2) x Average Dollar Spend ($100) = Turnover ($400 000) x Margins (25%) = Profit ($100 000)

Fairly straightforward, isn’t it? What most people don’t realize, however, and the secret that I teach my clients, is that by increasing each of the various factors by a small amount, for instance, ten percent, your earnings will increase dramatically – way more than ten percent overall! In fact, a ten percent increase on each of the business factors here would look a little like this:

Leads (8800) x Conversion Rate (27.5%) = Total Customers (2420) x Transaction Rate (2.2) x Average Dollar Spend ($110) = Turnover ($585 640) x Margins (27.5%) = Profit $161 051

That’s a 61% increase, simply by making small changes to each of the factors involved in profitability, and that’s the secret to business success, in a nutshell. By increasing the Leads, Conversion Rate, Transaction Rate, Average Dollar Spend and Margins, you will increase your overall Profit by 61%. Now try substituting a 50% increase for the ten percent I’ve used.

Of course, increasing all of those factors in your business takes planning and knowledge, but it is possible in just about every business, that’s exactly what my business philosophy, and the one that I teach my clients, is all about. Even if you can only manage to increase one or two of those factors, you’ll still see a marked increase in profits, and that’s exactly what you want, isn’t it?

So instead of worrying that your business is not succeeding, look for simple strategies to change the figures in your company’s formula, and you will have a guaranteed recipe for success!