The Human Being’s Business Growth Equation

The Human Being’s Business Growth Equation

Is there a model to finding growth? You may have read some of my thoughts on setting Strategy, but I haven’t shared my thoughts on incremental growth from minor tweaks to your current business.

Let’s change that by introducing the Human Being’s Business Growth Equation.

I know, so simple, right?!?

Of course it is. Let me run through each scribble from top to bottom.

At the top, you have customers. Existing customers plus New customers (which come from leads and are determined by conversion rate).

Each year, a percentage of these customers do business with you. That’s your retention rate.

Each year, those transactions have an average value. That’s your transaction size.

Each year, your company does a certain number of transactions with those customers.

That gives you total revenue.

Subtract your fixed and variable costs, and get your gross profit.

That’s normal business, right?

But wait, there’s one more expense that comes with growing, and we’ll call that your growth expense. Subtract that too.

That leaves you with your profit.

I get it that your business is more complicated than this, but in general, this is the process you go through to get a profit.

The Human Being’s Growth Equation is the simple math that helps us get more from our current efforts.

Consider this: when I plug my old company’s information into the HBGE, I get a gross profit of $125,000 on sales of $4,725,000.

Yes. 3% gross profit is stressful because, as you can imagine, it tends to disappear in the cash needs of the business.

Here’s what we do. We tweak pieces, just a little bit.

Let’s tweak leads worked, open the spigot and get a 50% increase in the number of leads into the building.

That impacts conversion rates, so let’s knock those down 25%, even though we’re training and incentivizing.

That should give you a few more opportunities. In this case, 13% more.

Now, let’s look at that total clients number. Out of the 284, we’d normally get orders from 210 of them. This year, we’re working to get 6 more. 216.

Then we’re going to look at the average order size. Tweaking that 5%. It’s not easy, because many of the orders are far larger than the average, but stick with me.

Lastly, we’re taking a look at the number of orders/projects from our clients each year. Normally, we’d work hard to get 210 clients to order 262 times. This year, we’re going to get 20 more orders from those clients. That’s the 5% improvement.

Simple, but not easy right?

Let’s look at what those tweaks did for the business.

We added 10% to the variable cost and added in $100,000 for cost of growing. The growth expense.

Those small changes add up.

Take out the client changes, but keep the expenses high.

Take out the order size increases and number of sales a year, but keep the new client activity.

Oops, too far. (sell more to existing clients)

You get the point.

Small changes can add up. Even if you haven’t set a new strategic course.

Good stuff.