Brad Turville, director and business advisor at BJT Financial shares the framework he’s used for years on all sorts of businesses to gain clarity on growth and identify where it should come from. His strategy will work to grow any business.

Many business owners are wanting to grow their business to hit certain targets: financial goals, reduced working hours and freedom of mind (ie. no stress).  Growth can come in many forms, but a question to ask: “is this growth target I am focusing on helping me move towards my goals?”

I find many business owners are not crystal clear on their goals and what they want, and secondly are not crystal clear on the growth drivers to focus on. The default I hear most commonly is “we just need more leads” . That may be the case, but as you’ll see below, getting more leads is only one of seven drivers you can influence.

The seven ways to grow model is a framework I have used for years on all sorts of businesses to gain clarity on growth and identify where the growth should come from.

Let’s take a look at them.

1. Retention rate

The first growth driver is customer retention; how many customers you retain from this year going into the next.

If you find that 21 out of every 100 customers only buy from you once and then not again in future years, then your retention rate is 79 per cent.

One way to grow your business is to simply have more of your existing customers come back next year to buy.

Note that some industries should ignore this metric, eg. lawyers specialising in deceased estates.

2. Leads generated

Generating new leads is the go-to growth driver for most businesses. It’s certainly a valid growth option, but should be considered only as much as the other six drivers I detail here.

A new lead is a potential new customer who may or may not buy what you are selling. A distinction to keep in mind here is the quality of leads, ie. are the leads ‘ideal customers’ you are after, or is there a marketing/branding issue that needs to be addressed?

3. Conversion rate

Not all leads are going to become customers, only a percentage are – we call this your conversion rate. Let’s say you convert three out of every 10 leads into customers, which gives you a 30 per cent conversion rate.

The higher the conversion rate the higher the number of leads that become paying customers.

Bonus tip: if you match your increased conversion rate with great retention strategies, customers will stick around for many years.

A distinction to keep in mind is that a super-high conversion rate isn’t always a good sign. Perhaps you are over-promising and under-delivering, which would then show in poor retention. Or maybe you’re just pricing too low.

4. Average transaction frequency

The average transaction frequency shows us how often someone transacts with you over a 12 month period. So if an accountant only sees their clients once per year, their average transaction frequency is 1. Compare this with a barber shop who might see their customers every month for a year, so their frequency is 12.

Just getting your customer to buy from you more regularly will drive growth.

Bonus tip: if you only sell on a frequency of 1, if you can move that to 2at a similar price point, you double your business revenue with no new leads.

5. Average transaction value $

Average transaction value is showing you on average the value of an invoice/receipt. This applies whether you are in a service-based business and issue invoices, or retail/hospitality and put each sale through a cash register/merchant facility.

One of the seven ways to grow is to increase your average transaction value. This can come in different forms.

A perfect example is a fuel service station – you go there to buy fuel, but the store is full of drinks and chocolates and chips and coffee and ice cream to tempt you to increase your transaction value. Plus they make good profit margins on these items.

I see many businesses under-pricing and this presents an opportunity to review and adjust prices to increase revenue and profitability.

6. Cost of sales

To make each sale there is usually a direct cost involved, eg. if you run a computer store and sell laptops, you might sell them for $2,500 each, but they cost you $1,500 to purchase. The $1,500 is a cost of sale – you have to buy it from the manufacturer/wholesaler to be able to sell it.

For a professional service business, the cost of sales are their fee-earning team’s salaries/wages. For example, when accountants and lawyers do billable work for a client, there is the cost of their salaries to factor into generating client fees.

One way to grow the profitability of a business is to reduce your cost of sales. Can you save on freight and storage? Could direct labour be made more efficient through processes and technology? Can you get a discount when buying inventory/stock in bulk? And so on.

7. Reduce overheads

The last of the seven ways to grow is to reduce business overheads, things like telecommunications, rent, light and power, subscriptions, etc. Identifying wastage in your overheads is a quick way to improve profits.

Important to keep in mind here is that business is a game of investing, you need to spend to grow and run a business so you cannot have zero overheads.

An example is marketing. Your business may rely on marketing to attract new leads and nurture existing clients, so marketing is an important expense and can’t be cut off. But, it can be reviewed to see if all marketing spend and activities are generating a sufficient ROI. Maybe you see that trade show events are not converting well, but your digital marketing efforts are carrying the bulk of your marketing ROI. Knowing this, you can make a more informed decision on where you spend your marketing budget.

An example of wastage might be subscriptions. You might have signed up to many online programs and software paying monthly subscriptions. Individually they may not have high monthly fees, but all added together the numbers grow.

Something else I have seen during and post COVID is rental expenses. Many business owners are reconsidering whether they actually need an office/factory of similar size or whether they can move back home, to a smaller premise or to a co-working space.

Wrap up

So there are the seven ways to grow any business: retain more customers, generate new leads, convert those leads into new customers, sell more frequently, sell at a higher average price, reduce your cost of sales and cut back overhead wastage.

An important insight is that you don’t need to action all seven. In fact I would encourage you to only pick one or two to focus on. Model your numbers and see what changing one or two drivers can do for future performance. Just like that, you have the start of a growth plan which when matched with an action plan and some accountability will really make things happen.

I have a profit improvement model I work through that focuses on the seven ways to grow and identify profit improvement potential. Even if you aren’t clear on what your numbers are right now, how to track or measure or estimate them or what you would like them to look like, get in touch.

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