Leverage

Leverage is the principle to apply to get ever more with ever less.

What am I saying?

When you start a business, it is not clearly defined. You may have created a Business Plan, but that plan does not fully describe the operation of your business, just an overview. A System Manual or Operations Manual fully describes the operation of your business.

When you started your business, you may have expected to fill in the details of its operation in time. In the beginning business owners tell and show how the jobs in the business should be executed. This can’t go on forever! As the business expands, then more and more of your time will be taken up telling and showing and this means that: firstly, you have no time to perform your own role, and then secondly, you have no time to perform any role except telling and showing, and then eventually the business crashes because you can’t be telling and showing everyone all the time, and you haven’t allowed time for building your business in a sustainable way.

If you are working long, long hours, telling and showing everyone what to do, and spending your time correcting what went wrong, then you need Leverage.

Some Principles of Leverage

Work Once, Get Paid Forever

The principle of Leverage is to do work only once. Write down what you are doing and hand it over to the person who will do it next time. You will need to refine what you have written, but each time the process gets more consistent, and gradually your input ceases to be needed.

You have systemized that task. Well done!

On a grander scale: if you write a book, and it is published, then you have done the task once, and will get paid for it every time someone buys the book.

Ever More with Ever Less

Leverage provides a way in which you can increase the yield from your efforts to get ever more with ever less. Continual refinement, called Kaizen in Japan, yields better and better processes producing better and better results, more and more consistently and efficiently.

Divide to Multiply

We divide tasks and problems up into their component parts to understand how to improve them. For instance, see our 5 Ways Formula in Marketing & Sales below.

Kinds of Leverage

What sorts of Leverage are there?

• Finance & Money
• Marketing & Sales
• Systems & Equipment
• People

Finance & Money

Banks should only lend money to your business when they are sure your business can pay them back. You should only borrow money from a bank when you are sure you can pay them back, and still make money from the deal. The difference between the debt you paid and the money you made is your Return on Investment ( ROI ). The banks ROI is the interest they charged you.

Use money to make money by insuring you always get an ROI.

Marketing & Sales

Some businesses owners set up their businesses, and then wait for customers to turn up. This is the ‘organic‘ way to grow a business. It may seem ethically safe, but the business is likely to run out of money before it is successful, and even more important, your prospects never get the chance to try your products or services because they never find out about them.

We have a 5 Ways Formula that allows us to divide up “I want more Profit” into 8 Steps:

Leads x Conversion Rate = Customers x Average Number of Transactions x Average Sale Value = Turnover x Profit Margin = Profit.

By measuring their figures at each stage, businesses may come to understand where their marketing and sales is weakest, and, by focussing on that step, make big changes to their profit.

Systems & Equipment

Systems have already been discussed. These may be documented ( operations manual ) or automated ( information technology ) to enhance consistency and decrease risk in your business.

Productivity of a business can often be enhanced by having the right equipment. Is there any equipment available that will assist you in selling your products and performing your services? The answer is almost certainly “Yes”. Rent ( for money leverage ) this equipment.

People

People are often regarded as being the business. In the context of my message today, people replace you, the business owner. You can either have yourself, performing all the tasks in the business, and I often find business owners doing just that, sometimes watched by their employees, or you can employ. It seems like a simple choice doesn’t it, but it must be done right to work.

Do you know how?

If you don’t then you are in the same place as most business owners.

Is Leverage Achievable?

First you need cash flow, because Leverage costs money. Once you have cash, then focus on the kinds of Leverage that will generate the greatest ROI. Generally we say, start with Marketing and Sales, then Systems and Equipment, then People, and then, once your business is running smoothly and efficiently, go on to Finance and Money Leverage, when you can get the best rates, such as from shareholders.

In reality most business owners do it the other way around. Speak to me to understand how Leverage can boost the ROI from your business, and where to start.

What is a Guarantee?

A Guarantee or Warranty is an assurance by a vendor to a purchaser that a product or a service will perform, or be provided, in a specified manner. The purchaser is permitted to rely on that assurance, and seek some type of remedy if this is not true, or does not happen.

Why should a business provide a guarantee?

Surely a guarantee leaves the business open to claims that may be made against it?

A Guarantee provides assurance to the purchaser of Value, Experience and Trust.

A Guarantee of Value

Often, a purchaser must take the risk of buying a product or service before having use of, or experiencing, it. The purchaser must trust the vendor with no assurance that the trust will be upheld by the vendor. A guarantee offers the vendor the opportunity to remove this exposure to risk from the purchaser.

What effect does this have?

The purchaser now feels much more confident in spending, knowing that the investment may be returned if the product or service is unsatisfactory.

For example:- Manufacturers are now obliged by law to offer statutory periods of guarantee for their products. The customer is entitled to full repayment of the purchase price, or full repair of the product should a product fail to perform correctly.

A Guarantee of Value works well for products or services that are easily quantified.

A Guarantee of Experience

Many products or services offer the purchaser an experience, rather than something which can be quantified.

How can one judge a haircut?

Not by the length and angle of the remaining hair, or by how much has been removed. The result can only be judged by the customer’s experience.

For example: a money-back guarantee. “If you are not entirely satisfied with your haircut we will refund your money, and give you another free haricut.”

A Guarantee of Experience works really well for experiential products and services that provide an experience, a feeling or quality that cannot be easily measured objectively. There is more risk to the vendor.

A Guarantee of Trust

Are you in a business that relies on relationships, on Trust? Does your business depend more on trust, than on the specification of what is being bought and sold?

Examples of this kind of business include professional and knowledge service businesses such as solicitors, accountants, market researchers, public relationship companies, and so on.

Provide a Guarantee of Trust.

What does this mean?

It means that, in the event of a claim being made, you will do whatever you have to do to correct the situation, so the purchaser can trust the vendor. In reality, a Guarantee of Trust applies to all businesses that value their customers; and all businesses should value their customers.

A Guarantee of Trust works best for businesses that have few high-value customers. These customers are often difficult to recruit, and may then stay for a long time.

This kind of guarantee is much more difficult to define as the business stands to be more exposed to claims. A fair-use policy may be needed to protect the business from over exposure to unfair customers who may use the guarantee as a way of getting free products and services.

You may already have come across this kind of customer yourself: the professional complainer. With or even without a guarantee in operation, these customers are what we call C an D customers, and should be sacked!

How do we create a Guarantee?

Assure whatever you are selling.

Describe it carefully. Ensure that consumable and wear-and-tear aspects of the product or service are excluded. Ensure that the purchaser is correctly instructed in what to expect. Train and educate where necessary. Provide plenty of support, and hand-holding. Include policy statements if absolutely necessary.

How do you know when a Guarantee is working?

Your customers base their decision to purchase on an understanding of their needs alone. Your customers trust you! You have taken their exposure risk away, and transferred it to you.

Remove Risk

And this is the proper place for the risk to be. With your business.

You are the expert at selling this product or service; selling it is your business, so then, why should the risk not be all yours? Surely this should be part of the service you are offering your valued customers. The more complex the product or service you sell, the more important this becomes, because it becomes less and less likely your customers can analyze and understand the risks.

Should I use a Guarantee?

Yes. Absolutely.

• You move one step ahead of any competitors not using a Guarantee.
• It will make you honest about any claims you make of your products and services.
• It allows your customers to complain about faulty goods or services.
• This provides you with an opportunity to fix the problem and keep your customer.
• Many less people than you expect will complain.
• You may adapt your products or services to support better and better Guarantees.
• Your ever improving Guarantee may attract a new target market.

Your Guarantee is not just a marketing concept. Your business must live by it!

Start creating your Guarantee now!

Ask me how I can help you to create a powerful Guarantee using our Guarantee-creation System.

Why do I need a Cash Flow Projection?

Let’s use an analogy to make it clear why having a clear understanding of your business’ Cash position, now, and in the future, is crucial.

If your business was a car, what would cash be in this analogy?

The Fuel.

How far will your car go without fuel?

Cash is the fuel of your business. Without it your business will come to a dead stop.

Even if you have a positive value at the bottom of your balance sheet, your business will still not survive if you do not have Cash. Even if your business shows a Net Profit on your Profit and Loss report, your business will still not survive if you do not have Cash.

“Cash is King!”

Why do I need Cash?

Even if you can purchase product, or pay your team without cash, there comes a limit to everyone’s credit. When this happens you have to go and see your friendly bank manager.

What does you bank manager say if you ask him for money to cover your cash flow?

In a polite word: “No.”

Why?

Because if you don’t have cash flow, how will you repay his loan?

What will he, or your accountant, suggest?

Cut your expenses. Stop spending money on non-essentials. Lay off staff. Stop paying suppliers. Sell assets.

Does this work?

You have to make it work, or go out of business?

What is the alternative?

Create and maintain a Cash Flow Projection ( also call a Cash Flow Forecast ).

What is a Cash Flow Projection?

To create a Cash Flow Projection, first of all produce a Cash Flow Report. A Cash Flow Report lists all your cash inflows and outflows from Operating, Investing and Financing Activities.

Operating Activities

Operating cash flow is the cash inflow from operating activities. It is the amount of actual cash made by a company’s business. It is similar to operating profit but without the non-cash items and accruals.

Investing Activities

Investing cash flow is the cash inflow and outflow from investing activities. It is the amount of actual cash made or more usually spent by a company’s investment in Property, Plant and Equipment ( PPE ). It is similar to the Fixed Assets section of the Balance Sheet.

Financing Activities

Financing cash flow is the cash inflow and outflow from financing activities. It is the amount of actual cash made or more usually spent by loans and investments, and the repayment of loans. It can be derived from several areas on the Balance Sheet and Profit and from the Expenses or Overheads section of the Profit and Loss Report.

Here is an Example Cash Flow

How do I project the Cash
Flow forward?

For every figure that you have entered into
the Cash Flow for the present period, derive a projected or estimated
figure for the next periods. This could be based on:

• fixed income or expenditure,
• your knowledge of expenditure cycles,
• a forward projection based upon cash inflow or
  outflow so far,
• budgeted income or expenditure,
• your knowledge of marketing and sales cycles
  and lead times,
• marketing figures,
• sales figures,
• or something else …

Use a separate sheet to
calculate cash inflows or outflows for each section, and link the
totals into the main Cash Flow Projection sheet.

Here is an Example 6 months

Cash Flow Projection

Once you have the calculations in place to project forward for 1 month, then projecting forward for longer periods often involves only a simple extrapolation.

What next?

Now you can see how your Cash Flow will behave over the next 3, 6 or 12 months, you can begin to plan Marketing, Sales, Operating, Investing, Financing and other activities. You are in charge of the most important commodity in your business, and can plan all other activities in your business in the sure knowledge that you can afford to do them.

How good is that!

Now let’s look at how to grow your business using Cash Flow.

The doom-sayers are still forecasting a double- or even a triple-dip recession. Businesses are still closing, but that happens all the time anyway; we just don’t hear about it much unless there is a recession.

Let’s put this into perspective.

The economy goes through periodic downturns every 10 to 12 years. We’ll survive this one, as we have in the past, and will again in the future. Economic downturns weed out weak businesses. Strong businesses may not only survive, but also place themselves in an enviable position to take advantage of the tremendous opportunities of the economic upturn.

Here’s what to do to ride the economic wave:

1. Be Positive. Get your mind focused on what you can control, and the opportunities that exist. When we’re immersed in so much negative news, it’s easy to get scared. What will happen to me? Turn off the TV. Look for positive influences, and people who take this climate as a welcome challenge, and are looking for opportunities. Immerse yourself in an environment where people are seeking the positives, and you’ll find your mind has more energy and is ready to accept opportunities when you find them.
2. Trim the fat. It’s easy for expenses to creep in over time; now is the time to examine each one. Phone bills, office supplies and insurance expenditures are areas that should be reviewed by outside agencies annually anyway – get that done. Re-negotiate payment terms if possible. Each employee must make a tangible contribution to profit, with numbers you can measure. “Cleaning house” is one of the most difficult things any business owner faces, but realize you’re not doing anyone a favour by keeping them on, if they can’t contribute to profitable growth in the short-term.
3. Stay liquid. Recognise where you are at. If you know your business will cyclically have a negative cash flow, line up financing now, before you need it. Tighten up credit/collection policies. Charge penalties for late payment. Pay off debt entirely, or refinance long-term debt for lower monthly payments.
4. Retain your Customers. Your current clients are worth pure gold. Go the extra mile to retain them.
5. Avoid the recession. Go where the recession is not. Many industries do just fine in a recession, and the folks who are employed there make good target clients:

Recession-proof Industries

• ‘Equipment repairing’ businesses do well when people stop buying new, and start repairing or maintaining what they already have: cars, houses, roofs, plumbing and electrical.
• ‘People repairing’ businesses do well all the time: doctors, dentists, physical therapists, pharmacies, etc.
• ‘Business repairing’ industries also do well: debt collection, business advice, marketing. These have to be positioned properly. Now is the worst time to pull back on business development, systems and marketing.
• Death and taxes never go away. Who are the attorneys, accountants, funeral directors, insurance and energy professionals who need your service or product?
• Stress Management. High stress needs high-stress management: massage, leisure ‘escape’ products or services, therapy, life and health coaching are products people will not let go of in an effort to maintain a sense of togetherness.

We cannot control the economy, but we can absolutely control our response to it! Understand what you can control, and then go do it. Look for the opportunities, and you’ll come through this downturn stronger than before. Use a coach to hold you accountable.

Unique Selling Proposition

What is a Unique Selling Proposition?

The Unique Selling Proposition ( USP ) is a marketing concept first used to explain a unique proposition made to customers that convinced them to switch brands.

It is recognised that most businesses have many almost identical competitors. What happens if a business fails to differentiate itself from its competitors? Usually what happens is that all the competing businesses get a share of the available market spend, based upon basic business parameters such as location and price.

To gain greater market share, the competing businesses must market themselves.

Without uniqueness, the business with the biggest marketing budget wins the greatest market share.

Do you have the biggest marketing budget of all the competition?

Even if you do, do you really want to take this sledgehammer approach to marketing? Be unique in the minds of your marketplace.

Uniqueness does not have to be material, it may be a perceived uniqueness. This is not dishonest. In reality, most people distinguish between businesses, their products, and their services on an emotional level, not using rigid logical parameters.

Neuroscience and psychology teach us that people make decisions based upon their emotions, their feelings, not on logic, because the emotional circuits of the brain short-circuit the logical circuits. In other words, logic only gets a look-in, if emotion lets it. With our time-starved, attention-deficient modern life-styles, very few of us have the luxury of making logical decisions. We just don’t use logic as our primary decision-making faculty!

Why must I be Unique?

Firstly to survive.

Secondly, marketing is changing. More and more, marketing is moving onto the Internet. Most purchases are now made using the Internet, even if it is only for research.

And … most market sectors are now moving a significant percentage of their commerce over to the Internet, so many retail and service businesses have have websites providing the facility to purchase goods online.

And … the younger generation now spends increasing amounts of time on the Internet and especially in Social Media. They now use Social Media as their preferred interface with suppliers.

And … Social Media is interactive. This is a subject for another time.

How does this affect your business?

It is quicker than ever before to get the feel of a business. Your prospects want to find a reason to buy from you in seconds and online. If your uniqueness does not come across in seconds, they are gone, perhaps never to come back. Online marketing professionals reckon that you may have as little as 9 seconds to make that impact.

Those who study even traditional advertising, would agree that it must make its impact in a similar amount of time.

What are the parameters of Uniqueness?

They are all in your customers and prospects minds. You will not find them anywhere else, especially not in your mind!

You must devise ways of getting these parameters out of your customers’ minds and into your business.

Use customer reviews. Ask customers visiting your business, visiting your website. Start a Social Media presence, monitor your sites, and respond quickly and positively to people’s comments.

Many large businesses use Twitter and Facebook as ways to help customers with product, services and support queries in a most effective manner.

How do we generate Uniqueness?

Let’s get right down to it.

Price is not a USP, and with the Internet, neither is Location!

Here are the key words for uniqueness:-

purpose values vision imagination difference risk guarantee positioning change response standards quality choice options bravery relationship service customers speed reliability support safety convenience image assumptions frustrations exclusivity

How do you know when you have become Unique?

Your customers will tell you: “I come to you because ….”.

Keep asking, keep changing, keep serving. Be brave with your changes, and remember that without your customers, you would not be in business. You owe it to them to be the best!

Even if you are in a product-based business, your customers still expect service. Without good service, your products remain on the shelves.

Uniqueness is not just a marketing concept!

It is found anywhere from your marketing to your after-sales or support service, and everywhere in between.

Can you do it all?

Yes you can. You can be unique, provide the best service, and do it at a lower cost than your competitors.

How?

By being the best, attracting the most customers, and having them up-sell themselves out of choice, so although you are one of the cheapest, your customers don’t want the cheaper products or services because they recognise the value of your premium services.

Congratulations!

Steven Sharp of Vividsky uses a combination of Humphrey Sherwood’s coaching and ActionCOACH’s systems to generate a 330% increase in the bottom line!

When Humphrey Sherwood first started working with Steven Sharp,

Steven had taken his business, Vividsky, through a drastic process of downsizing, relocation and cost-cutting in response to the recession. This left him with the massive task of regaining his time and rebuilding his business. Steven has worked extremely hard over a prolonged time to systemize, recruit for, and rebuild his business, taking the very bold step of off-shoring the major part of his operation, to be able to out-perform and out-price his competition, and then to take his business to the next level as a provider of imaginative value in the IT Services sector.

Steven Sharp says that since working with Humphrey Sherwood

We have focused on many aspects of the business but one of our priorities has been the productivity of the business.

As a business owner I was spending all of my time working in the business doing technical support work and I was unable to delegate any of my work to employees because they were all extremely busy and had no available free time. It was clear when I started working with Humphrey that the only way the business was going to grow was if I started spending more time focusing on the business and less time doing the technical work. It was relatively easy to determine what needed to be done but much harder to work out how to achieve this.

The business needed more man hours but this had to be achieved without increasing our costs as we already had low margins. We looked at our systems and procedures and made changes to these but it had very little impact on the real increase in available hours. It became clear to me that the only way to increase our productivity was increasing the number of hours by taking on more staff but this had to be done in such a way that it did not increase our costs. After a review of our staff and salaries it became clear that the best way for us to move forward was to move all of our operational staff to a lower cost centre.

Over the past 6 months we have moved all of our operational staff to a new office in South Africa. The new office has reduced our monthly costs by 8% but has allowed us to increase our available hours by almost 60% by taking on more staff. We are now able to offer longer opening hours and with the additional staff available to handle customer more customer calls and offer a higher quality of service which has meant an increase in our client SLA.

The addition of the new office has allowed us to create a company structure and to define roles and responsibility within the business. With dedicated roles it is now much easier for me to delegate tasks and I have increased the number of hours I am working on the business from 1 hours per week to 1 day.

Opening the office in South Africa and moving all of the operational tasks has allowed other staff in the London office to focus on project delivery and to focus on sales and cross selling (up selling our services) to existing clients.

Increased productive hours by 60% and reduced our monthly costs by 8%.

A 60% increase in productive hours will allow me to generate in excess of 30% more sales revenue. The knock on effect of this can be seen above and is a 282% increase in net profit.

Increased the number of hours to work on the business from 1 Hour to 1 Day

This will allow me to focus on the part of the 5 Ways above the Turnover, and begin to drive real growth into Vividsky.

Improved our Customer Service Ratings and our client SLA’s

The effect this is having is already allowing me to negotiate with our biggest client for an increase in service charge of about 10%. Because of the success of this negotiation, I now have the confidence to roll out this price increase across my client base. This will have the affect seen above of a further increase in our net profit of 150%.

Summary

Taking these two changes together Steven is looking at a total increase in net profit of around 330%!

On a personal note,

Steven’s wife Ceri says Steven is making fantastic progress towards his personal fitness goals making time to do some serious cycling and swimming training. With the new strategies and systems in place, VividSky is on track to run without him, allowing him to enjoy the lifestyle and family time he always wanted.

Further Information

To Learn more about VividSky go to: vividsky.co.uk.

ActionCOACH is the world’s number one business coaching and executive coaching franchise, with more than 1,000 offices in 32 countries.

To learn more about Humphrey Sherwood’s coaching success, go to actioncoach.com/humphreysherwood.

Malcolm Stewart of Kensington Home Technology uses a combination of Humphrey Sherwood’s coaching and ActionCOACH’s systems to generate a 1190% increase in net profit!

Humphrey says Malcolm has

• belief in his vision
• clarity of concept
• clear and direct communication and
• good teamwork.

He thinks clearly, and then acts swiftly and effectively.

When I began work in KHT their turnover had not changed for 3 years. I serve as the catalyst to precipitate and increase the rate of growth in KHT.

Target 1 for our attention was the sales process: KHT’s complex service needs to be sold in a personal manner. We worked on personalisation and presentation of the service. The result is self-evident.

I remember the moment Malcolm’s face reflected the surprise he felt as the figures unfolded.

Malcolm says

Coaching has given me clarity of vision.

The weekly meeting gives me a chance to really think about my business strategy with someone who is so well practised at it. As a result our turnover is up and profits are good.

This has lead me to enjoying my days at work far more, and therefore coming home happy in the evenings.

Action Coach is the best decision I have made at work in the last 6 months.

The Figures

KHT’s Conversion rate is up by 71%. this has resulted in KHT winning 40% more customers in 2011 quarter 1 than in the whole of 2010.

At the same time, the quality of projects won is up, generating a 24% increase in average project value.

Overall the Turnover in 2011 quarter 1 is 39% up on the turnover for the whole of 2011. The Gross Profit Margin has improved by 10% due to efficiency improvements, and the Overheads are only up by 19% resulting in an increase in Gross Profit of 53% in quarter 1 over the whole of last year.

So what was the result overall? An amazing increase in Net Profit of 1090%!

Further Information

To Learn more about Kensington Home Technology go to: kensingtonhometechnology.com.

ActionCOACH is the world’s number one business coaching and executive coaching franchise, with more than 1,000 offices in 32 countries.

To learn more about Humphrey Sherwood’s coaching success, go to actioncoach.com/humphreysherwood

Cost per Lead

What is Cost per Lead?

Cost per Lead is a measure of how much it costs you to gain a Lead for your business?

What is a Lead? A Lead is a person who has expressed an definite interest in your business, such as making an enquiry. A Lead may also be called a Prospect.

How do I calculate Cost per Lead?

First you must Test and Measure. We spoke about this last time.

Measure the number of Leads and the number of new Customers you gain from each Lead Generation strategy you employ in your business. Let’s have a look at some example figures.

What can you conclude from this chart?

These figures are an example only. In this example:-

‘Free’ Marketing

Referrals are free, but you have to Wow your customers with your service. This comes at a cost, but should be done anyway, not just as a marketing strategy, so no charge is applied here.

Cheap Marketing

Walk Ins ( leads walking in off the street ) are cheap, very cheap in this example. The cost of marketing to Walk Ins is the cost of the high street position above that of a location off the high street, and of shop front advertising.

Test and Measure store front marketing.

Expensive Marketing

Events and Advertising definitely need to be vastly improved or discontinued.

To be Worked On

Leaflets, Open Days and Direct Mail should be improved.

Do More Of

Your web site, hand outs and the eNewsletter appear to be working well.

Do more of these, or increase the frequency, and investigate using related methods of marketing.

Success

How do you know when a marketing strategy has worked? This depends on your budget Cost per Lead.

How much gross profit do you make from the average sale? Gross profit is sales revenue minus all costs of providing that sale including marketing and sales costs divided by the number of sales.

How much net profit do you make from each sale? Net profit is the sales revenue minus all variable and fixed costs divided by the number of sales.

Ideally your Cost per Lead budget should be an acceptable fraction of your Net Profit per Lead, but more practically it will be a fraction of your Gross Profit / Lead.

To work this out you need to know your Conversion Rate for Leads.

Successful marketing of your business happens when your Cost per Lead divided by your Conversion Rate is less than the Net Profit from each Sale. This is your marketing target.

Coming Soon

Both Acquisition Cost and Life Time Value have been mentioned so far. It is time to define them.

Acquisition Cost

Acquisition Cost is the cost to your business of marketing to, and selling to a customer; the cost of recruiting a new customer. This is the next step.

Life Time Value

You also need to know how much Sales Revenue and profit you make from the average customer. This is call the Life Time Value.

We will discuss Acquisition Cost next time.

“Test and Measure everything. Make it part of your daily routine.”

Brad Sugars, Founder and Chairman of Action Coach, the World’s Number 1 Business Coaching Organisation

Why Test & Measure?

If you don’t know where your customers come from, you’re really stabbing around in the dark.

You have no real idea which marketing campaigns are working, how well your salespeople are doing or even how much each sale is ‘costing you’.

Once you know these things, you have the power to make decisions, and good ones. You know which marketing campaigns to kill, or improve, and which to invest more money.

You’ll also know where your ‘key leverage point is’: the business variable you most need to improve. Perhaps your conversion rate is high but your leads are few, maybe it’s the other way around. Maybe you’re doing well in both lead generation and conversion, but you’re not selling enough high priced items.

Once you know which area needs work, you can start to make some new, well-informed marketing decisions.

The 3 Most Important Things About Testing & Measuring

1. Testing and measuring is nothing new. You’ve probably been doing it all your business life. Remember the newspaper advertising you tried that ‘didn’t work’, and the radio spots that ‘did okay’. That’s all testing is. It’s about finding out what produces results and what doesn’t, then making decisions based on that.
2. You MUST start asking people where they found out about you. If you don’t, you’ll be in the dark forever. You may keep running an ad that never brings a sale, and accidentally kills a good one. Customers usually come from so many sources, it’s impossible to judge how an ad is working on sales alone. Perhaps you got more referrals that week, or there was a festival in town. Every time someone buys, ask them this question: “May I just ask where you heard about our business?”. No-one, and I mean no-one will have any problem telling you.
3. Be vigilant and disciplined. You can’t test & measure half the time - you must do it every hour of every day. It’s not difficult - just remember to mark down a record after every customer interaction. And make sure all your team do the same. Stress the importance of it and absolutely demand they do it, and tell them it’s essential that they are honest.

The Steps

Step 1

Ask.

Ask customers where they heard about you. If you don’t know what marketing is working and what is not you can’t make informed decisions. Use a lead source tally sheet.

Step 2

Stop, Modify and Increase.

Stop doing what is not working. Use the budget for something else.

Modify marketing that is working poorly so you get more leads.

Add budget to marketing that is working well. Why? Because you are getting a good return on investment. How do you work this out? Ask me.

Step 3

Continue.

Don’t stop now. Continue for another two weeks, two months, or however long it takes to get meaningful information. You need a good sample of information. Some of my clients continue this indefinitely.

Step 4

Check your Conversion Rate.

Is marketing your challenge, or is it conversion ( sales )? What is your conversion rate for each marketing strategy? Do some strategies generate better leads than others?

Are your customers buying on price? If they are, your sales process is not working.

Step 5

Consolidate.

Now you have made changes, continue with these changes so your team can get used to them and consolidate on the new strategies and processes.

Recalibrate your test and measure results.

Step 6

Branch out.

Choose a few more marketing strategies, try these and measure again.

If a new strategy does not work immediately, don’t give up. Change it and try again. Give each new strategy several tries and variations before moving on.

Success

How do you know when a marketing strategy has worked?

1. Work out the marketing costs. What is the ‘acquisition cost’ of new customers for each marketing strategy?
2. Calculate the profit you have made from each sale.
3. Don’t view each customer as a once only purchaser. Calculate the ‘life time value’ of that customer.

The number of leads per strategy becomes less relevant once you know the life time value per lead.

The formula for the successful growth of your business can be measured from the return on investment of marketing and sales like this:-