Optimizing Your Business for Maximum Profit
You may have heard of optimizing photos or search engine optimization, but have you heard of business optimization?
Optimizing photos is about making subtle changes to the image that produces the best quality photographs.
Effective Search Engine Optimization is about making subtle changes to your website pages. Those changes cause search engines to serve up your website page in the top positions, when triggered by certain keywords, which are searched for by users in a search engine, such as Google.
Business optimization is about making changes to different areas of your business, which allows for greater profitability. So the question becomes, “What areas of my business do I focus on for effective optimization and hence greater profitability?”
The fact is, most businesses operate using sales and marketing tactics, and not strategically. In addition, many business owners do not have a measurement system in place. Metrics are a vitally important aspect of monitoring and running your business. As the saying goes, you cannot improve what you do not measure.
Good metrics are fundamental and enable you to measure how well your business is performing. When you make changes, you can measure the impact that those changes have had on your business. You can adjust your course according to the feedback your metrics provide.
One of the key questions that should pervade your thinking is, “How I can measure the outcome of what I’m doing or about to do.” In other words, “How can I add this to my metrics to monitor performance?”
I believe that one of the primary reasons many business owners don’t have metrics in place is because it takes time. Another reason might be that some business owners just don’t know how, but it is something which can be easily learned.
No Metrics Means You’re Flying Blind
You would never get into a vehicle as a passenger if the driver was blind folded. Even with evolving technology, you would be a bit apprehensive and may opt out of the road trip. Using a GPS or map helps you determine whether you’re on course or not. Likewise, good metrics are like a navigation system that measures whether you are on or off course as well. Without them you are “flying blind.”
Staying on course means more profits, while remaining off course can lead to frustration, even if there is no financial loss.
What Should You Measure
If you are just starting a business, these metrics may not immediately apply, but should be in place as you move forward. If have been in business for a few years, there are some fundamental takeaways that can help you grow your business. With that being said, let’s look at some basic metrics in the form of questions:
1. Do you know how many active customers you have and their names with full contact information?
2. How often do your customers buy from you?
3. What is your average sale?
4. What is your best selling product or service?
5. Do you have last transaction dates for each of your customers with the product or service they purchased at your disposal?
6. How often do you communicate with with your customer base with non-sales messages?
7. What methods do you use to communicate with your customer base?
I am certain you can see the importance of knowing the answer to these preliminary questions. It really doesn’t matter how grand your technology or business plan, if you do not continually ask these questions and monitor them closely you are at great risk of leaving money on the table and lots of it.
Here are three fundamental questions you must know the answer to at the very least:
1. When was the last time each customer purchased from you?
2. How often does each customer purchase from you?
3. How much did the customer spend?
Stated differently as a formula it would be: Recency, Frequency and Amount.
From these questions you can determine several important points. The more recent a transaction, the more likely the customer is to purchase again. Psychologically they are primed and statistically this has been proven time and time again.
If the answer to the frequency question is once, twice or not that often, this means you have an opportunity to up-sell additional products and services. It also means that you can put together a recurring revenue stream by offering a monthly products or services. This could take various forms, such as, digitally delivered product or maintenance fees.
In terms of the Amount or how much a customer spends can help you assess their ability to spend even more on higher priced products and services you have available or could create.
In closing this blog post, it’s important to note that many entrepreneurs start off adhering to some of these basic fundamentals and then seem to forget them along the way. These questions will help you create a profile and segment your “database” of customers. It will enable you to put together a solid plan in growing your business strategically. As I learned from Jay Abraham, there are really only three ways to grow any business: Increase your customer base, increase the frequency that they purchase and increase the amount that they purchase. Altogether, you can grow your business geometrically and reap huge profits in the process.
It would be great to get your feedback, so please leave a comment below.
To Your Success!