HOW TO EFFECTIVELY CONTROL YOUR BUSINESS GROWTH

Successful businesses control their business well. Effective controls not only ensure that you have a profitable and growing business - they also allow the business to successfully operate without you having to be there all the time.

While you need to “systemise” your business so that procedures are in place for all your business processes, you also need the appropriate control measures in place so that you can confidently delegate and still maintain effective control over your business.

What You Need To Measure

Here, we will assume that all of the standard financial reporting is already in place – Income Statement (P&L), Balance Sheet, Cash Flow – as well as the key related areas such as debtors, stock and expenses.

While these are all important measures, the focus of this article is on the key drivers of profitable business growth – as many of these are less commonly measured and extremely powerful. Frequent and regular measurement of these factors provides an owner or manager with a clear picture of what is really happening in the business and where additional focus is needed to make a real impact on profitable growth.

The key drivers of profitable growth for most businesses are:

1. Sales Inquiries

This is the number of people who walk into your shop, phone calls, emails or other forms of prospective customers contacting you. (It is also important to record inquiries by their source. ie what prompted the sales inquiry)

2. Conversion Rates

Also referred to as the closing rate, this is the average number of sales inquiries it takes to make one sale.

3. Order Value

The average value of orders (or sales) for your business.

4. Order Frequency

The average number of times a customer purchases from you each year.

5. GP%

The average gross profit expressed as a percentage of the average sales value.

6. Referrals

The average number of referrals received.

7. Customer “Lifetime”

The average number of years that a customer continues to buy from your business.

By tracking these factors regularly and examining the trends, at least one of these factors is likely to stand out for attention and allow you to direct your efforts where they will have the most impact on profit growth.

For example, if you currently convert only 1 out 10 inquiries into a sale, imagine the effect on your profit if you could improve the conversion rate to just 2 out of 10. Your profit will double. In this case, it would therefore make sense to divert some of your advertising budget to sales training – at least until the Conversion Rate improves to a more satisfactory level. (If your conversion rate is 1 out of 10 (or 10%), that means 90% of your advertising is actually being wasted).

Similarly, if the Order Frequency is lower than it should be, you may be better to reduce your spending on advertising to attract new customers and spend more on getting existing customers to buy from you more often.

While these are only a few examples, you can now imagine the impact even a small improvement in each of these factors would have on your bottom line. So if you aren't measuring the key profit drivers for your business already, you should now see the real power of doing so.