As a Business Coach I regularly meet with business owners to see what actions they could take to increase profits. Someone recently asked, “How do you go about it?”. It’s not easy to explain, there are too many variations and it’s one of those things that I just know how to do after years of experience and training.
However, let’s see if I can cover some of the fundamentals so that you can diagnose and improve your own business.
The first question to ask is what are your goals? See my earlier article “Where will you be in 5 years?” for advice on setting goals. You need to have clear goals!
Assuming the goal is “more sales” – which is what most people initially tell me – then the diagnosis can get more precise. So here are some questions to ask yourself:
- How many leads are we receiving per month?
- What percentage of the leads are we converting to sales after 1 month and after 6 months?
If you know the answers I’ll be impressed, because as fundamental as this knowledge is to your business, most people have never tracked their results.
Do you need more leads?
Imagine that you found out you were getting 100 leads per month and after 6 months you’d converted just 5 of them into sales. That would be a 5% conversion rate and could indicate one of two main possibilities:
a) The quality of leads is relatively poor
b) Your ability to convert the leads into sales is relatively poor
Either way, I wouldn’t be advising a doubling of the marketing effort to get 200 leads per month, because that would probably be very expensive and hard to do, compared with the alternatives. The main alternatives would be to refocus the marketing so that you get better quality leads, or to focus on the sales process and the sales skills to close more of leads. And remember that if you can improve from 5% to 10% you’ll double your sales and most likely more than double your net profit!
Another common scenario is that, for example, the number of leads is 10 per month and after 6 months all 10 have converted to sales. This would suggest a choice of two actions: either the price should be increased, or that you do need to generate more leads. If you’re converting more than 80% of the leads I would always look at when the prices were last increased and would expect to increase them. And assuming that the business has capacity to handle more than the current level of sales, I’d be looking at how to generate more leads.
There are lots of ways to generate more leads – about 90 ways actually – so I’d start looking at which ways have been tried and which are likely to work for your kind of business. Once you know how many leads you’re generating and what your conversion rate is, you will start knowing the important questions for your business. You might now need to ask “How do I improve my conversion rate?”, or “How do I improve the quality of leads we generate?”, or “How do I generate more leads?”.