The 3 levers of business growth in 2016

by | Jan 7, 2016 | tools

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Did you know that the revenue of your business in 2016 can be boiled down to a three-part formula?

The exact formula you can use to hit your 2016 revenue goals has only three parts.

In simplicity, there is power.

With only three things to worry about, you know what you need to do to move the needle. Improvement in any one area will amplify your efforts in the other two.

Let’s get down to business and make 2016 the best year ever.

The exact formula you can use to hit your 2016 revenue goals.

Traffic x Conversion rate x Annual Value of a customer = 2016 Revenue

That’s it. This formula will determine how much money you make in 2016.

Let’s break it down and see what an improvement in any one area will do, then we’ll look at the exponential power of improvement across the board.

You may be surprised at the results.

Traffic

Traffic is the amount of people that visit your site this year. As long as your conversion rate isn’t zero, a substantial increase in traffic will increase sales.

There are a million ways to increase traffic, and all different types of traffic including paid, organic, referral, and even in person traffic. For now, just remember that this is one of three levers driving your business.

Let’s assume your conversion rate is 2% and you make $1,000 per sale. Let’s say you get 10,000 visitors a year to your site.

.02 x 1000 x 10,000 = $200,000/year in revenue. 

Now let’s see what happens when you increase traffic by 25%

.02 x 1000 x 12500 = $250,000. An increase of $50,000/year

Conversion rate

Conversion rate is traffic’s relation to sales. If you make one sale out of every 20 visitors, your conversion rate is 5%. If you make 15 sales for every 100 visitors, it’s 15%.

Easy enough.

Increasing your conversion rate is one of the highest value activities you can undertake. The beauty is, a 1% increase in conversion rate isn’t intimidating to accomplish, but it can make a huge difference in your bottom line.

Let’s assume your conversion rate is 2% and you make $1000 per sale with 10,000 visitors/year.

.02 x 1000 x 10,000 = $200,000/year in revenue.

Now let’s see what happens when you increase conversions by 1%

.03 x 1000 x 10,000 = $300,000. An increase of $100,000/year

That’s an additional one-hundred thousand dollars in revenue for the year as a result of a 1% increase in conversions. Not bad.

Annual value

The third driver of your 2016 revenue is the annual value of your customer. In the above example, we assumed that each customer makes a $1,000 purchase on their first sale. If you increase this value using up-sells, cross-sells, or repeat sales you can make a big impact on your business.

Let’s say your conversion rate is 2% and you make $1000 per sale with 10,000 visitors per year.

.02 x 1000 x 10,000 = $200,000/year in revenue.

If you can add an additional product or service for another $1,000, and 25% of your customers take you up on the offer, you have increased the value of a customer by $250.

.02 x 1250 x 10,000 = $250,000.

Now that $200,000 in the above example turns in to $250,000 for the year. All by offering your current customers something they already need.

How to more than double your 2016 Revenue

This could be your revenue. Skyrocketing.

This could be your revenue

You can see that an improvement in any one of the three levers will make a substantial impact on your business. Now just imagine what will happen if you can improve all three!

In the above examples, our base income started at 10,000 x .02 x 1000 which would be $200,000.

Let’s see what happens we have a 1% increase in conversion rate, a 25% increase in the value of a customer, and a 25% increase in traffic.

(All perfectly realistic improvements for your business this year).

12500 x .03 x 1250 = $468,750

Wow.

We have more than DOUBLED our annual income by making incremental improvements in each of our three levers.

How much traffic do you need this year to hit your goal?

We’ll focus on one variable – traffic – to forecast earnings, but you can choose any of the variables and apply this formula as a starting point. Remember, if you can approve all three, the improvement necessary in each variable in order to reach your goal will decrease.

How to calculate 2016 traffic

Bust out your calculator

Bust out your calculator

Hopefully, you already know your conversion rate and the annual value of a customer. If not, go back and figure it out.

The conversion rate is simply the number of sales made last year/ the amount of traffic.

If you had 80 sales last year, and 4,000 visitors to your blog, your conversion rate is 80/4,000 = 2%

Now look at the total revenue last year and divided it by the number of customers.  Assuming each customer only bought once, you can divide by 80. This will give you the average $/customer for the year.

If your revenue was $100,000 your annual revenue per customer is 100,000/80 = $1,250

Great, now the only variable left is traffic.

Set your goal.

Get out some paper, and do this now

Get out some paper, and do this now

If your revenue goal for the year is $250,000, plug it into the equation.

T x $1250 x .02 = $250,000

Think back to your middle school algebra class and solve for T.

T = 10,000 visitors

That’s 28 a day.

You can do it.

Now you have a specific, measurable traffic goal that’s going to get you to your revenue goals for 2016.

Not so scary, huh?

A lot better than randomly doing marketing here and there, and trying to figure out why things are working out.

The beauty of this formula is that you can tweak any one of the variables and see an exponential improvement.

Now you know the average points of your business, and you can focus exclusively on these 3 variables to drive revenue higher.

So how do you actually increase traffic, conversion and LTV of your customer?

Keep your eye out for the newsletter each week. I’ll cover each lever in detail, and show you how to get the biggest result for the least amount of effort.

If you want to talk about how to maximize each of the three levers in your business, sign up for a free thirty-minute ProfitFox strategy session, and we’ll walk through each lever of your business together.

We’ll come up with a plan for you to make 2016 the best year ever. If you feel comfortable implementing yourself, go ahead and get it done! If you need some help, that’s ok too. We’ll discuss options for ProfitFox to take your business to the next level.

Either way, it’s risk-free, and the strategy session won’t cost you anything.

What are you waiting for?

To your success,

Christian