“I need to make more money from my business! I need more customers! If I double my marketing spend everything will be great.”
But will it? With grand financial gestures comes greater financial risk; If we spend a great deal on marketing there is no guarantee it will bring in more business and if it doesn’t work we may have sunk a great deal of money into it for no gain; if it does work we create a need for more working capital to service the sales!
So what has this got to do with small change?
I’m not talking about the stuff that jangles in your pocket, although in some ways that comes into it as well.
The power of small change is about the positive impact on your business of making small improvements to the way your business works and how this does not increase your financial risk the same way. Each one in isolation makes a small difference to the fortunes of the business, often in itself not sufficient to get excited about, but when a series of these are combined they create a powerful alliance the result of which can be of significant benefit.
So, let’s let you into a little secret.
There are really only five ways to make more money in your business. Each of those can contribute to a great business, but in themselves they can only contribute so much. The tendency is for business owners to focus on just one of those ways to the exclusion of the rest, so they are limiting the amount of improvement that they can achieve and often increasing the level of risk they are taking.
Let’s focus here on what we’re trying to achieve. We want to make more profit. OK, I know elsewhere I’ve said that Cash is King, and that what we really want to chase is good cash flow, but assuming for the benefits of this discussion that our cash management is good (see our previous article Smart Cash Flow Management), we can’t increase cash unless we’re making a profit.
Let’s think through the five elements of running a business over which we have control:
Number of leads – we can control the number of leads we generate based on the amount (and quality) of the marketing activity we undertake. You can’t win the lottery without buying a ticket; if you don’t do the marketing activity you don’t create leads, which means nobody is interested in buying what you are looking to sell.
Conversion rate – once we have a lead interested in buying from us, how we address the lead and show him that he needs what we have to offer (ie how good our sales process is) will govern the likelihood that he will buy from us. The better we are at this, the more of our marketing spend will turn into real sales.
Average Sales Price – It’s very simple, before we start making a profit we have to cover all of our costs, so pricing our product or service correctly is really important to how much of the revenue stream results in profit.
Frequency of Sale – Having won a customer, the more frequently he buys from us the more money we make without having to find yet more customers (it’s easier/cheaper to sell more to an existing customer than to find a new one)
Costs – Every penny (small change again!) spent on costs and overheads is a penny less profit.
My point then is this; if we make a small improvement in each of these five ways, and compound up the result, we will make more profit while taking much lower risks.
Now say hello to a profit increase of 61%!
Now that’s the Power of Small Change! If you don’t believe me, check out the maths; and imagine if you made improvements like this in each area every year over a 5 year period. How much could your business improve by?
Of course, before you can make those improvements, you have to know what your numbers are now. If you’re not sure how to determine what these numbers are in your business, or if you don’t know how to measure or improve on them, then why not let us show you how we can help?