Monday, June 26, 2006

The Drivers of Business...

What creates turnover? Sales? Customers?

Well if you breakdown how turnover is calculated you will find:

Turnover = # of customers x # of transactions per customer x $ spent per transaction.

So if you have 2000 customers each purcasing from you twice per year and spending $100 per sale you would have a turnover of $400,000 - not a bad business.

So what would happen if you were able to increase each area by 5% - just 5%.
Thats 2100 customers each purchasing 2.1 times and spending $105. Thats a $463,050 - an increase of 63,050 or 15.76%. So by increasing the business drivers by only 5% your turnover will grow by over 15%.

Ok so how do you actually grow those drivers..

Well most people focus on growing the # of customers by simply advertising... By often forget about the other drivers...

You can increase the number of transactions by putting in place a frequent buyers system like subway's stamp club..

You can increase the # of items purchsed by following McDonalds and simply asking 'would you like fries with that?'

You can increase the $ spent by again following McDonalds asking 'would you like to supersize that order?'


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