The Numbers to Know to Grow Cash Flow

The Numbers to Know to Grow Cash Flow

SHARE

One of my main business mantras is ‘Know Your Numbers’, and because numbers are the language of business, it’s numbers that will ultimately determine your success.

Business is literally a numbers game, but what numbers should you know?

Here are seven metrics that will give you predictive results you can measure and manage for more sales and bigger profits.

1. The lifetime value of each customer.

While there are more complicated formulas to determine this value, this simple version will give you a start:

If your average customer spends R200 per purchase, buys three times a year and stays with your business for five years, the customer’s lifetime value to your business is R3 000.

(R200 x 3 sales = R600; R600 x 5 years = R3 000).

 

Entrepreneur-Newsletters
Entrepreneur’s daily tips & insights delivered direct to your inbox.

Now you have a working understanding of the worth of each customer and the types of resources you need to acquire and retain them.

2. How much it costs to acquire a new customer.

I call this your Cost Per Acquisition, or CPA, and it can help determine how much you spend on any marketing or ad campaign.

Let’s say you’ve placed an ad in your local paper for R2 000. You get 20 responses and ten sales.

The acquisition cost for each customer is R200 (R2 000/10 = R200).

If your offer results in at least R200 in profits on every sale, you’ve run a successful campaign. But if your CPA is R200 and you have little or no profit, or are acquiring customers at a loss, it’s time to re-evaluate your marketing.

3. Conversion rates.

Let’s say you hand out flyers to people on the street. The campaign generates 1 000 leads over a two-week period, and 100 of those leads buy. Your conversion rate is 10% (1 000 leads/100 new customers = 10% conversion rate).

Too low? Nowhere to go but up. Tweak flaws in your sales process, increase customer service, narrow your target or create a better offer.

Knowing where you are is half the battle in getting to where you need to be.

4.  Your average rand sale.

The value of each sale is important if you’re looking to generate repeat business or up-sell – in other words, the ‘Would you like fries with that?’ strategy.

Simple ‘add-ons’ can add-up quickly. For example, a deli offering premium sides and bottled drinks increased its average sale from R50 to R130 with a simple ‘up-sell’ script that increased overall revenue 144% within a few weeks.

5. Response rates.

Conventional direct mail response rates will vary from 1% – generated by using lists from a list broker – to up to 5% – generated by using a ‘warm’ list of current or past customers.

Online email response rates are generally about 0,1%. That means, to get 50 responses to a conventional direct mailing, you’ll need to mail to a minimum of 5 000 names with a great offer.

To get 50 responses from an email campaign, you’ll need at least 50 000 names, knowing not every response will end in a sale.

6. Lead-to-sale-ratio.

If you’re in a business-to-business, professional services category or have a long-term sales cycle, your lead-to-sale ratio will give you an idea of the audience you’ll need to target to actually close a sale.

Say your insurance business needs ten prospects to generate five meetings to produce one client. To get 1 000 clients, you’ll need to prospect 10 000 people.

If your conversion rate is 20%, you can add value, guarantees or other ways of reducing real or perceived risks to increase your conversion rates to a 5:2 or 5:3 ratio.

7. Touches to sale.

How many contacts or touches does your prospect need before they buy? The general rule of thumb in sales is that:

  • 2 % of sales are made on the first contact/touch
  • 3% of sales are made on the second contact
  • 5% of sales are made on the third contact
  • 10% of sales are made on the fourth contact
  • 80% of sales are made on the fifth contact.

It’s generally accepted that on average, you need at least four to seven touches for a sale. So when should you stop touching? When you’re asked – otherwise, you never know when the timing is finally right for a sale.

Knowing your numbers and what numbers to know in the first place greatly empowers your decision-making, and helps you better predict how your business will fare.

If you do your numbers and discover you need a 10 000 person database to get 1 000 customers, your marketing plan is pretty simple: Get a list and an offer, then track and convert your results.

Hitting the Numbers? Your Business Could Still Be Failing. Here’s Why

Brad Sugars
Brad Sugars is a startup expert and the writer of 14 business books including “The Business Coach”, “Instant Cashflow”, “Successful Franchising” and “Billionaire in Training”. He is the founder of ActionCOACH, a business coaching franchise.