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The Numbers to Know to Grow Cash Flow

7 simple numbers to grow your business

Brad Sugars

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Brad

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).

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.

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

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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.

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Cash Flow

Entrepreneurial Balancing Acts with Debt

Young South African entrepreneurs face many challenges when it comes to debt-related financing. Small and medium enterprise (SME) owners typically require extensive debt financing from bank and non-bank lenders.

Harald Merckel

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Young South African entrepreneurs face many challenges when it comes to debt-related financing. Small and medium enterprise (SME) owners typically require extensive debt financing from bank and non-bank lenders. Unfortunately, many South African entrepreneurs are limited in their ability to access capital markets. Among others, the major challenges facing entrepreneurs include lack of credit history, no collateral, shaky credentials, and unformulated business plans.

Regardless, SA entrepreneurs are forging ahead and using multiple resources at their disposal such as payday loan providers, non-bank lenders, family and friends, crowdfunding and other economic empowerment initiatives to raise the necessary seed capital for investment purposes. Given the staggering unemployment rate in the country (+25%), the only way out for many people appears to be entrepreneurship. The 2008 global financial crisis threw the economy for a loop, and now the hopes and dreams of many South Africans hang in the balance.

Related: Every Tough Choice Has Management Debt – Are You Accounting For Yours?

ISM Study Sheds Light on SA Entrepreneurial Pros and Cons

An intensive study conducted by the University of Cape Town’s Unilever Institute of Strategic Marketing (ISM) found that the country is experiencing ‘a crisis of aspiration’. Simply put, many South Africans are struggling to attain their career objectives in an economy that has been ravaged by corruption, mismanagement, and scandal. Despite tough economic times, South African entrepreneurs are determined to try their luck. Pressing challenges in the form of rising unemployment, and an economy mired in failure are challenging entrepreneurs to be more inventive than ever before. The most volatile component of the economic spectrum in South Africa is the middle class.

Many South African families have lived the high life, or ascended the rungs and then been knocked down a peg. This instability is creating added volatility in a country where high crime, mismanagement and political rancour pepper the scene. For many entrepreneurs, any access to credit is a godsend. Banks and non-bank providers offering personal loans, business loans, or credit card funds invariably expose themselves to debt default. For entrepreneurs, it’s important to know where to draw the line. Access to lines of credit in a crippled economy is significantly more valuable than the equivalent access in a developed economy.

How to Know when you are Overstretched as an Entrepreneur

Debt is considered a prerequisite for investment purposes. Most South Africans simply don’t have the necessary capital to start up a high-tech venture, fund a new business, or conduct marketing and advertising activity. As such, lines of credit are increasingly being used to propel business activity among SMEs – both in the formal and the informal sector. However, once debt reaches untenable levels, the tough questions need to be asked. For example, if multiple loans and multiple payments are required monthly, revenue streams need to be evaluated against expenses to gauge whether this is a feasible status quo.

Related: How To Handle Your Post-Holiday Debt

Many entrepreneurs find it difficult to manage multiple loans simultaneously, although it is necessary to acquire the capital from multiple sources. One of the ways to deal with these types of exigencies is a single loan from a low-cost lender in the form of debt consolidation loans. Simply put, these loans are provided by bank or non-bank lenders at lower interest rates than the prevailing interest rate on other lines of credit. By taking out a debt consolidation loan, the entrepreneur has more disposable income over time by not paying the higher interest on credit card debt.

Escape Debt Before Debt Consumes You

There are several other ways to know when your personal financial situation has reached critical mass. For starters, the nature of your business may require you to continue dipping into lines of credit to maintain business operations. If you don’t have the requisite discipline to stop indebting yourself, you may not be able to get out of debt. Debt consolidation is only effective insofar as you have the necessary discipline to put an end to debt financing of all business-related activity.

Credit should be used sparingly, and profits should be generated to allow your business to prosper. In a tight economic climate, costs are the bugbear that need to be attacked. Lavish trappings are unnecessary for business functionality – modest budgets, and high-quality goods and services are far more effective than window dressing at a premium.

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Cash Flow

How South Africa’s Small Businesses Plan To Invest Their Money In 2018

Here are their five areas they should focus their attention on in the next year and beyond.

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Despite economic uncertainty, South Africa’s small businesses are positive about the future. In fact, our State of South African Small Business report reveals that 40% of small businesses are expecting to grow. However, to achieve growth without overextending their limited resources, small businesses need to invest wisely.

Here are their five areas they should focus their attention on in the next year and beyond.

Marketing

When times are tight, companies typically reduce their marketing spend. This isn’t the case for 36% of South Africa’s small businesses. These respondents recognise marketing as a critical investment area.

They’d rather make a concerted effort to grow their customer base, than sit still and do nothing as consumer demand declines.

Related: What To Consider When Investing Your (Hard-Earned) Money

Technology

Without access to the latest technology, business growth can quickly stagnate. This is why 23% of South Africa’s small businesses plan to invest in up to date equipment, whether that be new machinery, mobile devices or computers.

The right investment in this area can give a business a real competitive advantage.

It can help boost profits and improve operational efficiency – both of which can help a small business withstand difficult economic conditions with greater success.

Product development

Consumers are spoiled for choice. Their needs are constantly changing and companies can’t afford to become complacent. To keep up with market demands, 22% of small businesses plan to invest in product development. Barring a few timeless classics, most products need a regular review and tweak to stay relevant and popular.

Technology

technology-south-africa

Digitisation is transforming business functions across the board. Technologies, like cloud software can take care of laborious administrative work.

Related: How To Make Money Investing, According To Ashton Kutcher

This liberates employees from time-consuming tasks, enabling them to focus on more strategic work like customer retention and acquisition.

Technology has the power to improve productivity and efficiency. Which is why 18% of small businesses are going to focus their investment plans on this area of their businesses.

Customer service

The customer should always be the priority. It doesn’t matter how good a product is, if there are no customers, then there’s no business. As competition increases, the user experience becomes more and more important to win over customers.

Business growth depends on happy customers and to achieve that, 18% of small businesses plan to invest in delivering better service.

All five of the above business areas are worthy investment focuses. The question is, how does a small business work out what to invest where? The only way it can invest effectively is with a full view of its company finances. A small business needs to be able to see which functions have provided the best return on investment to date.

Related: 12 Millionaire Habits To Start Making Serious Money Soon And Build Wealth In A Hurry

It also needs to consider how much investment capital it has to spend. What’s more, before it makes an investment in say, marketing or product development, it must know exactly how and where the money needs to go.

The right software can help a small business access the real-time insights it needs to make better, faster financial decisions. To combat increased competition and market uncertainty, South Africa’s small business owners need access to up-to-the minute information from any device no matter where they are. An informed investment has the greatest chance of success.

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Cash Flow

The Simple Way To Pay Wages When Your Staff Don’t Have Bank Accounts

If you have employed casual workers over the busy season, you can pay wages even if they do not have bank accounts.

Absa

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At Absa Business Banking, the things that are important to you are just as important to us. We understand your business needs, which is why we have developed tailored solutions to help you where it counts. Take CashSend Plus, for example. It is a payment solution that enables you to pay workers even if they do not have bank accounts.

Related: Hiring Your First Employee? 5 Things You Need To Know

It is safe and secure

Your employee will receive a six-digit access code and a ten-digit reference number, so that they can verify the transaction. The money is instantly available at an Absa ATM.

You can even pay yourself

We have all lost bank cards or wallets at some point in our lives. What an inconvenience. Well, it is good to know then that you can access cash by sending it to yourself. Now, that is what we call better. 

Related: How Salary Transparency Empowers Employees – And When Not To Use It

Interested?

Please speak to one of our consultants or call 0860 111 123 or visit your nearest branch.

Absa Business Banking 

Do better business. Prosper.

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