The Numbers Game
Understanding Your Numbers: The Key to Growing Your Business
Growing your business is simply a numbers game. Marketers might dress it up in fancy terms, but at its core, it's about understanding three main metrics:
➊ Your average product or service price
➋ The number of people exposed to your business each month
➌ How many of those become customers (conversion rate).
While there are countless nuances and other inputs involved, these three pillars form the foundation of your growth strategy.
The Basics of Business Growth
Product/Service Price: The price at which you sell your product or service directly impacts your revenue. This is the most straightforward metric, but it’s essential to strike a balance between being competitive and maintaining a healthy profit margin.
Number of Monthly Visitors: This refers to the traffic your website or physical location receives. More visitors generally mean more potential customers. However, if your traffic is already high, it might be more cost-effective to focus on improving your conversion rate rather than increasing traffic further.
Conversion Rate: This is the percentage of visitors who take a desired action, such as making a purchase. A small increase in your conversion rate can lead to substantial revenue growth without the need for additional traffic.
Diving Into the Numbers
Let’s break down an example to see how these metrics work together. Imagine your business currently has:
A product price of $100.
10,000 monthly visitors.
A conversion rate of 2%.
Your current monthly revenue would be calculated as follows:
Revenue = Monthly Visitors x Conversion Rate x Product Cost.
So, in this case:
Revenue= Monthly Visitors 10,000 x conversion rate 2% x product cost $100 = $20,000
Now, suppose you manage to increase your conversion rate by just 1%, bringing it to 3%. Your new revenue would be:
$30,000.
That’s a 50% increase in revenue, achieved by improving the conversion rate by a single percentage point. Most likely this would be FAR less costly that boosting the traffic by 5000 (for a total of 15000) to make the same $30,000. In many cases just adding an AI Chatbot optimized for capturing leads can increase conversions far beyond a 1% bump. Think about that!
That said, if a business is only getting 50 vists per month, boosting conversion rate isn’t going to do as much. We need to work on traffic first (or most likely concurently with conversion rate optimization).
The Nuance: Beyond the Numbers
Of course, growing your business by optimizing the numbers can be a little nuanced. Consider the holistic experience you provide to your customers. Here’s an example:
Imagine you run a car mechanic service. Typically, you repair cars and return them to your customers. But what if you went the extra mile? Wash and detail the cars at no extra charge. This small act of service can significantly boost your word-of-mouth referrals (conversions) and online reviews.
Customers are likely to leave glowing reviews about the unexpected service, improving your online reputation and SEO. This enhanced SEO then leads to higher monthly visitors, creating a positive feedback loop.
Let’s put this into numbers:
Suppose the extra service boosts your word-of-mouth referrals by 10%.
This leads to a 5% increase in monthly visitors due to better SEO and positive reviews.
Consequently, your traffic increases from 10,000 to 10,500 visitors.
The average service cost is stays of $100.
Your conversion rate would most likely see a bump too from increased word of mouth and higher numbers of Google reviews. If the conversion rate is now 4%, your new revenue would be:
Visitors 10,500 x conversion rate 4% x service cost $100 = $42,000
A $12,000 increase from the previous $30,000, demonstrating the exponential impact of small improvements.
And think about this. Some metrics, such as improving SEO can compound month after month. You’re not just getting a one time 5% bumb in traffic.
Understanding and optimizing the core metrics of your business—product price, visitor numbers, and conversion rates—can lead to substantial growth. While these numbers provide a solid foundation, integrating exceptional service and customer experience can amplify your results, creating a cycle of positive feedback and continuous improvement. Remember, even small changes can have significant impacts, so keep analyzing and adjusting your strategies to stay ahead in the game.
