Why it doesn’t take 100% more effort to Double your business… Using the 80/20 principle.

Why it doesn’t take 100% more effort to Double your business.

I talk a lot to business owners about their business and their goals and aspirations for the coming 12 months. The most common answer I get is “We’d like to increase our revenue by 10 % next year. This is probably the most uninspiring answer I could hear and the reason is this:-

Your Business Revenue (R) is made up of just 3 elements and these are:-

1. Your number of customers (C)
2. The amount that the customer spends with you per transaction (T)
3. The number of times they make that transaction per year (F).

So we now have a nice little equation:-

Revenue (R)= Number of Customers (C) *Customer Spend (T) *number of Transactions per year (F ) or R=C*T*F

So here is an example of how to increase your business revenue by just 10%.

Let’s take a small business with a current annual revenue of $500,000 and have 100 customers spending $2500 twice a year with them.  Then the equation would look like this:-

R ($500,000) is made up of 100 (number of customers) * $2500 (transaction value) * 2 Frequency.

So to get a 10% increase in revenue it works like this:-

If they put their prices up by just 5% Then their new price would be $2625, Let’s assume that customers still buy at the same frequency (twice a year) but now they have managed to attract 5 more customers their new revenue would be:-

R= 105 * $2625 *2= $551,250 or an increase of 10%. Most of you would agree it’s not hard to put your prices up by 5% and get 5 more customers would you?  

Let’s now have a look at what it would take that same business owner to double their business revenue.

• If they attracted 25% more customers then they would now have 125 customers instead of 100.
• If they got these customers to spend 25% more with them then the customer spend would now be $3125 per transaction.
• And finally, if they got them to do it 25% more often, they would buy 2.5 times a year instead of 2.

The revenue would now look like this (C)125 * (T) $3125* (F) 2.5= $976,562  or an increase of 95%. Not quite double but near enough for our purposes. So an increase of 25 % in these areas could double your business but how do you do that:-

Knowing this, we can start to think well about how we get 25 more customers and have a specific strategy for that. In our experience, most business owners don’t have enough ways for prospects to find them. So how robust is your lead generation strategy?

If it takes 5 leads to get 1 new customer, then you need a strategy to generate 125 new leads (125/5= 25 new customers). I have 18 lead generation strategies in place that I use, most business owners use at max 3 or 4 lead generation strategies. Do you think that just introducing a few additional lead-generation strategies would help?

So next how do we increase the transaction value per customer?  One simple way could be to introduce immediate upsells (think “Do you want fries with that”) or perhaps a top-end package for your service (on average 20% of buyers will purchase the top-end package if it’s offered). 

Finally, how do you get them to buy more often, well there are many things we could do, but how about offering a loyalty card for example (think Costa Coffee, Tesco’s etc). Staying in touch with your customers is another way as it also reminds them to buy more often from you. So do you have a newsletter or other ways of keeping in touch?

So to all those business owners that are out there thinking “I could never double my business in a year”  think on this:-

By just increasing these 3 elements of your business by 25% you could almost double your business. This is a classic example of applying the 80/20 principle to your business.

You can check out our course on the 80/20 principle. Just hit the button below.