Here’s the part 5 of the FREE audio copy of The Business Essential Series: Back to the Basics.
Back to Business Basics
In the Back to Basics, 6-Part Podcast Episodes, we introduce a number of fundamental ideas and theories that you will use through the entire Business Essentials Series workshops. You will learn how a business is supposed to work and most importantly it provides you with a series of practical tips, suggestions, ideas and tools that you can apply to your business immediately as you begin your journey of making More Profit in Less Time.
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TRANSCRIPT: Bonus Episode 18
Title: Back to Basics (Part 5 of 6)
Running Time: 09:48 minutes
Just ‘cause you did some business with somebody five years ago doesn’t make them an active customer. Unless you’re a builder or unless you are someone in a field that has a longer sales cycle. You might be in real estate five years might be okay. But for the vast majority of it, how many of those actual customers do we got? Do we have those details and are you using something as simple as software package like a CRM a Customer Relationship Management tool. Are you even keeping them in an excel spreadsheet? Do you have them inside your outlook calendar? Do you have them in a diary, for goodness sake? If you don’t have those details then how do you know what you’ve actually got? So again, it’s all doubling the detail. When you’ve actually got your new customers and your retain customers, add those together cause that then gives you your total customer’s values.
You then need to look at, “Do you actually know what your average revenue is, by customer?” Now some are going to spend less, some are going to spend more. But if you don’t know what your average is, then how can we increase? If your average customer’s spends $300, then what do you need to do, to build it from $300 to $330 across the year for your average customer. Add on sell, upsell, adding value that’s actually in there. And we’ll cover a lot through this to the actual series, but you got to get your numbers right first. Again, if you don’t know where you’ve been then how do we know where we need to take it?
Once you’ve got your average revenue per customer, and you know exactly how many customers you’ve got, your total customer values multiply those two together they gives you a total revenue. Revenue multiplied by your average gross margin.
Do you actually know what your average margin is? Do you know some process and services that actually have great margins? And others that have a very very slim margins? And in some businesses that I deal with they work consistently on very low margins. So if you’re on a business that’s only dealing with 2, 3, 4, 5% margin, we need to look at what you can actually do to increase that from 3 to 3.3%. Or if your margin is 50%, what you can do to increase that from 50 to 55? What are the strategies that are actually involved and the tactics that you need to put in place to make those strategies work?
Again without those numbers, you can determine those things. You have incomplete knowledge. Once we know our gross profits we then remove our fix cause. And then those fixed costs, once they come out then give us our net profit. Very very simple formula. So what do we need to actually focus on? We need to look at again, I’ll just read it right, and we need the numbers full. How many new leads are you generating? From where is a good part as well? What your average conversion rate is, and that might be average conversion rate from where.
How many new customers that you generate that comes out of that? How many retained customers? The people you done with business with before and hopefully will do business with again.
You need to know your average revenue is by customer. You need to know what you’re average gross profit it. You need to know what your fixed costs are. If you know all of these things you can actually manage your business far better. It’s very rare indeed that actually made a business owner that has all of those numbers completely and accurately. You can get those numbers and work around those things you will achieve much greater profits in less time. You will have more profits in less time. And that’s what we’ all about.
So quoting Warren Buffet, this guy is one of the wealthiest men in the world. Last time I check had a net personal wealth of around 48 billion dollars. Now I don’t know about you, but I really struggle to get my head round the, what 48 billion dollars in personal net worth really means. But the guy clueing that I was talking about. And one of the things that really impress me is one of his quotes that said, “It’s not necessary to do extra ordinary things to get extra ordinary results. Such doing small things consistently overtime that’s what gets you to extraordinary results. And that’s what you can actually control.
So again, take some time, have a think about what you’ve learned so far. We’ve cover about a number very important topic in a very short of period of time. I want you to actually sit down and say well what tools we are actually using inside our business, who else can we bring to help us inside our business? What are the other sources that we can actually draw and leverage upon within our business? Also I want you to take few minutes for now, guesstimates what those numbers are, how many inquiries you receive? What your conversion rate was? Approximately how many existing customers that you’ve actually got, I want you to think about what your average dollar sale is. And the numbers of transactions, how often these people come back and see you. And on top of that do you know what your fixed costs sale? Do you know what your gross profit margins are? Again it’s all about the numbers. Do it once, keep an eye on it, you’ll never have to worry about it again. But If you don’t do it once, you’ll worry about it forever..
Okay I’m sure you’ve heard of the idea of working smart not hard, and the only way that I know to work smart not hard, is actually to have a system. If you’ve got a system, you can actually replicate those things. If you’re going to most factories you’ll see that they produce in cut out and produce everything precisely the same every single time. Why? Because they’ve got a system. And most failures within the business , I believe and has been shown that 90% of all failures within the business are system relates. Only 6% of failures within a business are people related. If you accept that and accept responsibilities for those systems, then what are the systems that are there or not there or need to be improved just to support the people? And that’s the reason why things happen. Stop blaming people. Look at the systems.
So what are the systems actually stands for? Systems are (a brief background) that means, stands for Saving Yourself Time and money. If you’ve got a system that’s exactly what you’ll do. You will save yourselves time and money. So let’s have a look at here now. There are four different areas in your business that you can actually leverage on and systemize to make those things happen. Four different areas that will create a significant outcome with inside your business.
So you can actually leverage in your business on your people and education, today is certainly a part of that. Have you leverage on that appropriately. Are you working yourself hard as you should? You need to be able to in delivery and distribution. Have you got that right? Have you got it consistent? Are you testing and measuring? Or measuring and testing? I don’t care which order you take it in. Cause they have different requirements. But are you testing and measuring regularly within your business, meaningful numbers, meaningful outcomes. And are your leveraging in systems and technology within your business? Now I don’t care which business you are. Those areas are four areas that if you work well in, that you can leverage on, you will create a multiplication effect. This is your lever to move the world, an ancient Greek philosopher who said.” Give me a long enough lever and I’ll move the world. Well leverage is all about that. And the areas within your business. Those four different categories are the areas that to be able to leverage in.
Now quoting Richard Branson, he said “If you can learn one business successfully, then there’s no reason why cannot run any number of businesses at the same time. The principles are all the same. That’s the reason why many successful people have multiple businesses. It’s an important thing but you need to be able to know how to run one business successfully. And that what this is all about. Do this and you’ll be able to duplicate those results, and achieve much greater outcomes in your life and inside your business. So let’s have a think about it, lot of things, things that we can actually do and things that we can impact. A lot of times we rely on our team.
So let’s think about your team. You’ve heard the said that employees are energetic, loyal, enthusiastic motivated individuals, except for the 8 hours a day that they work for you. That’s how often the case. Or they’re just simply waiting for some good quality leadership. That’s all they want. That’s very interesting. We rely on so much in our team. So what are the characteristics of a really really great team.