Marketing is the engine that drives every business. In any given week, the number of newly verified leads should meet or exceed the number of discarded leads and closed deals if you want to grow your business. This means that you’ve got to be in constant marketing mode. You can’t take your foot off the gas. You have to plan ahead.
Simple Numbers
The best way to be in constant marketing mode is to have the right systems and the right people. Attracting, hiring and motivating staff on an ongoing basis is key to working with leads and getting sales.
Planning your marketing will allow you to increase your income, prepare you to bring on additional staff, build your expert status within the community your business caters to, reduce stress and eliminate the frustrations of slumps in business referrals and lead generation.
Small business owners typically wear many hats, making it difficult to plan strategic, long-term marketing campaigns. When I started my company, Therapy Newsletter, in 2007, I was handling customer support, billing and product improvement at the same time. Since I didn’t know my numbers, I was working hard, not smart.
Today, we know our exact cost of client acquisition and how much a new client is worth to us. Small business owners may find themselves involved in first tier marketing, inventory, direct sales, contract negotiations and more, which makes it easy to lose sight of the big picture: the reason why you are in business to begin with. But if you take a step back and look at the forest for the trees, you’ll realize something profound. A majority of the income generated by your primary sales source in most small businesses is spent in rent, utilities and salaries.
Let me prove it with a simple numbers test that will tell you if your business is growing (or declining). You’ll need four pieces of information, what I like to call fundamental business metrics. They include:
- How many sales you close each week
- Your average income per sale
- Your average expenses each week (rent, utilities, staff and miscellaneous expenses)
- Your income goal as a business owner
This data is the pulse of your business and reveals vital clues about where you are and where you should be going. Based on your income goals, you can actually reverse engineer your success. I’ll use a couple of scenarios to explain this better.
Scenario One
A business has one primary sales representative, and all the revenue in the business is generated by that person. This primary representative is also the owner, and has an income goal of $300,000 a year.
Let’s say the primary representative:
- Closes 60 sales a week
- Gains $80 per sale
- Brings in $4,800 in weekly revenue
This operates under the assumption that the business has marketing mechanisms in place that bring in 20-25 leads a week, with each lead converting to an average of three unit sales a week.
As you can see, we have identified all four of the key metrics here. In this situation, let’s say the weekly expenses (including rent, utilities and payroll of staff including the miscellaneous staff salary) are $2,000. The net profit of the business (total income minus total expenses) is about $2,800.
It’s possible to dig into this and get really microscopic, but let’s remain at a very high level here for the purpose of this article. Even though the net profit is $2,800, the owner’s income goal ($6,000 a week) has not been met. Not only that, an income of $6,000 a week is equal to $310,000 a year (52 weeks in a year multiplied by weekly income $6,000 helps estimate annual income).
Now, let’s say that one additional representative is added to the business.
Scenario Two
Keep in mind scenario one (net profit of $2,800) continues and the business starts to grow. This creates the need to hire an additional representative. If an additional representative was brought into the business, and he/she also had the same productivity, then that secondary person also:
- Closed 60 sales a week
- Brings in $80 per sale
- Brings in $4,800 in weekly revenue
This scenario operates under the assumption that with effective marketing and planning, you are able to fill up the schedule of the secondary rep. They have similar efficiency and similar revenue generation potential as the primary representative. Expenses do not increase since systems and software are in place to automate and streamline business functions.
Now, let’s assume that the salary of this full-time representative is $40 an hour including benefits. You are looking at $1,600 a week in expenses. The rest of your expenses don’t increase; they stay the same and have already been taken into consideration in scenario one.
The net profit for the business from this secondary representative (total income minus new expenses which include the salary of this person) is about $3,200. The combined income from the primary ($2,800) and the secondary ($3,200) is now $6,000 a week. This is $310,000 a year in net revenue for the business.
In this scenario, an owner can achieve financial independence by adding just one more salesperson to the business.
As you add more representatives, a significant portion of the revenue generated by them drops straight to the bottom line of the business. With the first representative, on the other hand, a large portion of the income is used to cover costs like rent, utilities, payroll and miscellaneous costs. Therefore, in general, hiring more staff results in higher profitability for a business.
The only way you can identify where you are, and where you need to be is by identifying and tracking your own fundamental business metrics. It could be the difference between a business that’s struggling and one that’s ready to grow and become highly profitable.
