What is a growth formula and how does it work?
It was Dave Brailsford who masterminded Team Sky’s cycling team’s rise from zero to hero, and he did it based on the idea that all the small margins add up.
It’s true. It works. It worked! Within very little time indeed, Team Sky had risen from new entrants to champions of… well … pretty much everything cycling-related! The thing is, it’s a simple growth formula that was used, and it works. However, how many think about their business this way?
It’s all about the basics
Even if you don’t know every row of the Balance Sheet, there are some basic figures that can prove really useful when considering how to grow your business. You should be able to easily find out:
- Profit figure
- Sales figure
- Costs (as a percentage of sales)
- Number of leads
- Conversion rate (percentage of leads that become new customers)
Armed with this information, you can begin to look at ways to make small differences.
Let’s say, for example, you have monthly sales of £25,000 and your profit for the month was £15,000. If you had 100 new leads, an average conversion rate of 50%, an average order of £500, one order per client per month, and 40% costs, here’s how the growth formula would look (you can apply your own figures to this formula – it still works):
Basic Growth Formula
100 leads x 50% conversion rate = 50 customers
50 customers x 1 order x average order £500 = £25,000 sales
£25,000 sales – 40% costs = £15,000 profit
Basic Growth Formula + 10% (one element)
Now, if you increase one of those steps by 10%, you would see an appropriate increase in profit. Let’s see by increasing just the number of leads by 10%:
110 leads x 50% conversion rate = 55 customers
55 customers x 1 order x average order £500 = £27,500 sales
£27,500 sales – 40% costs (these shouldn’t change) = £16,500 profit (a 10% increase)
Basic Growth Formula + 10% (all elements)
Now, if you can increase every step by just 10%, see how the growth snowballs:
110 leads x 55% conversion rate = 60.5 customers
60.5 customers x 1.1 orders x average order £550 = £36,600 sales
£36,600 sales – 40% costs = £21,960 profit (a 46% increase!)
Basic Growth Formula + 20% (all elements)
Finally, let’s increase every step by 20%. You’ll be amazed!
120 leads x 60% conversion rate = 72 customers
72 customers x 1.2 orders x average order £600 = £51,840 sales
£51,840 sales – 40% costs (these shouldn’t change) = £31,104 profit (a 107% increase!)
If these are monthly figures, imagine the impact these small increases would have on your business over the year! It would more than double your profit, taking it from £180k to over £370k!
The growth formula works, whatever your figures are and whatever the situation. It worked for Dave Brailsford, and it can work for you too!
If you want any help in attracting new leads, why not get in touch. I mean, that’s what we do – help you to increase your sales!
