The bedrock principle underlying all profitability

Traffic, conversion and economics are the bedrock principles underlying all business profitability.

Traffic is the number of prospects you see.

Conversion is the percentage of prospects who become clients.

Economics is how profitable each of these clients become.

Here’s a simple example.

You have 100 prospects.  You convert 30 of them into clients.  Each makes you $10 in profit.  So you have $300.

The formula is Traffic x % Conversion x Economics = Profit

Having worked with hundreds of businesses, I can state that the vast majority don’t keep track of these numbers and are losing money as a result.

And most could be far more profitable if they understood the leverage points.

Let’s start with traffic.

When trying to increase revenue most businesses concentrate on getting more traffic first.

But that’s not where I’d start.

Marketing costs money and effort to get in front of every prospect.

So the more traffic, the more you’ll spend.

But what if you could convert a higher percentage of the same number of prospects into clients for the same initial spend?  Profitability immediately goes up.

So your first leverage point is improving your conversion rate.

100 prospects x 40% conversion x $10 = $400 (additional $100) for the same traffic.

Your second leverage point is economics.

You’ve spent money getting in front of a prospect.  So the more you sell them, the more profit you’ll make.

“Would you like fries with that?” added $1 billion to Macdonald’s bottom line!

Remember it costs between 6 to 8 times more to get a client in the door than to keep selling to them.

So selling more to each over time has a multiplier effect on your profits as it doesn’t cost you any more to get them in the door.

100 prospects x 40% conversion x $20 = $800.

Remember, your role as the leader is to find leverage points which result in more profits.

Concentrating on your sales conversion rate and overall economics gives you the best ROI for any marketing dollars you spend getting prospects to your door.

Improving your economics gives you another major advantage over your competition.  You can outspend them on marketing resulting in even more quality prospects, which can catapult you into a premier position.  A topic for another newsletter.

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By |2019-05-07T10:30:26+10:00May 7th, 2019|Marketing, Practical Tips, Sales, Strategy|0 Comments

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