Whether you’re a service business or you are a product-oriented business, you can only influence revenue by changing one or more of these three variables:
- Getting more & better buyers and referrals
- Enticing buyers to buy more at one time
- Enticing buyers to buy more often
These are the three variables of the “Revenue Ratchet Formula.”
This SlideShare presentation covers the strategy of increasing the number of people who buy from you: Getting more and better buyers and referrals.
In the first blog post in this series, Ratcheting Up Your Revenue (Part 1): Power Strategies Every Smart Entrepreneur Needs to Know, we covered an overview of the only strategies a business can use to boost its revenue. Click here to read that post
Of the three “revenue ratchet” strategies, the first one, “getting more and better clients and referrals,” is the most obvious and commonly attempted. Notably, this is the strategy that requires the most time, effort, and money to succeed.
For these reasons, we’re going to take a different approach and focus on a less costly but highly effective revenue ratchet strategy: Enticing buyers to keep coming back for more.
If you want buyers to keep coming back for more, you must make it easy and compelling for them to buy more often.
To do that, you have to make them feel good about coming back again and again. You must make it easy and worthwhile for them to do so. Common sense, right?
Recently, my business partner, Dan, experienced quite the opposite. Dan spends his summers in Pennsylvania and his winters in Georgia. His cable and internet provider in Georgia is Mediacom.
Dan left for the summer to go to Pennsylvania. Unfortunately, a family health crisis arose, which required him to return to Georgia about a month later. He called MediaCom to restart his cable and Internet service. That’s when he learned that their policy states that if you cancel service and then reinstate within three months, you must pay an extra charge of approximately $30-$40 a month.
For subscribers who need to suspend their service for extended periods, Mediacom does not offer an option that allows you to place your subscription on “vacation mode” for a small fee to maintain it, and then resume your subscription upon return. Ostensibly, the policy is designed to prevent people from switching back and forth between subscription plans to get the next introductory special deal.
Dan went to the MediaCom office to explain the situation – that he had returned for a family medical situation – and that it was clearly unexpected. He thought that once they understood that it was due to a family health crisis (not him trying to cheat the system for a lower rate), they would make an exception and wave the extra monthly fee.
Understandably, this really irritated Dan. Therefore, he did something that he had been threatening to do for a couple of years, but never had the impetus to do so because it was just easier to keep stopping and starting his service with MediaCom: he did some research and bought a Roku device for $50.
For $26 a month, he gets all the channels that he wants. Effectively, he cut his cable bill by $75 a month.
Now he owes MediaCom a big “thank you” because he would not have changed companies, except for the fact that MediaCom absolutely ticked him off by hammering him with that extra charge.
Clearly, this policy is a great way not to keep customers coming back for more. In the end, they lost a customer, worth over $100 per month.
In addition, Dan and partner, Martha, readily share this story about Mediacom to family, friends, and colleagues. In fact, one person they know of is doing exactly what Dan did: cancelling their MediaCom subscription and getting a Roku. So now, Mediacom has lost over $200 per month in revenue.
Mediacom’s shortsighted policy and lousy customer service make it difficult, inconvenient, and costly for customers to keep buying from them more often. Their practices directly feed customers to their competitors.
Answer These Three Questions to Entice Your Buyers to Buy More Often:
1. What can you do today to enhance the performance of your products and services?
2. What can you do today to make it easier and more appealing to your buyers to use your products and services?
3. What can you do today to show your clients, customers, and patients that you care and that you value their business?
Start by answering these questions for yourself. And if you really want to turbocharge your results, go out and ask your buyers these very questions.
Listen to what your buyers have to say and then show them you care by incorporating their feedback into your products and services. By doing so, you’ll be well on your way to cultivating customer loyalty and enticing them to keep coming back for more.
In Part 3 of this series, we’ll cover tips and ideas on how to entice buyers to buy more from you each time they buy. Stay tuned.
Scores of fellow Freedompreneurs have shared with me that they need help finding more ideal clients and turning potential clients into paying clients.
If this sounds like you, you are certainly not alone. Over the years, I’ve noticed that many entrepreneurs, even big businesses that ought to know better, spend the majority of their time and effort on getting more clients, customers, and patients.
By itself, this is not a problem; it’s actually desirable, except for the rare business where they have more business than they can handle.
However, I’d like you to consider why you want and need to get more buyers: It’s to generate more sales and pile more cash into your bank account, right?
That being the case, why not focus on what you ultimately want – more cash in the bank – rather than solely on getting more buyers?
Along those lines, today’s blog post kicks off a mini-series in which we’ll explore strategies that go beyond simply getting more and better buyers. I call these “revenue ratchet” strategies.
For the duration of the series, you’ll find it useful to refer to this Revenue Ratchet Formula Memory Jogger.
Let’s walk through how this works:
If you tell me the number of clients and customers that you have in a given year, how much each customer buys each time they buy (the average size of each sale), and how often customers buy from you in a given year, I can predict your total revenue for the year, almost to the penny.
This is what I call the “Revenue Ratchet Formula”:
Said differently, your revenue equals the number of buyers you have, multiplied by the average size of each purchase, multiplied by the number of times each buyer makes a purchase, for a given period. It’s very straightforward.
In order to increase your revenue, you have to boost one or more of these three variables. This formula applies no matter what kind of business you have. Whether you’re a service business or you are a product-oriented business, a startup or a multimillion-dollar revenue enterprise, you can only influence revenue by changing one or more of these three variables. That’s it!
Considered collectively, the Revenue Ratchet Formula is a powerfully effective yet commonly overlooked approach to “ratcheting up your business’ revenue,” hence its name.
In subsequent blog posts, we’ll explore each of these three “revenue ratchet” variables and associated strategies in greater detail:
- The first strategy is to get more and better clients (and referrals); that means increasing the number of people who buy from you.
- The second strategy is to get them to buy more at one time; that means increasing the average purchase.
- The third strategy is to get them to buy more often; that means enticing buyers to keep coming back for more.
In the meantime, start expanding your mindset when it comes to increasing revenue beyond simply getting more buyers. Along with your efforts to get more and better buyers and referrals, also be thinking of ways to make it worthwhile for them to buy more from you each time they buy and for them to buy more frequently.
Almost 15 years ago, I took an intensive series of courses that encompassed personal growth, business, and wealth building.
During one of those courses, we were given a set of the affirmations related to building wealth; afterwards, we were encouraged to practice them daily.
One affirmation in particular stood out for me: “I am an excellent money manager.”
I so badly wanted to become an excellent money manager, especially around my business finances, that I practiced that affirmation daily.
It didn’t take long for me to realize that I wasn’t going to become one, just by repeating an affirmation daily! I had the will and desire, but my biggest problem was that I had no clue what it meant to be an excellent money manager!!!
I tried to learn from books and audio programs. I kept an open eye for training programs. For years, I still had no clue.
That was until I met Dan Bowser. For over the past 34 years, Dan has worked on multimillion-dollar business mergers and acquisitions and business valuations. Since the time I was introduced to Dan, he has become a good friend, trusted advisor, and indispensable business partner.
Among many things, Dan taught me the three key elements that go into being an excellent business money manager:
- Keep accurate financial records
- Turn raw data into information you can use
- Use that information to guide your planning and decision-making
Let’s look at each of these elements…
Keep Accurate Financial Records
It’s a mind-boggling fact that a lot of people in business don’t keep accurate financial records. There are at least two reasons why they don’t: One is they don’t know how; the second reason is that they don’t really see the wisdom of it.
I’ve heard this justification a lot: “I’m not a numbers person.” Well, that excuse was eliminated decades ago with the advent of personal computers. You let your computer do the math. You don’t need to be a financial wizard to become an excellent business (and personal) money manager.
All it takes to keep accurate financial records is a tracking tool, typically bookkeeping/accounting software, and a willingness to use it regularly. That’s all. The problem is the “regularly” part.
The issue isn’t one of complexity; it’s not mechanically difficult to do this. The issue is that most people haven’t made it a habit to use their financial software.
Let me ask you this: Do you brush your teeth every day? Most people will answer “yes.”
Okay, then pretend that updating your financial records is like brushing your teeth; you brush your teeth to keep them healthy. Likewise, you update your financial records to keep your business healthy.
Your numbers won’t bite you; commit to developing the habit of using your financial management tools.
If you follow football or baseball, you know that you have to keep score, right?
But what do you think of this scenario?
“Who won the game?”
“I think the Mariners won it based upon some of the runs that I marked down.”
“Well, I didn’t mark down any at all at first. They played five innings and I think they scored a run or two in the first inning, but I didn’t start marking down the total until after the third inning.”
Yet this is how many people handle their business and personal finances! Your financial records and reports are the scorecard for your business. If you want to win the money game with your business, you have to know how to keep score. And you have to keep score!
Turn Raw Data into Information You Can Use
If you’re keeping accurate financial records, you have a collection of numbers stored in your computer. While those numbers can’t hurt you by jumping out and grabbing you, they also can’t help you by being stored on your hard drive.
You have to turn those raw numbers into reports that are meaningful.
Basic financial statements are a means for organizing your financial numbers so they are easier to analyze. Two of the most important financial statements are called the income statement and the balance sheet. The income statement (also known as a P&L statement, or profit & loss statement) organizes your sales (revenue) and costs and expenses. The balance sheet organizes your assets, liabilities, and equity.
Use Your Financial Information to Guide Your Planning and Decision-Making
Your financial statements are among your most important scorecards. They provide information that must be used in your business strategic planning and decision-making.
Unfortunately, for most non-financial entrepreneurs, looking at financial reports drives them crazy. Consequently, attempting to learning how to read and understand financial reports ends up on the “someday, would be nice” list of spectacular things to do in life.
I know, because for years, I was frustrated and upset with the financial lingo and formatting used in these reports. I also recognized that I was not alone: most of my clients had no basic understanding of financial principles and terminology. Without an understanding of the information contained in their financial statements, it was difficult to understand how well they were doing and what needed to be improved.
As Dan helped me to boost my business financial intelligence, we quickly realized we wanted to do something about helping fellow entrepreneurs become financially savvy. As we researched the market and talked with entrepreneurs, we learned that many recognize their lack of financial knowledge and the resulting difficulties it causes. Many made considerable effort to gain that knowledge. The problem they encountered is that the readily available material is over their heads, too technical, and not easily applied. In addition, there is a lot of confusing, misleading, incomplete, and inaccurate information out there.
If you have ever struggled to understand the basic financial statements that your accountant may have given you or that you get from your financial software, we have created just the resource you need: Financial Statements Made Practical: A Step-by-Step Visual Guide.
Most of us were not taught or never learned how to read financial reports, much less how to use them to guide our business decision-making. Whether you are an entrepreneur, business owner, manager, corporate executive, board director, or investor, knowing how to read, understand, and use basic financial statements is a vital skill.
Unfortunately, developing this critical skill has historically been more difficult than it ought to be. As I mentioned previously, far too many books and trainings are filled with confusing jargon, incomplete explanations, and frank errors in principles, descriptions, and detail.
This guide was created to put an end to the confusion so you can spend more time doing what you do best and still be financially savvy.
Get your copy right away.
Because All Business Owners Deserve to Be Financially Literate, Let Us Gift You the Make More, Keep More Training Program and Newsletter
Dan and I believe that all business owners must have a basic understanding of financial principles and terminology to increase their odds of success. For that reason, we created a free 24-part course, Make More, Keep More for Smart Entrepreneurs that also includes an ongoing email newsletter.
Some of the things you’ll learn include:
- Practical lessons and best practices for making more profit and keeping more of it
- A systematic way to understand and implement an effective business money management system
- a clear approach for creating a more profitable, valuable, and sustainable business
- A powerful link between marketing goals, sales goals and reaching your financial goals, and
- Tips and advice for building a more profitable, valuable, and sustainable business.
We invite you to register for this free course and the Make More, Keep More newsletter at www.SmartBusinessMoneyHabits.com/make-keep-smart-entrepreneurs
Over the past decade of working with entrepreneurs, I’ve noticed that the vast majority of my clients and scores of fellow entrepreneurs and colleagues I’ve met desperately need to become excellent business money managers.
The sticking point is that, for most entrepreneurs, making money is typically more fun and a higher priority than managing it. (More in a later blog post about why managing business finances ought to be a higher priority than trying to make the money).
So why bother becoming an excellent business money manager?
If you’re serious about your business, you must do both: make it and manage it. Making money without managing it guarantees that you’re limiting the financial potential of your business.
If you’re serious about building a more profitable, valuable, and sustainable business, I strongly encourage you take advantage of the resources I’ve mentioned here.
Many entrepreneurs suffer from EDD, or entrepreneurial deficit disorder, a malady in which they have big hearts but so many ideas and so many talents that they don’t know where to focus their efforts or how to choose the best strategies for their situation.
Here’s a real-life example from a recent experience of mine:
I’m helping one of my clients build his group coaching program. As part of this endeavor, I spoke directly with one of his test clients. I gave her advice on where to focus her gifts and talents. Later I heard a recording of a follow-up coaching session that my client did with her.
She was euphoric because I got her pointed in a direction that she’s super excited about; it’s one of her life’s passions. Great news, right? And it gets better: I heard her report that she was so excited that she went out and got several new clients. Starting from scratch, she generated approximately $3,500 in monthly revenue, catalyzed by our initial conversation.
Imagine how thrilled I was to hear this! Then she dropped a bomb: With unbridled enthusiasm, she reported that she had gotten her accountant to agree to train her in how to use QuickBooks. Instantaneously, I felt the blood drain from my face and my back slouch a little bit.
I flashed back to a moment years ago, when I happened be flipping through a book on business planning. I was curious to see the author’s advice for setting up a new business to be successful. In one of the early chapters, she wrote that one of the first things you should do is hire a graphic designer and create a logo for your new business. Bad advice. And this was a best-selling book.
You just don’t need a logo to generate business! (Despite generating a six-figure annualized revenue stream in 73 days, I didn’t have a logo for my business for at least the first couple of years.) Instead, you’d be far better off spending your time and money on getting clients, customers, and patients. A logo will not do that for you.
The same advice applies to my client’s test client: Instead of her spending time, money, and energy on learning a complex piece of software that was designed for financial professionals, she would be better served to focus on getting even more clients — and then delivering outstanding service and value.
When considering investing a significant amount of their time, energy, or money, I advise my clients to consider the following questions:
- Will this activity help me increase my revenue?
- Will this activity help me reduce my expenditures?
- Will this activity boost my cash flow?
- Will this activity boost my productivity?
If the answer is yes to at least one of these, and ideally more than one, I’m likely to recommend such an activity. But if the answer is no to all of these, it’s best to steer clear.
Real-life stories like these continue to drive me and my business partner, Dan Bowser, to create a cash-flow and money-management educational program for entrepreneurs. We’ve also been encouraged by many of you to develop a Web-based application, Business Cash Pulse. This tool is designed to present entrepreneurs with the financial numbers that matter. It’s designed to be simple enough that you don’t have to invest a lot of time, money, or energy into learning how to use the doggone thing; every minute you waste learning complex software is time and energy taken away from doing what you do best: serving clients, customers, and patients.
In the coming days and weeks, you’ll be hearing more about our holistic, whole-brain (no, not harebrained!) approach to making more money and keeping more of what you make. And you don’t have to be a financial expert to pull this off!
“If you think money can’t buy happiness, you’re not spending it right.”
– Michael Norton, co-author, Happy Money: The Science of Smarter Spending
A lot of us have grown up hearing that money can’t buy happiness. But what if money doesn’t make us happy because we’re spending it on the wrong things?
Recently, I’ve been studying a lot about behavioral economics (the science of social, cognitive, and emotional factors on our buying decisions) through Dan Ariely, a professor at Duke University, founder of the Center for Advanced Hindsight, and the author of Predictably Irrational. Through Dan, I came across the work of one of his former graduate students, Michael Norton, now a professor at Harvard Business School.
Mike and his colleagues ran a study at the University of British Columbia in Vancouver. They gave students envelopes filled with money, ranging from $5-$20. Some of the envelopes had instructions to spend the money on themselves by 5 pm. Other envelopes instructed the volunteers to spend the money on someone else, such as buying something for a friend or donating it to a homeless person.
The researchers called each volunteer at the end of the day and asked them what they did with the money and their level of happiness, compared to how they started the day.
They found that the people who spent money on themselves weren’t any more or less happy than how they started the day, despite getting the free money.
Yet, the people who spent the money on somebody else actually became more happy by the end of the day.
Wanting to assure themselves that this wasn’t a fluke, Mike and his team repeated the study in Uganda and found similar results!
What’s the practical lesson? Give a part of your money away, even if it’s a small amount; you’re likely to be happier when you spend your money on someone else, rather than yourself!
Inspired by this idea, I’ve made donations to a couple of organizations that I learned about through Mike:
DonorsChoose is an online charity that makes it easy for anyone to help students in need. Public school teachers from every corner of America post classroom project requests on our site, and you can give any amount to the project that most inspires you. I donated to a local school so they could purchase plastic models of human skeletons.
GlobalGiving is a charity fundraising web site that gives social entrepreneurs and non-profits from anywhere in the world a chance to raise the money that they need to improve their communities. I donated to a microlending program administered by students at Northwestern University.
Encouraged by my email dialogue with Mike, I was also inspired to begin offering one of my flagship training programs, Rapid Revenue Acceleration Mission Control, for “better than free.” I asked attendees of a recent webinar to make a donation of any amount to an organization of their choosing, send me a copy of their receipt, and then I’d give them access to my premiere training program. I didn’t know what to expect, but the response from participants has been uplifting. Some of them have made contributions ranging from $2.97 to $500 to organizations literally from around the world.
Want to learn more about making smarter spending decisions?
You can pre-order Mike’s forthcoming book, Happy Money: The Science of Smarter Spending, which is being released on May 14th (I placed my order already).
Better yet, why not buy the book and gift it away?!?
And, if you want immediate gratification, I also highly recommend taking in Mike’s 11-minute presentation at a TEDx event.
Happy (and Smarter) Spending!