Sales formula every business owner must know
Almost 70% of business owners do not measure anything, they just think something and that's it and that's enough. Enough !? This may even be enough to go bankrupt ...
In any business, it is important to identify key indicators. Which will give you a picture of where your business is and where it is moving. And it can move in two directions: Business is either growing or falling, there is no third.
There is simply no third way in business, it wasn’t invented. You cannot stand in one place. If you stand in one place, then you are rolling down because competitors are not standing.
To find out where you are moving, determine the necessary business growth indicators and start measuring them. Daily, weekly, monthly, quarterly, annually. Compare them with past periods. Build charts. Hang the charts in a prominent place so that they are constantly seen by all the employees responsible for the indicators.
Sales are the foundation of any business. The foundation on which it stands. And if sales have faltered, then the business itself feels shaky and require special attention.
For most businesses, selling is a chaotic, random, seasonal process. And you just need to build a system out of them. With the confident work of all components. And of course, link it all on stable business processes and instructions.
The easiest way to increase sales is to increase each indicator in the sales formula, which is shown below:
Profit = Profit Margin(M) * Sales Volume (V)
Sales Volume (V) = Sales Leads * Conversion Rate (Cv) * Price per transaction (P) * The number of transactions (N)
Sales volume (V) is all sales, the total amount of proceeds from a certain period of time. It can be a week, a day, or maybe a month, and six months and a year, etc.
Margin (M) is what we add on top and cost. It is expressed as a percentage.
If you know the sales volume, you get the formula: Leads multiplied by the Conversion Rate, multiplied by the average price and multiplied by the Number of Transactions.
Sales Leads are the numbers of your potential customers, those customers who called you, or who found out about you, or went to your store if you have a store.
Conversion Rate (Cv) - expressed as a percentage. This ratio shows how many percent of people you buy from all that contacted you or those that you found. The Conversion Rate formula is simple - the number of people who bought divided by Leads (by those people who found out about you) and multiplied by 100%.
Price per transaction (P) is the average amount of money that one customer leaves at your checkout.
The number of transactions (N) is the number of purchases made by the client from you. That is how often he buys from you.
In 90% of businesses, you can increase the frequency of customer calls. Just think about how you can make customers buy from you more often. (For example: Change your toothbrush every 3 months. Apply shampoo to your head, rinse, apply again.)
Everything is simple. Keep statistics on these indicators. Develop programs to increase each of them. Write down specific current values and what indicators need to be achieved by which date. Post schedules of their changes to a place that is visible to everyone, especially for sales managers. And the monthly sales reports will be optimistic for you.
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