Know your metrics to grow
Dig deep into the sales data to find out why your customers buy more product, writes Zac de Silva.
Irecently read about a software company that had an average user value of $200 per month a rather reasonable recurring income when you have more than 50,000 paying customers!
Curious, I researched another competing software company in the same sector, that had a like-forlike average user value of $35 per month on a few thousand paying users. Why did one company have an average customer value per month so much higher than the other?
The software company with the higher average user value had specifically targeted customers that were going to have more users of the software on average than the competitor product.
For example, companies or schools rather than individuals. More users meant a higher average value per paying customer.
If the software company with the average value of $35 can work out how to grow their average customer size, they will likely be on the road to growing their profitability, assuming they are able to maintain and retain their current customers.
You definitely don’t want to be a company that is winning new customers and losing existing customers just as fast.
This example reminds me of a definite key to being successful in business: actively consider which customers offer you the most scope commercially.
Most companies I come across have a machine-gun approach in trying to win new customers, happily targeting anyone and everyone. If you have a plan, you will be so much more successful in winning and keeping the best sort of customer for you.
Part of identifying which customers are going to be the most profitable for you will be found by looking at the metrics of your average customer spend and their regularity of buying.
You can run a few basic figures yourself and work out what is happening with the customers in your business. I remember an example of a successful cafe´ who had started getting healthy sales increases again - it looked good on the bottom line but when we looked more closely we saw 90 per cent of the sales increases came from their price rises a few months earlier.
Only 10 per cent came from extra foot traffic in the cafe´, which is a far more sustainable strategy for business growth.
The owners then knew they needed a more proactive approach to winning new customers, as the impact of price rises would not keep sales growing forever. Information is power and knowing sales metrics will be so impactful.
Zac de Silva is an award winning business coach who owns www.businesschanging.com and is co-founder of the Nurture Change Business Retreat in Fiji. If you like the questions that Zac poses, visit www.accme.com, which will get you thinking on how to run a better business.