There are only 3 ways to grow your business

Every entrepreneur wants to grow their business and they drink from the deep well of marketing and sales advice to help them. But let’s get one thing clear: All of those marketing- and sales-related tips and ideas and techniques and tricks can contribute to business growth, but there are really only 3 ways that your business can actually grow.

Here they are, in no particular order:

  • Replicate your sales funnel: This can be achieved by (1) hiring employees and managing them, (2) franchising your business, or (3) creating an affiliate program. Financial and real estate businesses may find that the first choice (hiring people to help support your practice) is the easiest and clearest option. The other two choices aren’t unheard of in financial and real estate businesses but can be a little more complicated in these highly regulated industries.

  • Create passive income: This is achieved by creating products (instead of services) that people can buy and receive without any ongoing effort from you. (An ebook is a classic example of this business model). For some ways to help figure out how to turn your active, time-intensive business into a passive one, check out How to be a lazy serial entrepreneur (part 1) and How to be a lazy serial entrepreneur (part 2).

  • Increase some aspect of the purchase: This can be achieved by increasing (1) the number of customers who buy from you at any given time, (2) how much volume you sell per customer, or (3) how much money you earn from each customer. These options are pretty straightforward to implement but their true success can be limited by some factors (such as the amount of time you have in a day to spend with each customer). For ideas on achieving all three methods of increasing some aspect of the purchase, check out this blog post on how to find the best customers in your sales funnel and earn more profit from them.

So, which should you choose? There’s no reason why you can’t select all three options and continually work at implementing them all, over time. But it also depends on who you are and how you like to operate. Each of these options requires something different from you. The first option — replicating your sales funnel — requires some administrative and management skill. The second option — passive income — can be quite profitable but requires a (sometimes considerable) up-front investment of time and money. The third option — increasing some aspect of the purchase — is probably the easiest and fastest to implement but its effects can be dampened by the time you have and whatever the market can bear.

Start by working on whichever option is easiest for you to implement based on who you are and what strengths you have. Then build off of those wins and select another option to grow some more.

Over the next few days, I’ll blog about some additional ideas and tips to help you work through each of these three options.

Aaron’s Answers: Sales forecasting with sales funnel metrics

I received this excellent sales funnel question from a blog reader a couple of weeks ago. I’m posting the question and answer (slightly edited) here because I think it’s a question and answer that every business owner can benefit from knowing. Thanks again for the question!

The Question:
How do you determine if you have enough opportunities in your sales funnel to hit your fiscal year goal?

Aaron’s Answer:
If you know what your average conversion rate is, and if you know what your average per-customer spend is, you should be able to calculate your answer easily.

  • Your average conversion rate is the number of Prospects in your sales funnel compared to the number of those Prospects who actually become Customers. For example, if you have 1000 Prospects and 100 of them become Customers, then your conversion rate is 10%.
  • Your average per-customer spend is the amount of money each Customer spends on average in a given period of time (in this case, your fiscal year). For example, if each of those 100 customers (from the above example) spend a varying amount of money but it averages out to $1000 per Customer in a fiscal year, then your average per-customer spend is $1000.

Here’s what you do next:

Using the above numbers, along with your fiscal year financial target, you are going to do some simple math in order to know how many people need to be in your sales funnel (as Prospects) in order to reach your financial goals.

First, divide your fiscal year financial target by your average per-customer spend to find out how many Customers you need. (For example, if you need to make $100,000 per year and each Customer pays you $1000 in a fiscal year, you know that you need 100 Customers).

Then, divide the number of Customers you need (which you just identified in the above step) by your conversion rate to find out how many Prospects you need. (For example, if your conversion rate is 10%, then 100 Customers divided by a 10% conversion rate is 1000 people needed in your sales funnel).

That’s it! In the example above, if you want to earn $100,000, and each Customer pays $1000, then you need 100 Customers. In order to get 100 Customers, you need to have 1000 Prospects.

If you want to go deeper, you can divide the results you’ve just achieved into smaller goals to get quarterly, monthly, and weekly goals. I think those might be more helpful. And, if you want to grow your business, consider these tips to increase your conversion rate or my popular blog post 99 ways to optimize your sales funnel and grow your business.

Disclaimer: There are other factors to consider: Outside risks (like the economy) can have an impact. So can seasonal fluctuations if you’re measuring in the middle of a fiscal year. Also, your sales funnel’s conversion period can play a role in determining how accurate your numbers are. Every industry is different and these things need to be considered and factored in, even if it’s just as a rule of thumb.

Check out some of my other Aaron’s Answers blog posts. If you have questions you’d like to ask, feel free to email them to me and if I think all of my readers will benefit, I’ll post them here. Don’t worry, I’ll keep your info anonymous.

Does your sales funnel align with your preferred exit strategy?

Whether or not you’ve planned it, your business has an exit strategy. You will, at some point, exit your business.

It could be an intentional exit (like when you sell your business) or it could be an unintentional exit (upon your demise). Even if these exit strategies haven’t been stated formally in a business plan, they are still the preferred exit strategies of a business. (There are less desirable ones, too).

Your business has an exit strategy. But the question should be asked: does your sales funnel align with your preferred exit strategy?

Even if you haven’t planned either, your business has an exit strategy and it has a sales funnel. If you hope to achieve a preferred exit strategy, you need to ensure that your sales funnel aligns with it.

EXIT STRATEGIES

In my experience, there are 5 preferred exit strategies, which I’ve generalized at a high level, below:

  • Sell the business as a whole: The business owner sells the entire business to a buyer (who probably intends to run the business themselves).
  • Sell the business in parts: The business owner “parts out” the business, selling various assets to various buyers. For example, they might sell the website address to one buyer and the mailing list to another buyer and the leftover inventory to a third buyer.
  • Transfer the business: The business owner freely transfers the business to someone else (often a family member) who will take over the business.
  • Close down the business: The business owner will simply shut down the business and walk away. This might be as the result of a lack of success or it might be the simplest way to end the business after years of profitable success.
  • Run the business until your death: Upon the demise of the business owner, the business ceases to exist operate. This is the default option for many business owners who have not considered or planned for their exit strategy.

Which of these options is your preferred exit strategy? It’s a good idea to work intentionally toward one ideal exit strategy but to plan for at least one or two others, just in case.

(You should also check with your local laws on how your business structure (i.e. corporation, LLC, etc.) impacts your exit strategy because not all business structures can be easily passed on or continued after your death.

SALES FUNNEL

Once you’ve decided on a preferred exit strategy, you need to make sure that your sales funnel aligns with it.

Below, I’ve listed each of the preferred exit strategies from above, as well as some sales funnel tips to remember when aligning your exit strategy and your sales funnel.

  • Sell the business as a whole: Your sales funnel needs to be clearly written and repeatable. Your business’ buyer is not just buying the equity of your business’ name, they’re buying your entire “formula” with the expectation that they can continue running the business as successfully as you have been. Your sales funnel is part of your success. Record your sales funnel and keep track of what you do at each stage and step in your sales funnel.
  • Sell the business in parts: It’s not likely that you will be selling your entire sales funnel to a single buyer. (If you did, that’s basically your entire business and therefore your exit strategy would be the one above this one). However, by noting the various stages and steps and channels that you’re using in your sales funnel, you will find that you can target buyers more effectively when parting out your business. Instead of selling a mailing list, for example, you can sell a list that has a certain percentage of Audience, Leads, and Prospects, and you can clearly identify where they are in the sales funnel and what they’ve gone through already. You might even earn more for a list of Evangelists, for example, because you’ve noted that they are not only active Customers, they’re also telling their peers about their positive experience with your business.
  • Transfer the business: As with the exit strategy of selling your business in its entirety, this exit strategy requires you to “hand over” your formula to the recipient of your business. By creating a recorded, repeatable sales funnel, you empower the next generation of business owners to continue running your business in the same way.
  • Close down the business: If you sell an ongoing service, this could cause an issue among your Customers who are still expecting service even though you are finished with the business. Contracts will need to be honored, guarantees will need to be honored, and don’t forget that your online marketing may still be sending potential buyers to a website that is no longer running. Your sales funnel still matters here, even if you decide to stop your business quickly! When you choose to shut down, you can do so cleanly by staggering the end date of your marketing (ending your Audience interaction first, then your Lead interaction, then your Prospect interaction, and then your Customer interaction).
  • Run the business until your death: No one wants to talk about their own demise but your current and future Customers will appreciate it if you gave it a few minutes of thought. Your sales funnel will still run after your death. Imagine what would happen if someone bought an ebook from you, then contacted you about a problem they were facing with downloading, only to never hear back from you. Yes, they can get their money back but the Customers who hoped for good service from you would be disappointed. As uncomfortable as it may seem, seriously consider creating “upon my death” instructions for a friend or loved one to handle your business affairs. Prepare an email to send out to your list, perhaps with a recommendation for another service provider who can help them instead. Is it morbid to think about? Yeah, it is. But if you care about your sales funnel contacts now, the reasons you care for them don’t disappear after you pass away.

Every business has an exit strategy and every business has a sales funnel. Successful business owners will articulate both and will ensure that the two are aligned.

For more information about exit strategies, and to download a list of 10 exit strategies, check out my blog post Business exit strategies.

Want to take this idea even further? Consider some undesirable exit strategy scenarios (i.e. bankruptcy, natural disaster, defamation, disappearance of the target market because of an unexpected competitor) and create contingency plans that align with your sales funnel. For related information about contingency planning, read Top contingencies to plan for and I accidentally stabbed myself today. Here’s why you should be worried.

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