Most small business are built on the same business model and hence have the same profit drivers. when thinking about small business strategy, small businesses all have certain key similarities.
- customers
- goods/services
- cost of goods/services
Before thinking about strategies to attract more customers customers we need to understand the two main drivers which leads to a customer.
- how many people know about your business and the good/services that you provide?
- how many of them can you attract to become your customers?
Once a small business has acquired a customers, the obvious next step is how much money do we make from this customer. To understand this we need to understand the two drivers of revenue or gross income.
- how much does the good/services sell for?
- how many good/services does the customer buy?
Another way of seeing this is:
- how much value in a basket of good/services?
- how many times does the customer purchase in a given period?
In short, to find out how much revenue is generated per customer we need to know how much and how many.
Lastly, once a small business finds out how much revenue each customer is bringing for the business they need to understand their cost of acquiring the customer, goods/services. The driver for this is:
- Profit Margin
Obviously the higher the better, but businesses in certain industry group or businesses that sell certain type of goods/services will tend to have different margin. auto-manufacturers have lower margins compared to online business selling ebooks.
Summary
The five key drivers to small business profits are:
- Leads
- Conversion
- Revenue per Transaction
- Number of Transactions
- Profit Margins
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