A while ago, I had a client who nearly went bankrupt.
- It wasn’t because they were unprofitable (they made 30% margins on each sale);
- It wasn’t because they couldn’t find anyone to buy their product;
- It wasn’t because they didn’t have any leads (they had thousands!);
- It wasn’t because they somehow “faked” their numbers somehow;
…It was because their average sales cycle took 600 days.
Their slow cash flow velocity was killing their business!
The Way We Think About Marketing and Sales Is Fundamentally Broken
As marketers, we talk about metrics like “Profit Margins” or “Leads” or “Sales” – and how they decide whether a business will be successful.
And they’re good metrics.
But they don’t tell us SQUAT about the health of a business, by themselves!
Velocity, Volume, and Value
There’s another way to measure – and improve – the health of a business:
In the same way that you might increase the amount of sunlight, food and water a plant receives to make it grow – if you want to grow a business, increase its Velocity, Volume, or Value.
“Volume” is the most obvious (and common) factor that business owners focus on.
- Increase the number of purchases made by getting more leads (Traffic);
- Get them to buy in greater numbers (Conversion Rates);
- Or getting them to buy more frequently (Repeat Sales).
It’s easy to overlook opportunities to increase volumes though.
Last week I did a review of a client’s Google Analytics stats – and found one tiny (and ridiculously simple) tweak they could make to their business to double their sales.
He had capacity in his sales team; He was advertising profitably; And there were plenty of untapped potential customers available in his market.
All he needed to do was double his ad budget – and he’d double the number of leads he brought into his business.
“Value” is where business owners begin to overlook opportunities to increase their profitability.
- Reduce your fixed or variable costs (Margins);
- Increase the value of an individual purchase by increasing your prices (Average Item Sale);
- Increase the total value of items purchased in a single transaction (Average Sale Value);
- (Perhaps the way to do this in your business is by finding additional products that you can release that support your customers (Added Value));
- Keep customers for longer (Average Customer Value).
While the effects of these tweaks are obvious, they’re often overlooked as opportunities to improve the health of businesses.
“We’ve tried that before” or “Our customers won’t pay that much” are excuses. Perhaps your old customers will react poorly to a sudden increase in prices – but your new customers provide a stream of opportunities for growth and experimentation.
Velocity is the ONE factor that NOBODY seems to measure or pay much attention to.
But – as you heard in the story at the start of this post – it has a MASSIVE effect on client profitability because it allows you to invest the same dollar of capital over and over again… And this creates a compound effect on everything else you do.
- Remove barriers to purchasing (an aspect of conversion rate optimisation);
- Reduce the length of the sales cycle (Velocity of Sales);
- Increase the frequency of sales (Repeat Sales Velocity / Frequency of Sales);
- Reduce the time it takes to complete a transaction by delivering faster (Transactional Velocity);
- Cut down processing times for invoicing, or reinvesting that money into your ad budget (Velocity of Money);
Remember how I said margins, leads and sales are all deceptive ways to measure the health of a business?
One of the healthiest businesses I’ve ever seen had just 3 customers, 0 leads, and 2% margins.
It was a debt factoring business that would buy debts from those 3 customers, and sell them within weeks. It was a multi-million dollar enterprise run by one man in his spare time and could double in size every three years. A fast velocity of money turned this business into a monolithic money-making machine.
Another client (from the ecommerce industry) runs on razor-thin 1-3% profit margins. Every time he runs an ad, he makes sales almost instantly – which he then reinvests back into ads as fast as bank transfer times allow. Every $100,000 he invests into ads at the start of the year becomes about $1m in profit by the end of the year. Needless to say, he’s very rich, very happy man.
Q1: How can YOU grow the Velocity, Volume, and Value within your business? (For ideas, review the bullet points above.)
Q2: Are you too focused on getting more leads and making more sales (Volume) – and overlooking opportunities around Value and Velocity?
Having trouble reading the numbers in your Google Analytics account?
Worried you might have missed opportunities for big profit increases?
Let me review your Google Analytics account, coach you on how to read the numbers, and show you the opportunities for growth that I find in your business.