All businesses want to increase sales!
As a small business owner, you may be calculating next year's budgets right now as this financial year ends. You may have aspirational goals that you want to challenge yourself with by setting a sales budget for next year that is a significant percentage increase from this year.
Then, when you have set it, the doubts start to creep in!
"Can I really achieve that", you ask yourself, "it looks too much to achieve in just one year!"
However, if you break your annual sales into three components, you can increase your sales by just increasing one variable, and you can increase it exponentially if you tweak an increase to all three.
Your annual sales figure is made up of three components: -
- Your selling price
- The number of customers who buy from you in a year
- The number of times they buy from you in that year
Let's say that your selling price for Product A is $100.
Let's say that you have 300 customers who buy Product A from you during an average year.
Then, let's say that, on average, each customer buys Product A from you 1.5 times a year.
Given those facts, I can calculate your annual sales of Product A is $45,000.
I can calculate this because I know that 300 customers buy a $100 product 1.5 times a year, or 300x$100x1.5 equals $45,000.
Don't worry if you can't follow this off the top of your head. OTS Management has prepared a free calculator to help you determine the three components of your total sales. You can download it here.
So, let's say you set yourself a stretch goal that you want to increase sales of Product A from $45,000 a year to over $60,000 a year or an increase of 1/3rd.
On reflection, an increase of $15,000 on a base of $45,000 seems like a difficult increase! After all, you can't simply increase your selling price from $100 to over $130 overnight!
However, once you break down the total desired increase into small, incremental increases in the three components of total sales, it starts to sound possible.
In the first example below, you can:
- Increase the selling price by just 2% because you think people won't notice an increase from $100 to $102
- Find just 3 new customers or an increase of 1% from 300 to 303 customers, because you find it the hardest thing to do to find new customers, but you think you can manage three
- Increase the average number of times a customer buys in a year by just 0.5 times to 2 times a year because you have good relations with customers and you think you can get them to buy just a little more
Your sales of Product A could be $61,810 or an improvement of nearly $17,000!
You can reach an apparently unreachable target just by breaking sales down into its components and tweaking each component by very small amounts.
In this way you can set yourself smaller, achievable targets of a small price increase, just 3 new customers, and getting them to buy a little more.
In the second example below, let's say that you can't increase the price at all because you just did recently. However, you think you can increase the number of customers because you are about to go to a trade show, and you think you can get them to buy a little more through the year.
In this example, you can:
- Not increase the selling price
- Find 15 more customers at the trade show to increase the number of customers by just 5% from 300 to 315
- Increase the average number of times they buy to 2 times a year instead of 1.5 times a year, or an increase of 33.33%
In this example, you could increase your sales of Product A to over $62,000 - again showing how smaller, logical increases in just some of the three components can help you to reach an apparently impossible target.
Increasing your annual sales isn't just about increasing your prices or "going out and selling more".
Knowing what the three components of annual sales are, you can examine your own strengths and weaknesses and build the component that you have strengths in.
If your product is so good it can withstand a significant increase, that's where you build a part of your strategy. Or if you have great sales skills and you think you can increase the number of new customers or if you think you can get them to buy more, that's where you focus.
In summary, increasing your sales, even by a seemingly impossible number, could be about just tweaking one or more of the three levers.
If you want to start tweaking your three levers and see how you can increase your sales by making small incremental increases in either your selling price, the number of customers, or the number of times they buy, download our free spreadsheet here.
If you would like to discuss strategies on how you can sustainably grow your sales call us on 08 9242 2085, or email Teik at .,au or Amanda at .