business as usual largeYou finished the meeting with your accountant. He says that the business needs to change if you want to retire in three to five years.

How can he say that! Where does he expect you to make the changes to the business? That’s it! You really need to sell this business, but you need to recover your nest egg for the future before you do!

Six Levers

The above scenario is hypothetical. [quotesright]When faced with the need to transform your business and create your retirement nest egg, where do you begin? [/quotesright] First, begin by reviewing these six areas within your business:

  1. How many sales leads are you generating per day?
  2. What is your conversion rate for each lead?
  3. How can you increase your customer’s average dollar value per transaction?
  4. How do you increase loyalty and up the frequency of each customer’s purchase?
  5. What specific actions can reduce your product and transaction costs?
  6. What strategies will reduce overhead without affecting performance and productivity?

These six areas touch every aspect of your business. Each question addresses specific areas of your profit and loss statement. By identifying strategies to improve each area, you [quotes]can generate significant increases in revenue and profits.[/quotes]

It’s the answer to the question: “How to eat a whale?” Answer: One bite at a time.

Lead Generation and Conversion Rate

The first question is about lead generation. Most businesses make this a function of the sales team. Lead generation, is all about segmenting and targeting your customer base to generate closable new leads for the sales team.

Your marketing efforts have a direct correlation to the quality and type of leads you receive. [quotes]Are you generating qualified prospects or just tire-kicker time wasters?[/quotes]

Good leads come from non-sales areas too. Each phone call to your customer service line can help generate “new” leads. These calls can create new referrals, in addition to the existing services discussed or provided – if you handle customer service properly.

The second question focuses on the conversion rate of leads generated. Conversion rate can simply be defined as the sales process for overcoming objections, closing the sale and collecting the money.

If you have a good understanding of your customer base, then you know their needs. As such, your product or service already provides a solution, [quotesright] if you are not delighting your customers, it’s a signal to look at your product line and quality control. [/quotesright]

Assuming you are generating closable leads and have a quality product or service, your sales team will usually need to overcome specific objections from prospects. These objections come in many forms, and usually price is the least important objection creating concern from customers.

The best way to increase your sales team’s performance is to look within the team. Who is your best sales person (inside sales or external sales)? How does he or she overcome objections? What can your other team members learn from your top performer? How can you transfer this knowledge?

Customer Spend and Frequency

The next two questions focus on your existing customers. The spend per customer transaction (transaction value) is a function of the goods and services you sell. To increase the spend, start dissecting your customer’s needs. [quotesright]If you sell products, can you offer additional services? [/quotesright] For instance, if you sell coffee, is the customer willing to buy a bagel? If you sell HVAC equipment, can you feature a maintenance contract? If you sell cleaning services, can you expand into light maintenance?

The fourth question focuses on customer loyalty. You want your customer to return to you more than once per year. Consider a customer loyalty program or card to get that additional sale. Can you offer an automatic reminder service? Is there an additional product that is complimentary to your current offering? What goods or services do your customers want in the future?

Control Your Costs

The fifth and sixth levers zero in on cost containment. Although it seems relatively simple to cut costs to increase profit, but [quotes] you cannot simply cut your way to prosperity.[/quotes] You’ll need to deploy a range of strategies to improve margins.

Start with a deep dive into your cost of goods sold (COGS). Each business has a different supply chain and reducing costs can be complicated. Here are some ideas for you: If the business is big enough, re-negotiating supplier contracts can help reduce costs. Inbound freight can also be a cost saving opportunity. If you have an opportunity to join a “buying group” for your industry, then you can leverage the combined volume of the group for better pricing. Lowering your COGS, may even be as simple as examining your product mix and better matching your offering to your customers’ needs.

Direct manufacturing labor and overtime usually falls into your COGS category. If overtime charges are becoming excessive, then it is time to re-examine your operations and understand what is the root cause of persistent or excessive overtime.

[quotesright]For most businesses, your COGS may be as high as 65 percent of your revenue stream. [/quotesright] Therefore, spending the time to make even a small reduction in your COGS can have a significant impact on your bottom line.

Finally, let’s not forget administrative overhead. Usually, this is a fixed cost independent of volume. Yes, this is usually where higher priced sales and administrative salaries live. Making reductions here may need to involve a slight reorganization. Alternatively, it may just need to be a reallocation of your marketing expenses. [quotes]As the business landscape changes, high priced advertising dollars are needed less.[/quotes] Digital platforms and loyalty programs pay higher dividends for both customer retention and referral business.

Summary

If you need a starting point to improve your business, consider these six levers. Each lever is tied to a specific part of the P&L statement. Because of the leverage that each of these strategies has on the business, these changes are not just additive; they can be multiplicative and transformative.

The financial impacts of [quotesright]just a 5 percent improvement in each of these six areas can actually DOUBLE the net profit for a typical business. [/quotesright] (We will review the financial proof in a separate article). So, even as you prepare your business for a sale or exit, you can protect your retirement nest egg by implementing these six strategies within your business.

  •  - By Coach Greg Gregga   
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