How To Increase Your Average Revenue Per Customer
By Bryan Santos
One of the first things business owners usually want to know is, “How can I get more customers?”
While getting more customers is great, my first recommendation is to not do that.
That’s right. Do not get more customers.
At least don’t get more customers without looking at the resources and things that are at your disposal currently.
The main reason is that getting more customers is usually a lot more expensive than other immediate opportunities. It just cost more money. It also often takes more time. And it often takes up more resources and effort.
Yet that’s what most business owners want as their first wish.
Let me show you what I mean.
Let’s say in the last 12 months you had 1,000 clients come into your salon and pay for your services or products.
Let’s assume that on average they spend $50. Sometimes it would be more, sometimes it would be less. But on average $50.
Let’s also assume they would purchase your services or products an average of 5 times in that 12-month period.
What that would mean in this simplistic example is that your revenue for the year would be $250,000.
| Year 1 | |
| Number of Customers | 1,000 |
| X | |
| Average spend | $50 |
| X | |
| Number of times they buy | 5 |
| = | |
| Revenue / Sales | $250,000 |
But that’s just your revenue. You don’t want to look at your business just from a revenue perspective. So let’s say that all your expenses, which include rent, wages, stock and other bills added up to $187,500 for that year. That means your expenses equate to 75% of your revenue.
In other words, you are left with 25% in profit.
| Revenue / Sales | $250,000 |
| X | |
| Net Profit Margin | 25% |
| = | |
| $62,500 |
Let’s Take a Step Back to the Future
Picture that in another year from now you haven’t increased the number of new customers. You have the same amount as last year.
But, you have put effort into increasing their average dollar spend from $50 to $55 – just a 10% increase.
You might have increased your prices, created packages and so on. There are a lot of ways we can do this. And a 10% increase is very simple and quick to do.
It will also not cost you much, if anything at all, to do.
You also get your customers to come back only 1 more time in that entire year to buy a product or service with you. Just one more time – from 5 to 6 visits in a year.
That means that your revenue for the year has jumped from $250,000 to $330,000 – an $80,000 increase!
To take that further, let’s say that we increase your profit margins from 25% to 27.5% (just 10% improvement).
Your profits would increase from $62,500 to $90,750 – that’s a 46% increase!
| Year 1 | Year 2 | ||
| Number of Customers | 1,000 | 1,000 | No increase in customers |
| x | x | ||
| Average spend | $50 | $55 | 10% increase |
| x | x | ||
| Number of times they buy | 5 | 6 | Just one more visit |
| = | = | ||
| Revenue / Sales | $250,000 | $330,000 | 32% increase in sales with no increase in customers |
| x | x | ||
| Margins | 25% | 27.5% | Small increase in margins of 10% |
| = | = | ||
| Profit | $62,500 | $90,750 | A huge 46% increase in profits without increasing your customers |
Just think about that for a second.
What were your profits last year?
If you don’t know them, you really should and we can speak about that in another article.
If you do know, how much was it?
Now get a calculator and multiply that by 1.46 which is a 46% increase. How much more money will that make you in profit?
I’m telling you that it’s not that difficult to do. It’s definitely within reach if you know what to do and how to go about it.
Where to Get Those Results in Your Business
It’s actually more about where to look in your business that can create quick profit increases with the least amount of money.
Staff
I may have mentioned this previously, but one of our students in the Business Acceleration Program was able to triple her business within months of doing our program. One of the main things she attributes it to is her mental shift in how certain staff were treating the business, fellow staff and the owners herself.
I see it too often in businesses where there are staff members who are toxic to the business and the morale of the team.
Great staff can grow a company significantly. At the same time, bad staff can make a business lose money and even go bust.
Have a good look at your staff situation. Are you making the most of your current staff situation? Are they causing staff morale issues? Are they not doing things the way you know can be done – leading to quality issues, wastage, client dissatisfaction and so forth? Are any of your staff “controlling” aspects of your business such as client relationships which makes them feel that they have power in the business?
Staff are usually your biggest expense. And they’re the ones you’re going to spend the most time with (sometimes more time than your own family).
So if there are issues like these, seriously consider your options of whether to replace them or re-shift their role and position in your business.
In my experience this is the one biggest influence that will change the success and direction of the business.
Where Are Your Bottlenecks?
This is a big one. There are at least a handful of major bottlenecks in your business that if fixed could dramatically improve profitability.
Picture a garden hose. When there’s a kink or fold in it, the water trickles out. Once released, the water starts flowing. There are a lot of these kinks in most businesses.
Areas to look at where bottlenecks could be in your business:
You (the owner)
Sorry to sound a bit harsh, but often the owner of the business can get in the way of the true potential of a company.
Sometimes you want to do everything yourself because it saves time and/or money.
Sometimes it’s a lack of understanding about managing finances and therefore you don’t know how to improve your profits.
Sometimes it is a fear of certain things such as dealing with problem employees or a fear of not going out to market your business to your local area.
What areas can you either improve in as a manager and leader of your business or give to someone else who is better at that than you are?
Systems and Workflow
Believe it or not you have systems in your business that you’re using right now. The problem is, most of the time they’re systems that you fell into not necessarily because it’s the best way to do things.
Without good systems, processes and workflow, it’s going be harder for you to grow your business.
Finances
Without having a clear understanding of your numbers, it will be difficult to know what areas you need to improve. What are the areas in your business from a financial perspective that are bottlenecks for you?
Booking out time in your appointment book to reflect on these issues is time well spent. Take some time this week to do just that.
About the Author
Bryan has been working with businesses to grow and improve their sales and profitability since 2001. Having worked with hundreds of businesses owners advising and helping to improve their businesses, Bryan has a breadth of knowledge and deep understanding of business that includes:
- Business and corporate finance
- Cash flow and profitability strategies
- Sales and marketing
- Staffing – recruiting, team culture, management development and personality profiling
- Growth by acquisition
- Exit strategy and planning
Bryan currently works with businesses around Australia and the United States.
Bryan is also involved in capital raising and private equity that sees him involved in advisory and deal making in mergers and acquisitions of companies across multiple industries, in multiple states and countries.
