Nothing Happens Until Someone Sells Something

by Mark Munday

Published on this site: February 10th, 2004

It almost goes without saying. Increasing turnover is the most powerful performance driver in any business.

And because increasing sales is so important, an understanding of just how sales can be increased is very useful indeed.

There is a popular misconception that, if you want to increase sales, you must get more customers. But while selling to more people will certainly make sales go up, there are several other ways to increase turnover.

Turnover also increases when customers spend more each time they buy from you. And when they do it more often.

The easiest way to illustrate the different ways turnover can be increased is to look at the sales formula. But first we define the parts of that formula. Consider these variables in your business over a twelve month period :

Prospects - The number of people who express an interest in doing business with you.

Conversion Rate - The percentage of prospects who actually decide to buy from you, and become customers.

Average Spend - The average amount customers spend when they buy from you.

Number of Transactions - The number of times, on average, that customers buy from you in a year.

At the end of the year, your sales can be calculated by using this formula:

Sales = Prospects X Conversion Rate X Average Spend X Number of Transactions

Clearly, sales can be increased by improving any combination of the 4 variables.

You attract more Prospects to your business through advertising, cold calling, public relations etc. This is usually the most expensive part of the sale process. Spending money on advertisingcan become a bottomless pit.

Attracting prospects is also the least productive selling step. Because getting more prospects won't do you much good if you don't convince them to actually buy your product or service.

Converting prospects into customers involves spreading the sales process out, into a number of different relationship building steps.

Prospects will only buy from you when they are convinced that they are getting good value. And creating that perception is hard work!

The greater the value of what you are selling, the more important this becomes. Developing a robust multi-stage sales process, and conscientiously following up leads, becomes critical.

Buying decisions are seldom made on the first contact. And, according to the National Sales Executive Association in the US, you can increase your sales by up to 80% simply by following up!

Here are statistics from their survey findings:

2% of sales are made on the 1st contact
3% of sales are made on the 2nd contact
5% of sales are made on the 3rd contact
10% of sales are made on the 4th contact
80% of sales are made on the 5th-12th contact

Increasing your conversion rate can increase sales substantially : especially if the conversion rate is low to start with. For example, increasing the conversion rate from 5% to 10% doubles turnover.

The Average Spend is increased by cross-selling and up-selling. Cross selling means selling customers a different but related product, in addition to what they asked for.

McDonalds use this technique when assistants ask customers "Would you like fries with that?" Asking this simple question increased McDonalds turnover worldwide by $19 million a day!

Car dealers up-sell very effectively when they get customers to agree to buy the basic model. But won't let them leave before a number of high margin optional extras have been added.

The Number of Transactions is perhaps the most powerful sales driver. You have already attracted and converted the prospect. And selling to the same customer over and over again, makes tremendous sense.

Research shows that it costs six times more to attract a new customer than it costs to re-sell to someone who has bought from you before.

The more you increase the lifetime value of your customers, the more efficient your marketing becomes. You spend less on advertising, because you don't need to attract as many new prospects.

And there is an added bonus. Because your customer relationships become stronger, you get more and more free referral business.

So don't put all your eggs in one basket and rely on attracting prospects to create business success.

Look for opportunities to cross-sell and up-sell. And find ways to bring customers back more often, and over a longer period of time.

Spread your efforts across all four sales drivers. And watch the cumulative effect of even modest improvements in each one make a big difference to your bottom line.

As a Business Strategist and Coach, Mark Munday works with business owners to help them achieve their business goals. Go to http://www.StratPlanWizard.com to experience his revolutionary system for taking control of your business and turning it into exactly what you want it to become.