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Only 3 ways to grow a business. (1) Increase quantity of customers (through traffic + CRO), (2) increasing size of transactions e.g. increasing AOV through upsell/downsells and pricing changes, (3) Frequency of transactions. If you can work on 2 and 3, then getting new customers becomes easier because you can spend more to acquire a customer.
Despite all the noise and gazillion marketing tactics you hear about, the truth is – there are only 3 ways to grow a business.
And yes, of course there are specific strategies when we get into the weeds, but it really helps to always zoom out and get some perspective on what really moves the needle.
- The first way to grow a business is to increase the quantity of customers.
You might think this the most important thing in business, but it’s actually only one part of the puzzle.
You get new customers by either increasing the traffic to your business, or by increasing the conversion rate. Your front end conversion rate is the percentage of people that go from being a browser to an actual customer.
You might find this hard to believe but getting the actual traffic is the easiest part of all. The real challenge is turning strangers into customers, and then hopefully – into a long term relationship.
- The second way to grow your business is to increase the transaction size.
And like we talked about in the first part of this service, that comes down to your AOV (average order value).
And you can grow your AOV through a couple different strategies. The first is the actual price of what your selling, and the second is the number of items or services purchased. These are the only ways you can influence the size of your transactions.
- The third and final way you grow your business is through the frequency of transactions.
So we’ve talked about the amount of customers entering the door, as well as the size of the average transaction, the only other part to the puzzle is how frequently the customers transacts with your business.
Now, obviously this depends on your business model and industry. If you’re a plumber, you can’t force people to have issues with their plumbing.
But you can certainly be top of mind when they do have an issue. But for some businesses, you can even change the business model entirely.
Netflix obviously did this when they changed the move rental industry entirely. Back in the day, we would only transact with blockbuster when we actually felt like it.
But with Netflix, you get billed every month no matter what. And many businesses have followed suit by trying to pivot their business model to a recurring or subscription based model.
And again, I’m not suggesting that this would be applicable to every industry, but it does pay to think outside the box and try to increase the frequency of transactions if you can.
And remember, the more you can increase the transaction size and frequency, the more you can spend to acquire a customer and outgrow your competition.
If you can’t, then you’d want to focus more on the first 2 methods.
And of course, if you can optimize all 3 of these growth systems, then you’ll have an unstoppable business.
So whenever you hear about a new tactic or magical strategy, try to run through the lens of these 3 foundational growth methods, and ask yourself where it fits into the puzzle and if it’s worth your time and effort.
Until next time.
