The Three Ways To Grow A Business Model is one of the most useful ways for thinking through the options you have to increase the sales value of your business.
It has been made famous by American marketing legend Jay Abraham although I’m not sure he can claim to have invented it as it arises from the arithmetic within a business.
The Three Ways To Grow A Business
The three ways to grow a business are:
- Increase the number of customers who buy.
- Increase the average sales transaction value.
- Increase the number of times a customer buys.
Often when people think about growing the top line, the automatic focus is targeted towards winning more customers (method 1) and little attention is given to getting more sales from the existing customers in terms of selling more and more often.
This doesn’t make sense when it is universally acknowledged that it is easier to sell to someone who is already buying than to persuade someone to start trusting you with their business.
Here is Jay Abraham explaining the fundamentals in this 4 minute video.
The Power Of Geometric Business Growth
Because total sales is the result of multiplying these three numbers, if you’re able to increase each of these numbers, they will compound.
- A 10% increase in each of the three factors leads to 33% growth (1.1*1.1*1.1 = 1.331).
- A 20% increase in each factor leads to 72% growth (1.2*1.2*1.2=1.728)
- A 30% increase in each factor leads to 119% growth (1.3*1.3*1.3=2.197)
Of course, in the real world, you’re not going to increase each factor by the same percentage but you can use the logic to reverse engineer a growth plan.
Suppose you want to double your business – i.e. a 100% increase but you don’t want to handle too many more customers.
If you accept that you can handle a 10% growth in the number of customers, that leads (2/1.1 = 1.818), 81.8% growth to come from the other two factors.
Then imagine that you believe you can increase the number of times a customer buys in a year by 50%. This automatically gives you a target for how much you need to increase average order values (2/1.1/1.5 = 1.212) i.e. you need to increase order values by 21.2%
As a quick check 1.1*1.5*1.212 = 1.9998 or rounding up 2.0.
How Do You Use The Three Ways To Grow A Business Model?
Within each of the three ways, there are many different individual techniques and it may help to further subdivide them.
For example, if you want to increase the number of customers you have, you can think about the different ways you can attract more qualified leads and enquiries to the business, or the ways that you can increase the leads that convert into customers or ways that you can discourage customers from defecting to competitors.
That’s relatively mainstream. There are an overwhelming number of ways that you can communicate a message to potential customers.
To get geometric growth, you need to turn your attention to the other factors by brainstorming the two questions that are usually overlooked:
- How can we persuade customers to increase the value of what they buy?
This will lead to answers ranging from “have a price increase” to cross-selling existing products in a much more structured way and then to adding new products into the range which your customers will want to buy before, at the same time or after they buy your existing products.
Breaking the topic down, you can think in terms of how you can get customers to pay a higher price, buy in larger quantities or buy extra, different items.
- How can we encourage customers to buy more often?
Your answers will depend on whether you meet primary demand (where customers are free to buy from you as often as they want e.g. a restaurant) or secondary or derived demand where they only need to buy when they sell (parts for original equipment manufacturers). The restaurant can encourage customers to visit more often by having special events and experiences, the OEM parts supplier needs to looking at ways to win more share or to find some way to help the OEM sell more like reducing lead times.
An alternative way to create a list of different ways to achieve these broad objectives is to open your eyes and look around you. What are your competitors doing? What are businesses doing in entirely different trades or professions?
Applying The Model In Your Business
I can help you to apply the three ways to grow in your business, if you’re based in the UK. Otherwise, there is plenty of information on this blog.