There are only three ways to grow any business.
Using one method will help your business grow steadily but using all three methods will cause your business to grow exponentially.
This makes it much easier to achieve 100% plus sales growth in a short space of time, often with an even bigger increase in bottom line profit.
Where Did The Three Ways To Grow A Business Model Come From?
A lot of people mention the three ways to grow model or have created derivations from it (e.g. splitting customers into lead generation and lead conversion) but the first person I’m aware of to teach it was American marketing superstar Jay Abraham.
I try to give credit where its due but I also have my own version that focuses on bottom line profit rather than top line sales revenue.
What Are The Three Ways To Grow A Business?
- More customers
- More transactions in a period from the average customer
- A higher average transaction value
The Arithmetic Of Exponential Growth With The Three Ways To Grow Your Business Model
A simple number example will prove the power of the idea and the advantages of growing your business exponentially.
Suppose you have 1,000 customers who spend on average £100 per transaction and they buy from you 4 times per year.
Your total sales are (1000*100*4) = £400,000
That’s the number of customers multiplied by the average transaction value multiplied by the average number of transactions per customer.
If you increase any one of those factors by 10%, the total sales revenue increases by 10%.
Increase any one factor by 20% and the total increases by 20%
But if you focus on improving all three factors, something magical happens.
Increase each by 10% (1100*110*4.4) = £532,400 (an increase of 33.1%)
Increase each by 20% (1200*120*4.8) = ££691,200 (an increase of 72.8%)
This magic is called exponential growth and is the fastest way to grow a business.
The Importance Of The Lifetime Value Of Customers And The Back End
It’s easy to get so caught up in the exciting chase to attract and convert new customers that the importance of how much a customer buys over its lifetime is overlooked.
This is a key statistic in direct response marketing because of the effort and high cost of customer acquisition. Most marketers call this the lifetime value of customers although Jay Abraham calls it marginal net worth.
You can take action to increase this value ethically and with your customers’ best interests at heart if you follow the strategy of preeminence.
Beware Of Trade-Offs When Using The 3 Ways To Grow A Business Model
The three ways to grow a business model is also a reminder of what happens if you try to increase one factor by forcing trade-offs in another.
For example, one of the most common ways to try to get more customers is to reduce prices.
However if it’s an across the board price reduction, your results may disappoint because the number of customers increases while your average transaction value may reduce.
Some times it makes sense but it’s worth checking the arithmetic.
Cutting prices will reduce the average transaction value but will have an even bigger effect on the average transaction contribution margin. That’s the real profit you’ll be making on each sale.
That’s why the version I teach to one-to-one coaching clients has average contribution rather than average sales value.
One of my favourite sayings is “turnover is vanity while profit is sanity“. Just monitoring what happens to your top line revenues can mislead you to the real progress your business is making.
I encourage you to use the 3 ways to grow a business model to think about how your business can grow but have the right marketing measurement system in place to make sure that your bottom line profits are increasing.
These Three Ways Are KPI
I had to think about how I was going to classify this article.
Getting more customers is split across my lead generation and lead conversion sections.
Getting customers to buy more and buy more often falls into the revenue regeneration section.
In the end, I decided that monitoring the three factors belong in the section about your key performance indicators along with break even point analysis and cash flow.
Learning More About The Ideas Of Jay Abraham
The book, Getting Everything You Can Out Of All You’ve Got by Jay Abraham is excellent.
Jay Abraham Explains The 3 Ways To Grow A Business
In this 4 minute video of Jay at a seminar in Japan, he explains the 3 ways to grow model.
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