Anyone can create a business, but few create businesses which generate millions of dollars. I’m not talking about a business that generates $1 million in annual revenue; I’m talking about creating a business that generates $1 million—cash—to you, each year.
It takes four things to build a business to provide you with $1 million a year in spendable, personal income. It just so happens, it also takes four things to drive a car. It will help me teach you by explaining these four things in the context of driving a car.
THE GAS PEDAL
The speed in your business is determined by the number of new customers you are adding every day, every week, every month, and every year. Your new customer acquisition is the “gas pedal” that determines the speed with which your business grows. How adept you are at putting new customers into your business will determine your growth rate. Similar to driving a car: the accelerator pedal determines how fast your car goes. While there are a lot of other factors determining whether or not you get to your destination, the gas pedal provides the speed for getting there. You must have a system for identifying potential clients and converting them into customers. Otherwise, it’s like going down the highway at 10 mph. You’re going to get there, but not very quickly. If you invest in building a customer acquisition system for your business, you will have the opportunity to quickly build a million-dollar business.
THE STEERING WHEEL
The steering wheel is what helps you take your speed and direct it to your destination. The steering wheel in your business is your ability to maximize your customer value by increasing: 1) the average sale you make and 2) the frequency with which your customers come back to your business.
A lot of business owners equate marketing with simply generating new customer traffic into their businesses. Its true new customer acquisition is your gas pedal, and it determines the speed at which your business propels itself to its destination. However, you can’t safely steer around a corner if you’re flying down the road at 70 or 80 mph, and if you aren’t steering your business, you are not going to arrive to your destination. You must also maximize the value of the customers you have by increasing the average purchase your customers make, and by increasing the frequency with which they buy from you.
McDonald’s is famous for increasing a customers average purchase with its Value Meal. Instead of somebody walking in and just getting a hamburger and a drink, if they order a Value Meal, McDonald’s increases the average purchase by forcing customers to buy fries. Now, people walk in and it doesn’t even occur to them not to buy the fries. After that innovation, McDonald’s introduced Super Sized, adding another $.79 to the purchase price. This may not sound like a lot, but it added a 20-percent increase to each sale. If you can increase the revenue of each sale by 20 percent, you create a significant increase in profit for your business.
How can you sell more to the customers you already have coming in? What other products and services can you offer them? Are there up-sales in your business? Are there impulse items, small items you can easily add to an existing purchase? Are there also big-ticket items some of your customers can buy? A certain percentage of your customers will buy very expensive, high-end products. Are you offering those to your customers as part of your mix of products and services?
Next, is increasing the frequency with which your customers are buying from you. Are you communicating regularly with your customers? Do you have a list of customers whom have bought from you in the past? Are you sending your customers information and following up with them to make sure you stay on their minds?
One of the best tools for communicating with customers is a monthly newsletter. It doesn’t have to be long, it can be four pages—or even fewer. I know some business owners who use one piece of paper, front and back, for their newsletters. These publications include some information from the owner as well as tips, recipes, and other fun items customers like to read. Sending a simple newsletter will keep your business in front of your customers on a monthly basis, so when a customer needs something in your business category, they’ll think of you. Certainly feel free to put in special offers or opportunities available only for newsletter customers. You can call your newsletter recipients a special club and give them new offers and opportunities to buy from you which aren’t available to the general public. If you need to increase your prices to the public in order to give your returning customers a discount, so be it. If you handle your recurring customers correctly, you’ll be able to steer your business in the right direction. Then the new customers you sell will accelerate you to your destination.
If you’re speeding down the road and don’t know where you are going, how likely is it you’re going to get to your destination? Consider this scary scenario: Nothing looks familiar, you make a turn, you don’t know how fast you’re going, you don’t know how many miles you’ve gone, you don’t know if you’re any closer to your destination, , it’s getting dark, and you don’t have any way of telling where you are. You’re propelling your car down the road, you’re able to steer it well, but you have no idea where you are going or how fast you’re going. Without a dashboard with its different gauges providing you information on miles driven or the amount of gas you have left, there’s little chance you’re going to end up where you want to be.
This is why business statistics are so important. They make up the dashboard of your business. You have to capture information about your business, so you are able to track how well you are getting to your destination.
I am a CPA, and I was trained in college how to create an income statement and a balance sheet to tell us how much cash is in the bank and whether or not we made a profit last month. At best, those financial statements are looking at the past, by several weeks or even months. This is like driving your car and only looking in the rearview mirror. You can’t get to your destination if all you are doing is looking behind you. You need forward statistics telling you in real time how your business is doing. Here are some statistics business owners building businesses generating $1 million in profit use to track their progress:
New Customers Acquired: This is your speedometer. Business owners need to track their new customer acquisition all the time. How many customers did you get today, this week, and this month? Compare this to your new customer acquisition goals, so you will know how fast you are traveling down the road. This tells you exactly how quickly you’re reaching your goals.
Average Purchase Size: This gives you information about one of your important steering mechanisms. Tracking average customer size for today, for this week, for this month helps you know whether or not your team is doing the up-sales they are supposed to be doing, and whether customers are buying the more expensive products.
Customer Purchase Frequency: This is another important gauge of how well you are steering your business. How often are your customers coming in and buying from you? Tracking this information is like having a “service engine” light on your dashboard. It gives you a warning if a customer hasn’t come back to you in a while, so you can follow up with your customer and find out why. It is important to your business to know if a customer has found a new company to buy from, if he has had a bad experience, or if he has simply lost track of you. If you have a significant number of customers who haven’t purchased in a while, that’s an important warning sign you are steering off the road. If you heed this warning, you can steer around service issues you need to fix within your business.
All of us have driven in a car with no air conditioning, not because we wanted to, but because we had to. Wasn’t it miserable, with the back of your legs sticking to the seat, your back all sweaty?
Driving a car in the heat of summer with no air conditioning is one of the most miserable experiences you can have. Sure, you can open up the windows and create a hot air breeze, but it doesn’t make it any more pleasant.
The thing which makes running a business pleasant, similar to airconditioning in your car, is a set of business systems to operate your business without your daily and direct supervision. Business systems which empower employees to run the business without direct and immediate daily supervision allow business owners to enjoy a pleasant lifestyle, without being tethered to their business.
Running a business without systems is stressful. Customers keep calling , you are dealing with vendor problems, and employees are frustrated all while you are trying to run a productive business. This is the same as driving a car without air conditioning, hot and miserable.
Running a business is much like driving a car. Once you learn how to do it, it’s a skill you will have forever. It’s something you can do without thinking about it. Experienced drivers can be driving for 30 minutes and then all of a sudden realize they haven’t been thinking anything about driving. They’ve been stopping at lights, they’ve been changing lanes, and at no time have they been thinking about what they’ve been doing. They are experienced at regulating the speed of the car, they know how to safely steer around other cars on the road, they are watching the gauges and monitoring their speed, and they’ve got the AC on to make sure they are comfortable. They can adjust all of those things at any time without giving it a second thought, all the while their minds can be on other things.
Experienced business owners who know how to create million-dollar businesses are the same as experienced drivers. They understand how to use the gas pedal of their businesses: the marketing is necessary to generate new customers. They can increase the new customer flow if they need to accelerate a little bit; they can back off when they are going too fast.Tthey keep the flow going because they understand how it works, and they understand what is necessary to achieve their goals.
Next, experienced business owners deftly handle the steering wheels of their businesses. They know watching the average sale and the frequency of sales are critical factors of running a business. When the average customer sale gets off track, they know they need to make some changes. If customers aren’t coming back frequently enough, they know they need to correct their steering.
These business owners keep an eye on their dashboards. They have the statistics they need, and they’re managing those numbers.
Finally, business owners have systems in place so they can run their businesses comfortably. They don’t have to be in the middle of daily operations. Instead, they can be somewhere else, a thousand miles away, and having their businesses run themselves. Because they know how to put new customers in, maximize customer value, and have the statistics they need and the business systems in place to operate their businesses from anywhere. You might say they’re on the trip of their lives, enjoying the scenery (and the AC)!