Growing a business is tough. Let’s face it. If you are like most business owners, your main focus is driving revenue growth.
Business owners are working tirelessly to drive traffic to their website, get people to their store, or set appointments.
Maybe they wonder how their competitors are doing it. Their big billboards. Their online ads. How are they even profitable?
The thing is, maybe your competitors are more profitable, so they can afford to pay more to acquire a customer.
Want to get in on that action? I’ll show you how.
In principle, learning how to grow business revenue is quite simple. In fact, there are only 5 ways:
I’ll show you how each lever can have a tremendous impact on your business.
"The business that can spend the most to acquire a company wins."
Revenue Lever #1
Increase the Number of Customers
All things being the same, if you can get more potential customers to see your offer or visit your store, there is a higher likelihood of more sales.
Obviously, more customers equal more revenue. Right?
This is where most business owners are focusing their time. Trying to find a way to get more customers.
But what if I told you there was a way to multiply your revenues? Not by focusing on more customers, but focusing on getting more out of each customer?
You see, too many businesses are transactional. They get the customer in, make the transaction, and start looking for the next customer.
But that’s not you, right?
Instead, by focusing on the other four levers of revenue generation, you’ll bring in more profit per customer. In turn, this additional revenue will allow you to power up your traffic generation.
This is a true 2+2 = 5 situation.
With this extra revenue, you can spend more to acquire a customer. You can start testing things like:
- Buying Ads
- Paying for Leads
- Online Marketing
- Content Marketing
- Direct Mail Campaigns
- And more
Sounds like a good idea?
Let’s take a look at the other 4 levers. We’ll get back this first lever, increasing customers, later in the article.
Revenue Lever #2
Increase Your Conversion Rate
Every customer you bring in has a cost, or what’s called a Customer Acquisition Cost.
How do you determine your Customer Acquisition Cost?
You simply divide the total amount spent on marketing to acquire customers by the number of customers acquired for any given period of time. For example, in January you spent $10,000 to acquire 1,000 customers. Your Customer Acquisition Cost would be $10.
Your goal should be to increase your Conversion Rate (the total number of conversions divided by the total number of visitors) in order to decrease Customer Acquisition Cost.
Let’s look at two examples for each of the scenarios above. Let’s also assume an average order value of $100 for easy math.
Brick & Mortar Retail Store:
- Conversion Rate - 20%
- Average Order Value - $100
- # of Customers / Transactions - 1,000
Taking the assumptions above, your store made $100,000 from 1,000 customers in January:
$100 (AOV) X 1,000 (# of Transactions) = $100,000 Revenue
With a conversion rate of 20%, 1,000 out of 5,000 customers actually bought. This means 4,000 people “just browsed” through your store.
If you could increase your conversion rate by 20%, matching the higher end of the average, your store would have made an additional $100,000 in revenue for a total of $200,000 in the same period.
E-Commerce Retail Store:
- Conversion Rate - 2.5%
- Taking the assumptions above, your store made $100,000 from 1,000 customers in January:
- $100 (AOV) X 1,000 (# of Transactions) = $100,000 Revenue
With a conversion rate of 2.5%, 1,000 customers purchased out of 40,000 visitors to your website. This means 39,000 people visited your website but did not buy.
If you could increase your conversion rate by 2.5%, matching the higher end of the average, your store would have made an additional $100,000 in revenue for a total of $200,000 in the same period.
Increasing conversion rates can lead to some amazing benefits!
- Increasing conversion rate means that you will make more sales given the same number of customers. You can double your revenue without bringing in a single “extra” visitor!
- Increasing conversion rate will also decrease customer acquisition cost. This means it will cost you less to bring in each potential customer, multiplying the effectiveness of your advertising dollars!
How to Increase Conversion Rate
Let's face it. I'm not a conversion rate expert, and I do not play one on TV. Instead of me trying to fake it, see Jabed's excellent tips in the linked article below.
Revenue Lever #3
Increase Average Order Value (AOV)
Like increasing conversion rates, increasing your Average Order Value (AOV) will allow you to make more revenue and profit from each purchase.
I find this absolutely fascinating. Ever grabbed a stick of gum while checking out at the grocery store? Have you ever added a pair of pants to your cart only to see a recommendation for the perfect shirt to go with them?
That’s AOV and impulse buying in action. And there is a whole science behind this.
Increasing AOV is key to running profitable ads in today's competitive landscape.
What is Average Order Value?
Average order value is the average of how much revenue you generated per order over a given period of time.
The formula is simple:
Average Order Value = Total Revenue / Total Number of Orders
Let’s say you average 1,000 transactions a month and each transaction averages $100.
Your total for the month is $100,000.
Now, if you can increase your AOV by only $20 by adding an additional product to each sale, you magically increased your monthly revenue to $120,000.
That is an additional $20,000 per month!
And here is the thing. Increasing average order value is often more valuable to the customer.
In fact, you may be providing a disservice to your customer by not providing them with these add-ons.
I worked at Circuit City, a now-bankrupt electronics store, selling car stereo equipment in college. When someone bought a radio, they also needed a wiring kit, mounting kit, and professional installation (three add-on sales resulting in around an additional $50 per sale).
Imagine a customer buying a car stereo. They choose to install it themselves. They get home, open the box, and are excited to install it in their car!
They take their dashboard off. They pull out the old radio and unplug the harnesses. They excitedly grab the new radio they just bought. Oh yeah, they’re going to be jamming out soon!
But wait, the harnesses don’t match. What are all these freaking colored wires? How does it fit back in the dash? The antennae connection is different.
Now, the customer must come back to the store to buy the additional items they needed to install the radio. Or worst case, they return it, and we lose the transaction.
This customer needed a few additional items to utilize the main item they purchased to its fullest potential.
Add-ons are a huge value to your customer.
A drink and fries were an add-on to hamburger sales. Now I can’t even imagine buying just a burger. I want fries and a drink, too. It provides an immediate revenue increase and just happens to include the highest margin product a restaurant sells - soft drinks.
How to Increase Average Order Value
The benefits of increasing average order value are that you generate more revenue per customer without any increase in marketing spend.
The implementation of this method is also pretty simple with a few tweaks to your sales process.
1. Create Product Bundles
Find products that are often bought together and bundle them into a package. Provide a discount to entice customers to buy the bundle and get an instant boost in AOV.
Tula uses the bundling technique to perfection with a whole selection of "discovery kit" bundles like this one:
2. Offer Free Shipping Just Above Your Current AOV
Determine your current AOV and add a free shipping option at a price 10% higher. Definitely play with the exact percentage for your business. Doing this will cause buyers to add an additional product to the cart to take advantage of the free shipping option.
80's Tees offers free shipping on orders $50 and up. As you can see, this shirt costs $36 and the majority of their tees are similar in price. This means to get free shipping, the customer would have to order a second shirt, increasing AOV and profit, even while eating the shipping cost.
3. Add Upsells During Checkout
Upsells during checkout can be used in several ways. You can simply offer to purchase more of the current product, offering a discount for additional quantities. You can add a personalization option for an additional fee. Or you can offer an upgraded product at a higher price.
At my duffel bag company, we offer the option to add your company name and your own name for an additional $10 each, before adding the product to your cart.
More than 50% of our customers choose both customization options, resulting in a $20 uplift on the sale.
4. Add Cross Sells
Like upsells, you can add a recommendation for cross sells for products that are complimentary to the product they are buying. Amazon is the absolute master of this, and their built-in AI driven recommendation engine is the key to their success. Still, you can do something similar.
Brickell does a great job of cross-selling with the Frequently Bought Together section just below the product.
5. Price Anchoring
Some may say this is a slightly more devious psychological tactic 👿. Offer a low, medium, and high priced tier. The buyer will more often than not buy the middle tier.
Squarespace lays out their pricing in four tiers, with the lowest at only $12 per month. Take a closer look. That is $12 per month if you pay for the year upfront, but if you want a month to month plan, that $12 jumps to $16 per month.
Secondly, they've added the "MOST POPULAR" icon right above the $18 per month plan. I don't know the numbers, but that little blue box certainly has made many Personal Plan buyers opt to go with the Business Plan. And I'm sure Squarespace has tested this!
Revenue Lever #4
Increase Repeat Order Volume
The first sale is the hardest. You have a lot of barriers to overcome.
Can you or your product be trusted? Will I be scammed? Will it work? Will it last?
Once you make a sale, you’ve established trust and credibility with the customer.
If you’ve provided a good customer experience, why wouldn’t they want to buy from you again?
Time and time again, I see business owners who do not follow up with past customers and/or continue to make offers to previous customers.
Many sales trainers say that it is six times easier to make an additional sale to an existing customer than obtain a new one.
There are two key terms to understand here, Repeat Purchase Rate and Lifetime Value.
Repeat Purchase Rate helps retailers understand how many purchases or orders their customers make after the first sale.
A good Repeat Purchase Rate is between 20% - 27%, highly dependent on the niche. It is calculated as:
Repeat Purchase Rate = Number of Customers Who Purchase More than Once / Total Number of Customers
The term for maximizing the revenue through repeat transactions for each customer is Lifetime Value or LTV.
LTV = The average total amount of revenue a customer spends with you through time.
"Increasing customer retention rates by 5% increases profits by 25% to 95%."
Creator of Net Promoter Score
Many companies lose money on the first transaction and make it up on subsequent purchases.
Some companies give product away for free because they know that a certain percentage of customers will buy and with their LTV, the campaign will be profitable.
You don’t have to get this sophisticated.
You do need to sell more to existing customers.
Whether it’s calling, emailing, or traditional mailers, keep in contact with your customers.
Make them feel special. Delight them. Provide spectacular service.
Define your best customers. Holy crap, hardly no one does this. Treat them special. Call them. Give them special privileges, special coupons, first looks, something.
Increasing your repeat order volume allows you to make more money per customer. Knowing your customer lifetime value will help you determine how much you want to spend to acquire new customers profitably.
How to Increase Repeat Order Volume
Add a subscription service. Subscriptions add an immediate after sale revenue stream. You'll get reorders until the term runs out or the customer decides the subscription is no longer worth the cost.
It is amazing how many business models can implement this tactic. You just need to be creative.
John Warrilow's, The Automatic Customer, is a great book that details the different subscription types that businesses can implement.
Take BarkBox for example, Dogs have moved from living in the backyard in a dog house to an actual member of the family with a spot in their owner's bed. BarkBox took the love people have for their dogs and made a simple subscription box with goodies for your puppy that come monthly!
2. Win-Back Campaigns
At the point of purchase, you must collect email and physical addresses. With these in hand, you have the ability to contact your customer after the sale.
With a win-back campaign, you can use email or snail mail to send out coupons, related products, or services, or even just a thank you note. I also like the idea of segmenting the biggest spenders (whales) into a separate list. Then, call your whales or send them special promotions and first-looks at new products.
3. Free Samples / Swag
Add free samples of your other products or swag such as stickers within each shipment.
As an avid workout enthusiast, I've tried plenty of protein powders, creatine, and other supplements. The savviest supplement companies and health stores include product samples when you purchase. This gives the customer a chance to try a new product and gives them reason to come back and buy more.
4. Product Catalogs
Do you have a ton of SKU's? Add a product catalog to each shipment.
This is such an underrated tactic and should absolutely be used by more companies. ULine adds a catalog for every shipment. I'm not even interested in office supplies, but I have looked through the catalog.
The magic in product catalogs is when your customers are passionate about your niche.
Two catalogs that stand out to me are Crutchfield and American Muscle. I devoured both and even circled product I planned on buying in the future. This time however, I didn't search, I bought from them because I had the catalog and knew exactly what I wanted.
Revenue Lever #5
Increasing prices is literally the easiest thing you can do to immediately increase revenue.
It is also one of the scariest things to do. What if your customers get pissed off and never come back? I know. I’ve been there.
I own a heavy-duty industrial work bag company. Our costs were going up every year, and we were making less money. Every year. We were already the premium (most expensive) bag in our market so I was scared to death to raise prices.
But I had to do something. I ended up raising the price on all our bags by $10. Then, I prayed that I wouldn’t get blasted by angry customers.
Guess what happened. Nothing. I got one email from a customer saying he was looking at a bag yesterday and now the prices were higher. I sent him a $10 off coupon.
No other complaints. Yet, revenue increased. Magic!
Let's be completely transparent. Orders did drop by 14.68% and my conversion rate dropped 11.67%.
But. And a big BUT...
My revenue and AOV increased. Although we did see those # of transaction and conversion rate decreases, we were more profitable,
Obviously, you can’t go crazy with price increases, but if you do it smartly, it is a simple way to make more money or keep your margins in line as costs rise.
The big thing with raising prices is to test. If you see a huge drop in sales, you’ll know you need to adjust your pricing. Just know that it isn’t as scary as it sounds.
How to Increase Prices
1. Immediate Prince Increase vs. Gradual Price Increase
One way to increase prices is to just increase prices. This could be a percentage increase across the board, or you can strategically increase prices on a per product basis.
Alternatively, you can opt for a gradual increase in prices. Raise prices one product at a time, initiate a yearly increase, or utilize price increases only when your manufacturing or supplier cost increases.
2. Sneaky Surprise vs Notifying Your Customers
When I increased my prices on my website, I simply increased the prices. I did not notify anyone. I did not post it on social media. This worked for us.
In fact, we only had one complaint because the customer was looking at our products the day before. We gave him the old price, and everyone was happy.
Other businesses will want to notify customers of a pending increase. This can also work in your favor if you know you have people sitting on the fence because you could force an "urgency event" where customers want to purchase before the prices increase! You can notify them by email and posting on social media.
3. Test, Test, Test!
Don't just change prices without having a way to test how it impacts your business.
Ensure you have a system in place to measure your Total Revenue, Number of Transactions, Conversion Rate, AOV, & profitability.
E-commerce stores can easily utilize their Google Analytics set up with e-commerce tracking or their analytics dashboard on their shopping cart platform. Brick and mortar stores can use their POS system. Others may have to develop their own system.
Don't skip this step. You might be surprised what you find when lowering or raising prices!
Putting It All Together
Revenue Lever #1: Increase Traffic
Here is where the magic really happens.
Once you've taken steps to:
- Optimized your conversion rate
- Increased your AOV
- Increase your Repeat Order Rate
- And Maybe even increase prices,
You will have seen revenue increases in each category.
But now, it's time to turn on the traffic, and you'll see all of these revenue levers working together to build a cash machine!
Increasing traffic comes top of mind for any business owner. It's all about loading the funnel, right?
Optimizing the entire customer journey through the other four growth levers will boost your profits and allow you to spend more to acquire customers than your competitors.
Let's take a quick look at the impact of increasing each lever individually. Here's our table of assumptions we'll be working with:
We'll use this data to apply the increases to each of the five levers.
Lever 1 - More Traffic
If you were able to increase your traffic by 10%, you would increase revenue by $10,000 per month.
Lever 2 - Increase Conversion Rate
If you were able to increase your Conversion Rate by .5%, you would increase revenue by $20,000 per month.
Lever 3 - Increase AOV
If you were able to increase AOV by 20%, you would increase revenue by $20,000 per month.
Lever 4 - Increase Repeat Order Volume
If you were able to increase Repeat Order Volume by 10%, you would increase revenue by $15,000 per month.
*Note that this is assuming your AOV stays the same. You're reorder AOV will largely depend on the type of product you sell.
Lever 5 - Increase Prices
If you were able to increase Prices by 10%, you would increase revenue by $10,000 per month.
Total of Individual Increases
$75,000 Per Month
Your Cash Machine | The Cumulative Increase
The most interesting thing about the 5 Growth Levers is that they do not happen in a vacuum.
Sure, you will see an increase on each lever individually, Yet, the magic is when you start to see how they affect each other.
When you add additional traffic to the system, the increased conversion rate means a greater percentage of those visitors are turning into customers. More conversions will lead to more repeat customers.
Similarly, when you increase prices, your AOV will go up even higher.
In fact, if you applied the cumulative effect to the exact same level of traffic (40,000 visitors), you would see an additional $7,160 per month.
So, let's add 10,000 more visitors to the store and see what the cumulative increase in revenue will be:
Total of Cumulative Increases
$127,700 Per Month
Now, I understand that adding 10,000 more visitors isn't exactly easy to do organically. If you haven't been able to run profitable ads, this may even seem impossible.
But once you have these optimizations in place, your Customer Lifetime Value will increase allowing you to run profitable ads. If you really hit it out of the park, you'll even be able to outspend your competitors at a profit!
As you can see, focusing on the 5 levers of growth can bring outsized returns.
Is there anything I missed? Let me know in the comments!