There are three formulas that Brian Tracy combines in his “Way to Wealth” books. Last week, we looked at the Customer Formula in the Way to Wealth.
The next Way to Wealth aspect is the Revenue Formula is another important formula in business growth.
The Revenue Formula
The revenue formula is a result of the average sale based on the amount of customers who purchased during a period of time.
# of Customers x Average Sale x # Sales Per Period = Revenue
Why a Formula?
We all agree it is necessary to track revenue so that you can see how much income your company is generating in any given time period. Here again, we want to remember that Revenue is an output. Inputs in this case are the number of customers you have and the amount sales for each period. You control outputs by controlling inputs.
For example, for a given period (day, week, month, year, etc) you have 100 customers. Those 100 customers have an average purchase was $30 over a period. This gives you $3,000 in revenue.
If you’re like most people, you want to increase revenues. The question is how? Most folks simply think, “I need to sell more.” However, the real answer is you either need to increase your average sale or the amount of customers you are selling to; which in turn brings us back to the Customer Formula.
Application for Growth
Perhaps your goal for next period is to increase your revenue to $6,000. The first thought is that you will need to either double the number of buying customers to 200 or you need to double your average sale to $60. Those can be unreachable goals. More likely, you’ll need to look at incremental growth in both the number of customers and the average
How to increase revenue:
- Evaluate the paying client base and determine how many customers are active and set your goal based on your goal.
- Determine the amount of the average sale and how can the sale be increased? Maybe this means that there is an opportunity to up-sell and/or to increase cost of product?
Brian talks about incremental growth. Knowing where you are with revenue helps you to make a better plan to drive more sales for your business.