I often hear business owner say, I need more customers. The number of customers is an Output or a Result. My recommendation is to look at the inputs and the realities around those.
The Customer Formula
Quite simply the number of customers you have is a result of the number of leads you have and how many of those leads buy from you, also known as your conversion rate.
Marketing Leads x Conversion Rate = Number of Customers
Why a Formula?
You might wonder why you even need a formula for telling you how many customers you have in any given time period. First, it shows you how effective your marketing is by seeing how many individuals are raising their hand when you educate them about your product or service.
Next, you see how many of those leads convert into sales. With this information, you can predict how many leads you need in order to convert a minimum number of leads into paying customers.
Knowing how many leads you need means that you know approximately how much you need to spend on marketing in order to reach your target. If you see that one marketing method is bringing in more leads, then you know to focus more of your budget there instead of on a less successful tactic.
For example, say that your paid search marketing generates 500 leads in a year. Of that number, you have a conversion rate of 20%. This means that you have 100 customers as a result of that paid search marketing platform.
Evaluating the Inputs
Maybe you want to set a goal of bringing in 150 new customers over the next year. With this formula in mind, you know that if 500 leads can bring you 100 new customers, then you know that you will need to either boost your conversion rate to 30% or increase your number of leads to 750 to have a better chance of reaching that goal.
So, when a business owner or executive tells me we “want more clients,” our conversation turns to what’s reasonable: more leads or better conversion rate or both?
- Can the business afford more leads? Can the team handle more leads?
- Can the team convert more of the leads they already have?
In Brian Tracy’s books on Way to Wealth, Brian talks about incremental growth. The goal in the Customer Formula is to look at the possibility of growing your leads and conversions even by 10% — a number reasonable in most business models.
- In our earlier example, if you had 550 leads and 22% conversion, you would have 121 new clients.
Next week we’ll look at the Way to Wealth Revenue Formula.