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There are eight key drivers in a business, in every business. Some are more important than others, depending on your business. Watch the video to learn more.
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Read below for the video transcription.
There are eight key drivers in a business, in every business. Some are more important than others, depending on your business. But the first five deal with generating revenue,
The first is the number of leads are you getting the quality leads you need so that your sales people can convert them into paying customers.
So the second one is your conversion rate.
Your third one is your customer retention rate. Now I've been in the construction business for many, many years. It's what I specialized in as a CPA, but the customer retention rate, you're going to go, "Hey, I sell a deck. I sell siding. I'm done." And you go, "that's it."
But like when we had our home building company, we started looking at the longer, bigger picture. And we found that there was a certain demographic that we would go to them at the end of three years. And we'd say with a bouquet of flowers, a box of candy, maybe a basket of fruit, whatever. And we go:
“Hey, we know you've been living in the Straps community for three years. And by the way, we want to thank you. And here's a little gift, but by the way, when you bought this house, you were doing this, your spouse was doing that, and you had this many children did anything change or do you know anybody you'd like to have as your neighbor?”
And they go through it and believe it or not, we'd be able to sell an extra three to five homes a year based on that box of candy.
Now, the realtors cost us about $15,000 in commission three to five times $15,000, would that buy a nice dinner? And so we took a different perspective on that.
And then the fourth is your number of transactions per customer. For most of us, it may be one, but if you're doing maintenance packages or something of that nature, you could get that average number up and the average price per transaction,
Five: average price per transaction. How much are you charging? Are you charging the right price? Are you getting the right margin to cover? Not only your cost, but your growth as well and your salary? Are you growing, are you looking at the bigger picture?
Then you look at six, gross profit, which comes down to your materials, your supplies, your contractors, are you using the right mix? Is there any way to make that more efficient, drive your costs down, use less inputs to get the output. How do we make that better? Then we go into net profit.
Seven: net profit. Net profit is gross, profit minus payroll, marketing expense and your other overhead. And it's usually called fixed costs because the obligation is fixed from month to month. But here's the big difference.
Eight: cash flow. Are you driving cash flow? Which is, are you able to fund your receivables, your inventory? Are you able to get your debt payments covered? Are you able to buy more equipment? And most importantly, are you able to take more out of your business without hurting it? That's the key without hurting it.
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