Are you ready to take your small business growth to a whole new level? Of course you are. Now the question is, how is that possible? In this article, I'm going to show you the power of compounding math and how you can apply it to your business.
One of the most powerful small business strategies is to break your business down into three key areas, each of which affects the other. You can see these three areas below.
On the left side, we have visitors to your business's website. We also call these visitors traffic. There are many different ways to get visitors, from traditional marketing to digital marketing. When done properly, your business should be able to afford traffic at a cost that is far below how much the visitor is worth as a customer or client. We call this the cost of acquiring a new customer.
Moving to the right, we have your business's website. In today's digital world, this is a requirement. Your business website is operating 24 hours a day and represents your business so that you don't have to. The whole goal of the website is to convert a visitor into a customer or at least get them in your sales funnel. That's why it's important that the website is well designed and does a good job of converting a visitor into a customer or a promising lead.
As we move to the right again, we come to business finances. This includes everything from how much you pay to deliver a product or service all the way to how much the customer or client pays you to get it and everything in between. It turns out that there is usually a lot of optimization potential here to uncover, which can totally transform your business.
How They Affect Each Other
You're probably wondering what compounding math means and this is where we get to the fun part. Since each of the three areas affect each other, they end up creating an equation where improvements in each area multiply by improvements in other areas.
You're probably asking, what the heck does that mean? Let me explain.
More visitors coming to your website is more opportunities that they will buy your products or services, which is conversion, and based on your business finances, will give you more profit form that purchase.
Visitors x Conversion Rate x Sales = Results
If we take a look at the following table, we can quickly see how the math works. To calculate the total profit that our business makes, we take the visitors multiplied by the conversion rate, and multiply that by the amount of profit that we get from each sale.
Say we start with round 1, where we have 100 visitors, a 1% conversion rate, and we make a $50 profit per sale. If we multiply these together, we get an outcome of $50.
Watch what happens in round 2 when we double the traffic to 200, which now gives us a $100 outcome. Next on round 3, if we also double the conversion rate to 2%, then we get a $200 outcome. And finally on round 4, if we also double the profit to $100 per sale, the end results is a $400 outcome.
We only doubled our three factors here, but the end result is 8 times bigger! The math is $400/$50 = 8. Why? Because 2 x 2 x 2 = 8. That's what we mean by compounding math.
How To Improve
You're probably thinking, well that's a neat math trick, but how in the heck can I do that for my business? Great question. Let's look at each of the areas for the best ways to make improvements.
There are many different marketing channels that you can use to get more visitors to your website. If you go the traditional route, then options like direct mail, radio ads, TV ads, and printed media ads are typical.
However, for modern digital methods, you can choose between social media, pay per click ads, and search engine optimization.
If you look at the numbers, digital marketing is the best price in today's market. If your business is starting out, or if you need more visitors now, then pay per click ads are going to be your best option.
The only catch is that you can only get a fraction of the real group of people looking for your products and services. Why? Because only 5% of people doing a Google search actually click on a pay per click ad, and the rest click on organic search results.
That's why search engine optimization (SEO) is a much better solution. The only catch is that it takes a while before it starts working, and you will pay a lot more up front to get results. However, over the long run, SEO gives you the cheapest price for getting a visitor. If you want to explore how to use SEO for your business, check out our guide on local SEO.
If you need help getting more visitors, I am a small business marketing consultant. All you have to do to get started is hit one of the buttons below and I'll do the rest.
Perhaps the easiest thing to change on your website is the conversion rate. The reason being is that you can make changes to your website right now, test the results, and quickly optimize something that converts a lot better than it did before.
According to a Wordstream study, half of website pages have a conversion rate of 2.35% or less. That includes 25% with conversion rates of less than 1%. That really sucks.
In contrast, the top 25% performing pages converted at around 5.31%, and the top 10% performing pages converted at over 11.45%.
If we do some simple math here, depending on where your page is currently at, you might be looking at some massive wins. Not to say that your website pages suck, but let's pretend that they do and they are converting at 1%. What if we optimized them and got them up to 5%? That's a 5x change!
And if we really worked hard and brought in the big guns, what happens if we got it up to 10%. Well, that's a massive 10x gain. Forget about needing more visitors (for the moment), you just 10x'ed your business!
You're probably asking what does conversion rate optimization look like. It turns out that it's just like a science project that you did back in school. Remember the one where you planted bean seeds in several cups and in one you added water, the other coke, the other salt, etc?
Maybe you didn't do that project, but if you did, the whole point was to test the different seeds and how they do with the different things added to the cup.
We can do the same sort of tests on your website and use fancy tools called heat maps and scroll maps to figure out how people are interacting with your website.
The goal is to do several iterations of making changes, then taking data, and then making better changes based on that data. We do this over and over again until we get a final result that is converting like crazy.
If you want to learn more about how you can use conversion optimization on your website's pages, check out our CRO guide.
Keep in mind too that for your business, you may have an offline sales process that works in combination with your website. If that's the case, you'll want to make sure that your sales close rate is in top shape. Check out my sales process guide for tips on how to improve your sales team's performance.
When you think of finances, most business owners' eyes glaze over. The math and the discipline can be quite boring. However, if you use just a few simple concepts, you can really tune in your business so that it's ultra performing.
The main equations that you need to be aware of are simply:
- Gross Profit = Revenue - Variable Costs
- Net Profit = Revenue - Variable Costs - Fixed Costs
The reason for these two versions of profit are because we can use gross profit to compare products or services to each other, and we can use net profit to see how the business is doing as a whole.
Variable costs are the ones that change with the amount of products or services that your business delivers. While fixed costs are what your business pays no matter how many products or services it delivers.
If you really dig into your finances and reduce your variable costs and fixed costs, your net profit is going to drastically increase. In the average business case, it's not rare to see at least a 2x gain here after the optimization exercise.
To see how to implement this for your business, check out our business finance guide, where we go through several examples and have a great spreadsheet that you can use for your business.
If you have the right knowledge, then dramatically improving your business is not difficult. It's simply using the right tools to make changes that will increase your visitors, conversion rates, and sales profits.
When these three come together with their increases, the results are compounded because they affect each other. That gives us the potential to make some really huge gains in your business.
In fact, why not shoot for a 10x result? If we simply improve by 2.2x in each area, we've achieved an overall 10x result. What's holding you back from doing this for your business? A 2.2x increase in each of the three areas is reasonable.
Also, my focus is small business consulting. So if you would like some help in taking your business to the next level, all you have to do is book an appointment by clicking on the button below, or you can give me a call and I'll take it from there. What are you waiting on, let's do it.
Something to consider is what role your performance plays in your business. One of the biggest threats to improvement is limiting beliefs. Check out our guide on how to overcome those limiting beliefs here.