The Idea:
´There is a simple cause-effect equation running through your business, and all your results depend on the level to which you understand it and improve the factors affecting it.By studying it and learning how to measure a few crucial metrics, you will learn how to accelerate the growth of your business exponentially.
In the video above, I explain one of the core concepts I developed over my career. I call it The Money Equation™ and it is a simple concept that helps you understand the cause-effect equation that runs through your business.
The premise is that everything you do in your business leads to a result, and if you can quantify and measure that result, you can optimize and maximize those results.
Each Money Equation will look a bit different, depending on the type of business, processes, etc., however, the core equation looks the same for all businesses:
Nr. of Leads
x
Conversion %
=
NR. OF CUSTOMERS
x
Average Value Of Transaction
x
Nr. Of Transactions per Customer (CLV)
=
TOTAL SALES
x
Margin %
=
PROFITS (EBITDA)
Here is how to put The Money Equation™ into use:
1. Start by mapping your value chain (core processes).
What are you doing to generate leads (sales opportunities)?
How are you measuring your efforts?
2. Define your key metrics and develop a tracking system
How do you define a lead?
How do you capture leads?
How do you reach people?
How do you connect with them?
How do you activate people who show an interest?
How do you move them into your sales funnel?
How do you convert?
How many do you convert?
How do you follow up with past clients and prospects that did not convert?
What is your value delivery process?
How many clients do you retain?
What are your prices and margins?
etc.
By carefully planning and measuring each step, you can start to measure and optimize your efforts. For most businesses, this is a complete game changer.
3. Implement growth strategies and tactics across your system
At my company (The Simple Company), we identified over 150 ways to optimize and maximize the results across the system (we call it The Business Engine). By making seemingly small improvements here and there, you can achieve exponential growth.
In the above picture, you can see how seemingly small improvements across The Money Equation of a marketing agency led to massive growth. The valuation (nr.7) was speculative and included joining a roll-up to achieve a higher exit multiple).
Summary:
I hope that you see how The Money Equation™ provides a simple, systematic lens and approach to growing your business.
If you’d like to assess your current situation and book a discovery call to discuss your situation, please use this link to book a call.
