Today we are going to talk about scaling your startup one step at a time. Please remember scaling up is not an overnight process. It requires tremendous creativity and relentlessness from the entrepreneur's part with loads of research, hit and trials and continuous feedback monitoring.
This specific scaling model is quite easy to understand and implement with minimal resources. This is something I call as marginal scaling. It can be applied to any businesses and industries. This process is completely ROI focussed and can help ventures attain profitability very quickly. It is extremely important to understand your venture's sales funnel for successfully implementing this strategy.
What is a sales funnel?
A typical sales funnel showcases how your target market gets filtered into leads and ends up generating revenues for your venture. So you a target market, the set of your prospective customer who might be interested in buying your product or services. In order to reach out to them you must create awareness. Once people are aware of your products or services you will start getting inquiries and leads and prospects. Some of them becomes your clients. And a portion of your client might return back for re-orders.
Once you understand the process we need to measure and monitor these parameters:
Reach (R) – which is defined by the number of people who are aware of your products or services.
Conversion (C) – The percentage of people who gets converted to paying clients.
C = Number of Paying Clients per month / R
Average value generated per client (V) – Over a month we measure the average revenue generated per client.
V = Monthly Revenue (S) / Number of clients served over the month
Total Revenue or Sales (S) over a month would typically be:
S = Reach(R) x Conversion(C ) x Value per Client(V)
Every entrepreneur's goal is to increase revenue and profit. But instead of focusing on revenue or profit. We should focus on the more fundamental parameters like Reach, Conversion and Value per client with separate initiatives. The secret to marginal scaling is to have continuous increment and monitoring with conservational expectations.
Reach is a direct function of your marketing initiatives. Let's target that next month we will try to reach 10% more prospective clients. This can be achieved via social media, emails, cold calling, SEO, Facebook or Google Ads and other online and offline initiatives.
Paralelly, we should also focus on the conversion. Let's target to increase the conversion rate by 10%. We can achieve this by improving the customer experience, promotions , proactive sales. For web or mobile apps making actionable landing pages, UI / UX changes can improve the conversion.
Average Value Generated Per Client
We should not forget the average value generated per client. We should also aim to increase this by 10%. You can achieve this by increasing your product or services price or look at opportunities to sell more to your present client. You can look at increase your returning customer through customer retention initiatives like Loyalty programs, promotions, coupons, targeted communication through emails, phones or text. Or you can look at up-selling or cross selling your client during the first transaction. This way you can get much more sales for a single client.
Its easy to get just 5 to 10% growth across each parameters, because you will be applying focussed initiatives. Although for this your budget is not increase by much. But the revenue growth is huge as it is compounded over three times. If you can apply this strategy to your business you can expect a monthly revenue growth of 16% to 33%.
Chart showing growth rates over month, 6 months and 1 year.
So you can see going through a structured approach by addressing the root causes can give you a excellent growth. Expecting growth across all the months would be a bit too optimistic. Just to re-iterate constant improvement and realistic expectations can really scale up your business. So you can see going through a structured approach by addressing the root causes can give you a excellent growth. Expecting growth across all the months would be a bit too optimistic. Just to re-iterate constant improvement and realistic expectations can really scale up your business.
Download your Excel Model for Marginal Scaling