Want More Profit? Focus on this simple metric
Originally sent exclusively to The Letter subscribers on April 21st. Want to be the first to get my personal newsletter in your inbox every Monday at 7am? Subscribe for free here.
Ideas for these letters usually come from my thoughts throughout the week.
I never plan them; I prefer it that way.
This week, I felt compelled to write after experiencing frustrations from one of the KPIs I track in my business.
I was not happy; we didn't hit the mark.
This prompted me to discuss two related points that come together neatly, like a Yorkshire pudding on a Sunday roast!
The first is Average Customer Value (ACV) or Spend Per Head (SPH) and the second is about diamonds.
On the former, tracking your average customer value or spend per head is, in my opinion, the most powerful metric for increasing business profitability.
Business owners, myself included, often fall into the trap of wanting to grow top-line revenue, believing that if the top line grows, the bottom line will surely follow.
We tend to focus on what is easiest: What were today’s takings? What did you turn over this year?
These simple metrics allow our brains to quantify results with little effort, and that’s why we do it
To determine our bottom line, we often rely on bookkeeping or accountancy, which can take until the end of the following month to truly understand how well we’re performing - we also may need the expertise of "Rachel from accounts" to help.
However, by tracking Spend Per Head or Average Customer Value daily using a straightforward dashboard, you don’t need anything fancy; there's this thing called Excel, which works beautifully like cheese and onion crisps - it just works.
Tracking this can significantly improve your business profitability.
Train yourself and your team to ask what the average customer value is each day, week, and year.
Make it an essential habit, and I promise you’ll love the results.
So will your bank balance. You see, by getting more from your existing customers - who already know you and may already be visiting your shop, restaurant, or warehouse, or engaging with your services - you’re leveraging a powerful advantage.
They trust you, like you, and already transact with you.
You’re part of their habits, and that is highly beneficial.
It’s already a success; you don’t need to do anything new - just tweak your customer relationships, remind folks about existing products and services they may not know about, and encourage them to return.
Supermarkets understand this well; they add more ancillary services and revenue streams for existing customers than I can keep up with.
I find counting hundreds and thousands on an ice cream is easier than keeping up with supermarkets' drive to help themselves to more of your hard earned beans.
Pop into Sainsbury’s, and you can buy pet insurance, get your eyes tested, exchange money for holiday spending, revamp your wardrobe, and even get a credit card.
Let’s not stop there; you can visit the post office and buy food there as well! Who knew?
In my businesses, I’m desperately trying to increase spend per head by making purchasing easier, providing better customer service, removing obstacles for customers, and striving to be the best.
Our brains are wired for growth, especially as entrepreneurs.
It’s simply who we are.
This brings me to my second point: usually, the diamonds you seek are right beneath our feet.
What does that mean?
You’re probably sitting on an abundance of opportunity.
You likely have a list of customers who would buy more from you.
All you need is a little effort, far less than getting new customers.
So before seeking diamonds elsewhere, just look beneath your feet.
Until next week, have a wonderful day.
Magically yours,
To your continued success,
James
PS. I went to Sainsbury’s this morning. The cashier had a name badge that said "Pat." Long story short, I'm not allowed in Sainsbury’s anymore.
PSS. Want to spend an evening with me in London? I’m hosting a show at the Leicester Square theatre on the 9th June, it’ll be a laugh. Tickets here.