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The 5 ways: a formula for exponential growth
Entrepreneurship can be learned! Here you get to know the most important formula for entrepreneurship.
We work with "The 5 Ways" formula to exponentially multiply profits in your business.
5 Ways
Brad Sugars’ formula shows that there are only five components that can make a business grow exponentially:
- Leads
- Conversion rate
- Repeat purchases
- Average order size
- Margins
Leads (1)
Leads multiplied by conversion equals the number of customers. Who or what are your leads? These are potential customers, those who have contacted you.
Conversion (2)
Conversion is the percentage of leads you turn into customers. These are the ones who have actually bought from you.
Repeat purchases (3) & Average Order Size (4)
When you then multiply the number of customers by the number of transactions - which are repeat purchases - and the average amount per order or sale, that gives you your total sales, total revenue.
Margin (5)
If you multiply your total sales by the margins you use, you arrive at your total profit. Many recruitment agencies also operate as employment agencies. This way, you can also test an employee to see if they ultimately meet your expectations.
So what about Customers, Profit and Turnover?
People usually ask about customers, turnover and profit. But above, we don't mention them and they are in red in the image below. Why? They are the least important!
Instead, it is the results of the other five key metrics. The key factors you can work on are the number of leads, your conversion rate, your repeat purchases or number of transactions, your average order size and your margins.
Let's enter a few numbers for clarification (or watch the video at the very bottom of this page for the maths):
Suppose you had 4,000 leads in your business year last year and you sold to one of the four, or 25%. Then that means you had 1,000 customers in your business. Now suppose they came back twice a year on average to buy something from you.
Some came 100 times, some once and some never again, but the average was twice. We multiply that by the average sales amount. For this example, let's take €100 as the average sales amount.
Doing this sum gives €200,000 in sales in this SME - 1000 (customers) x 2 (repeat purchases) x €100 (average expense) is €200,000 in sales. If we then use a profit margin of 25%, for example, you take home €50,000 profit.
Now we are going to work on the five factors. We are not going to try to double them, nor are we going to do any hocus pocus. We are going to improve them each by 10% and then by 30%. See the numbers in the image below? Those are rising tremendously.
Now for you, you may be increasing 10% in one area and in another area 20% or 30% or even more... Real results for growing your business are achieved by working on these '5 ways'.
Let us help you make the 5 Ways work for your business and grow your profits!
Contact us.
Kurt Vervloet
Kurt Vervloet is business coach, executive coach en CEO-mentor. Hij was 22 jaar leidinggevende, onder meer als algemeen directeur van een organisatie met 135 medewerkers. Sinds 2017 begeleidde hij meer dan 184 bedrijven, van ondernemers tot directieteams, en werd hij drie keer verkozen tot Coach van het Jaar in België en Nederland. Hij is auteur van The CEO Supernova and Het 03:07 Moment en ontwikkelde de CEO SUPERNOVA™-methode: een bedrijf bouwen dat draait zonder de eigenaar. Meer over Kurt
