For many businesses and individuals, the plan they created earlier this year to reach their financial goals is now obsolete. And with so many unknowns still in play, likely for some time to come, it can be difficult to create a new plan that delivers results quickly.
There’s some simple math many of us can do to help us figure out our immediate next steps. It applies to a wide variety of businesses and industries … and also to commissioned salespeople, freelancers and service providers.
What’s the formula? And how does it work?
There are seven steps to this formula. You’ll need access to pen and paper, or perhaps a word document, and a calculator. Ready? Let’s get started.
Step 1
What is the average worth to you of one client for one year?
I realize this is a difficult question for some of you because you have such a broad range of clients and costs/fees. Don’t let the search for this number slow you down too long. You want to get to the end of this formula so you can understand its magic. Take a guess at the average and revise later, or take the time to figure out an actual average.
Late last year I spent time figuring out my actual average. I wanted to increase my own revenue in 2020 by $100,000. I went through and patiently added up two years of billings. My average worth of one client is lower than I expected (time to raise my fees?) but makes sense in terms of the amount of not-for-profit work I do. My average worth of one client for one year in January 2020 was $2,427.
Step 2
How much money do you want to bill in the next 12 months? (You can revise this to the next 7.5 months if you wish.) As I mentioned above, in January I was calculating based on creating an additional $100,000 in 2020.
Step 3
Divide your answer from Step 1 into your answer for Step 2. In my example, I divided $100,000 by $2,427. The result was 41. In other words, I needed 41 new clients to reach my revenue goal for 2020.
Step 4
Take your answer from Step 3 and multiply it by 10. In my example, my answer was 410.
Why am I asking you to do this? It goes back to a business lesson I learned about 30 years ago. At that time I had owned my first business for just over two years, and my business partner and I decided it was time to get some additional advice. A consultant from BDC came to our offices and spent several days reviewing everything we were doing. When we met to discuss the results, he looked at me and said something like, “You’re doing a great job.”
My first reaction was, “This was a complete waste of time!” At this stage of our business, I was hardly paying myself. How could he possibly have come to the conclusion that we were doing a good job?
“Mary Jane,” he said. “The average salesperson closes one out of 10 people they talk to. Right now you are closing one out of five. That’s fantastic.”
I think I’ll remember this moment forever because I was so naïve when I started my first business, I thought I was supposed to be closing everyone I spoke to. The idea that I should be expecting to hear “no” was … liberating, to say the least. It was the moment I really began to embrace and enjoy sales.
So … for the purpose of this formula, I’m asking you to multiply by 10. Perhaps your closing ratio will be one out of five, or better. Keep statistics so you know your own numbers.
Step 5
Take your answer from Step 4 and divide it by 12 (or 7.5 if you are calculating to the end of December 2020). In my case, 410 divided by 12 = 34. Based on my January 2020 sales goal, I need to introduce my business to 34 new ideal prospects a month.
Step 6
Take your answer from Step 4 and divide it by 46. These are the weeks of the year, allowing for some time off as well. When I do this math with my numbers it turns out I need to introduce my business to 9 new ideal prospects a week.
Step 7
Finally, take your answer from Step 6 and divide it by 4. These are the days of the week, allowing for one day to focus on other projects. For me, this math reveals I should introduce my business to 2.25 ideal prospects a day. This is perfectly do-able!
If your final number isn’t achievable, take a close look at your pricing. Perhaps you are not charging enough?
Now, like you, I need to run my numbers again. Losing three months of bookings on March 13 was very uncomfortable and I still have to do the necessary calculations to create my new plan. The good news is, since the beginning of April, I’ve been (mostly) following my old plan and making those 2.25 calls from Step 7. And guess what? My April 2020 billings exceeded my April 2019 billing by … 50%.
There is no substitute for doing the work of introducing your ideal prospects to your company in a professional and personal way!
Two requests:
- Share your experience with this formula in the comment section below. It is a quick and easy way we can support each other.
- I want to run a series of posts on how to reach your ideal target market and I’m looking for some volunteers to help me create case studies that will be published here. I’ll provide you with messaging and a plan you can use to start connecting with your ideal prospects immediately. Send me a quick note if you’d like to explore this with me: maryjane@thephonelady.com.
Thanks for this Mary Jane, it reminds me to get going. About 30 years ago I worked with a company that built business on the basis of monthly service contracts and they developed “the law of 78.”
According to the law of 78 adding 1 new account per month at a fixed revenue per month yields 78x that fixed revenue. It goes like this:
Jan – 1 client $200 x 12 = $2400.
Feb – 1 more client x 11 = $2200.
Mar – 1 more client x 10 = $2000.
…
By December if each month has yielded 1 new client in that price range the revenue increase on the year will be 78 x $200 = $156,000.
If you do a great job of retention the next year you will have $312,000. This is the power of persistent growth, a subscription service model and excellent customer service.
Wow … this is great information, Ken. Thanks for taking the time to share this with everyone. Much appreciated!