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Compound Growth Structure

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Compound Growth Structure

Compound Growth Structure

There are many ways to grow your business, but we first challenge you to stop and think about what growth actually is. What does it even mean to grow a business and which parts should you focus your growth on?

Whatever part of your business grows, be it sales, staff, product lines, costs, or client base, it is going to stress the company. As you spend money to find more clients, you suddenly realize you do not have the staff to accommodate the demand and are forced to grow. Instead, be ready for that growth and develop a Growth Strategy! But before we dive into the details of the Compound Growth Strategy laid out in this document, let’s discuss how growth really operates in a company.     

Growth functions like a cycle that expands and shrinks based on how successful your growth strategy is. Add more staff, then you need more sales, you need more sales, then you need more clients, to find more clients you need more marketing, and thus we land on the full cycle of growth.

If you grow your staff then your monthly costs go up, but you’re trading it for more manhours in the hopes you can use the extra hours to generate more revenue. But if you do not find those extra sales then your staff has grown but your company has shrunk in terms of profitability. The complexity continues, as you realize each node that grows brings stress to the business be it costs, staff or management. Your first focal point is then to earn more profits by focusing on client acquisition, so you can turn around and grow your business by adding more staff to respond to the growth you get from more clients. Your client strategy is the first step to your growth strategy. Growth is then achieved with things that make your business more valuable, which you can then turn around and advertise, and finally obtain more clients, purchases, and higher prices.

If we follow the image to the left, we can see how things chain together and create growth as the final result. It all begins with marketing your company which attracts more clients or landing new big contracts (think new construction and installing all the water heaters or maintenance on an entire building). This will spur more sales which creates work for your company and then the need for more staff. The amount of staff you have, limits the amount of work you can do. By tweaking one area of your business,  can cause a chain reaction within your company. Here are a few areas you can focus on in your company to stimulate growth: 

The Compound Growth Strategy is a simple way to generate more income by breaking down client growth into separate elements: finding more clients, charging them more, and turning them into repeat customers. Instead of focusing all your attention on only “finding more customers”, you are also selling to each customer more often, and at a higher dollar amount. Even something as small as a 10% increase in growth will yield a 30% overall growth if you do this across all three metrics.

(Number of Clients) X (Amount Spent) X (Transaction per Year) = Total Income

Current:1000$1002= $200,000
+10% Growth:1100$1102.2= $266,200

Splitting client growth over three metrics makes it much easier to grow. If you only focused on one metric, like the “Amount Spent”, you would need to raise your prices by a large amount and likely have far fewer transactions per year. This is why compound growth is also called geometric growth because you are growing by three dimensions not just by one or two because growing one area by 30% is unrealistic.

If clients are the first priority of your growth strategy, then marketing is the second. The best way to measure the effectiveness of your marketing is by creating metrics that you track. Let’s look at a few other metrics that will help inform the profit of your total income so that when you return to spending money on marketing you can start to think of the ROI per customer. Tracking the cost per sales lead is a great way to see how well your marketing is working. Your marketing mix is often a combination of digital ads, print ads, and referrals, and calculating their costs and diving it by the number of sales leads they generate is how we get to the cost per customer. We have also listed the average conversion rates for each method below.

Costs Leads Generated Sales Made Conversion rate
Digital Ads:  3-11%
Print Ads:  2.5-5%
Referrals:   25%+
Radio Ads:   8-16%

Please take note that your dispatch department should be asking how each customer heard of your company or you could include this question during the sales process as well.   

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