Saturday, April 11, 2009

Small Business Strategy

Five Key Drivers of Business Profits.

Most small businesses are built on the same business model and hence have the same profit drivers. When thinking about small business strategy, small businesses all have certain key similarities.
  • Customers
  • Goods/Services
  • Cost of Goods/Services

Before thinking about strategy to attract more customers customers we need to understand the two main drivers which leads to a customer.

  1. How many people know about your business and the good/services that you provide?
  2. How many of them can you attract to become your customers?

Once a small business has acquired a customer, the obvious next step is how much money do we make from this customer. To understand this we need to understand the two drivers of revenue or gross income.

  1. How much does the good/services sell for?
  2. How many good/services does the customer buy?

Another way of seeing this is:

  1. How much value in a basket of good/services?
  2. How many times does the customer purchase in a given period?

In short, to find out how much revenue is generated per customer we need to know how much and how many.

Lastly, once a small business finds out how much revenue each customer is bringing for the business they need to understand their cost of acquiring the customer, goods/services. The driver for this is:

Profit Margin

Obviously the higher the better, but businesses in certain industry group or businesses that sell certain type of goods/services will tend to have different margin. auto-manufacturers have lower margins compared to online business selling ebooks.


The five key drivers to small business profits are:

  1. Leads
  2. Conversion
  3. Revenue per Transaction
  4. Number of Transactions
  5. Profit Margins

Yong Long Lai

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