06/08/2013
DO YOU WANT TO START A BUSINESS?
"Know Your Numbers," and because numbers are the language of business, it is numbers that will ultimately determine your success.
Business is literally a numbers game, but what numbers should you know?
1. The lifetime value of each customer. While there are more complicated formula to determine this value, this simple version will give you a start:
If your average customer spends Ksh. 20 per purchase, buys three times a year and stays with your business for five years, the customer's lifetime value to your business is Ksh.300.
20 x 3 sales = Ksh60
60 x 5 years = Ksh300
Now you have a working understanding of the worth of each customer and the types of resources you need to acquire and retain them.
2. How much it costs to acquire a new customer. Cost Per Acquisition, or CPA, can help determine how much you spend on any marketing or ad campaign.
Let's say you've placed an ad in your local paper for $200. You get 20 responses and 10 sales. The acquisition cost for each customer is Ksh20 (Ksh200/ 10 = Ksh20).
If your offer results in at least Ksh20 in profits on every sale, you've run a successful campaign. But if your CPA is Ksh20 and you have little or no profit, or are acquiring customers at a loss, it's time to re-evaluate your marketing.
3. Conversion rates. Let's say you hand out flyers to people on the street. The campaign generates 1000 leads over a two-week period, and 100 of those leads buy. Your conversion rate is 10 percent (1000 leads / 100 new customers = 10 percent conversion rate).
Jacqueline Mungumi is Consultant and a University Entrepreneurship Lecturer. For more, visit www.hrtraining.co.ke
Props Africa Consultants Limited is an authorized training partner. It has specialized in Leadership skills, Management skills, Financial Management, Public policy formulation, Coaching and mentorship, Team building and Entrepreneurship skills among other services.