Accelerating Business Growth

Monday, March 13, 2006

The Third Key Questions Of Business Growth...

This is the third in a series of four articles. We've already looked at the first two questions of the 4 Key Questions of Business Growth. You'll recall they are:

How do you/we increase the number of customers? And...
How do you/we increase the average order value?

The focus for today is the third key question of business growth:

How do you/we increase the average order frequency?

So, we've already attracted the new customer through the front door of our business - we maximised the average order value at the front end - now is the time to leverage the average order frequency - or in other words programme the customer to buy more and…More often!

Whenever I consult with new clients - particularly those setting up a new business there are a number of questions I always ask as we start to explore this third key question of business growth.

And these questions are centred on what the potential lifetime value of a customer is worth to your business – something I call the LTV.

So lets make this real for a moment and take a simple example that you and I will easily relate to. Lets imagine for a moment you’ve always shopped at Sainsbury’s, however one of your friends is raving about Tesco and how good they are, so you decide to test them out yourself. You go along to your local Tesco with your list of 40 items and 30 minutes later your at the checkout packing all the items into bags – all 80 of them!

Yes we’ve all been there haven’t we – a trolley full of stuff which resembles nothing like the list you went in with, why does that always happen! And…your now £100 lighter in the pocket.

However the experience was great – you agree with your friends raving endorsement and your now a convert – Tesco’s is definitely for you.

Here’s where the LTV (lifetime value) kicks in. How many times do you go to the supermarket in a year?

Well for a family with 2 children probably once a week.

And how much do they spend? An average order value of £100

They’re the first two questions of business growth taken care of.

Here comes the third question:

What is the average order frequency?

Well for our family, taking out 2 weeks for the annual holidays the average order frequency is 50 times per year.

Tesco’s are delighted! New customer – average order value £100 – 50 times a year – That’s £5000.

Now that’s lifetime value, and here were just talking about year one. How long have you been going to your current supermarket for?

I bet if you’ve been a customers for a while and you actually sat down and calculated your worth to them over that period it would be huge!

So lets spin this into a focused question, which can relate and apply to your business;

What is a customer worth to your business? – Not just year one but over their lifetime? Their LTV?

And I suggest you don’t just calculate the turnover figure, what are they worth in terms of profitability? After all you and I know that’s the real measure.

Turnover is vanity
Profit is sanity and…
Cash is reality.

Its amazing when you calculate the REAL lifetime value of a customer or client how it changes your focus within the business.

You can then calculate what your prepared to spend in marketing sales to attract new customers at the front end and…

Once you’ve got them in, what is going to be your contact strategy in order to educate them on all the products and services they can buy from you – after all;

Frequency of contact = Frequency of order


So, there you have it, the third of four key questions of business growth:

How do you/we increase the average order frequency?

Action really is the key to success – so here’s my summary of the suggested actions you can do from this ezine:

+ Calculate the lifetime value of your customer and clients and…
+ Perhaps do a focused question exercise, what are the various strategies I can implement in my business in order to increase the average order frequency


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