Are you an entrepreneur and do you have your own business? Or are you looking to start a business and become an entrepreneur? Have you ever wondered what a business depends on and how to make it successful? Understanding what the business depends on and what determines the success of your own business is the direct responsibility of the entrepreneur.
First, let us designate one business axiom: business is not luck and not luck, it is a process that requires constant monitoring, analysis, and conclusions. Everything needs to be measured and analyzed. Today we will consider the most important parameters. What your business really depends on, and which you, as an entrepreneur, must always know. So, let’s go.
1. Conversion rate
This parameter shows how many potential customers have become real buyers. In other words, it is the ratio of the number of customers at the entrance to the number of customers at the exit of the sales funnel. Those with marketing and advertising, you attract a certain number of people, and some of them become buyers. The percentage of this part represents the conversion. You also have to calculate that you are going to pay and divide it by your total conversion rate to get your profit margins sorted out. You can calculate this through a Chinese tax calculator for ease of sorting costs and taxes prior to launch.
Let’s say you have attracted 100 potential customers with contextual advertising on the Internet (there were 100 clicks on your ad in a week). Of these, 10 bought something (or perform another action you need). Accordingly, your conversion for this time period and this marketing channel is 10%. What conclusions can there be? Continuing with the example above, you understand that in order to get 23 new customers, with a 10% conversion, you need to attract 230 potential customers.
2. Cost of attracting one client
Here, too, is quite simple and understandable. You spent 5,000 dollars to attract 10 clients, which means that each client costs you 500 dollars. Bearing in mind an average check of 9,000 dollars and a margin of, say, 50% (i.e. 4,500 dollars), you know that there are 4,000 dollars from each client, from which you must cover all your other expenses, plus, most importantly, make a profit.
3. Customer Lifetime Value
This is what the business depends on, indeed. A business in which there is no such concept (because it is sold only once, for example) is bad business. Customer lifetime value is the amount that your customer will give you for the entire time they use your services or purchase your products, respectively, i.e. from the moment you became a client of your business until the moment when it ceased to be for any reason.
The total receipt from the client for a period of time (preferably a year), i.e. the number of purchases per year multiplied by the average check. The number of years, on average, during which the client remains so.
4. Lifetime customer value / Cost per customer acquisition
This indicator will allow you to understand how much you will get back from each dollar invested. In our case, it looks like this: 28750/500 = 57.5. For each dollar invested in attracting customers, you receive in the long term (that is, for the time during which the client buys goods or services from you) 57.5 dollars. But this is just an example, of course. By the way, this speaks to how important it is to work with regular customers.
The numbers that we described above are really important, please understand. They will be the main guideline for the movement of your business and an indicator of how successfully you run it. Based on the competitor analysis and correct conclusions, you will be able to make the right business decisions and develop your business at a fast pace.