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Edmonton Business Consultant | Customer Acquisition Objectives
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But in reality, like most small businesses don’t have enough data at each price point in order to project accurately on it.
Yeah, I can see the whole why with these two I can be [inaudible] cause it’s not.
Hi, thanks for joining us for another episode of ask Sperl CPA today as the empty business consultant, we’re talking in both the business plan and specifically the customer acquisition objectives. I have Denise here with me again, Denise, how you doing today? I’m good. So Denise, we’re almost at our eight year anniversary. I know it’s a long [inaudible]. It seems like it. Remember anniversary one. So the quote that we have here today, uh, it’s a, it’s a Tim Drucker quote who wrote 39 business books and he says nothing happens until someone sells something. And the statistic that we have are 50% of all Canadian businesses will go out of business in the first five years. And 42% of these business owners will report their inability to attract enough customers as one of the primary reasons for their failure making the inability to attract enough customers. The most common reason for business failure. Now the story that we have here are business owners. They often develop business plans with revenue projections. However, the revenue projections aren’t tied to specific number of customers. So Denise, you’ve seen this. So what are the questions that these business owners should be asking from a Edmonton Business Consultant?
Yeah, so I think the first question is, um, does tying projections to expected per transaction amounts increase accuracy? 100%. Yeah. You, what you want to do is we don’t just want to have, you know, revenue projections out of nowhere. We have to understand, you know, for each dollar in revenue or each thousand dollars in revenue, you know, how many customers that is. And we look at it on a per customer basis. So customer one brings in, on average, this amount of customer two brings out on average this amount. And then when we extrapolate those numbers of customers, we can get, you know, really reliable revenue projections because, you know, the customer numbers itself has to make sense, if you will. Right? So do most businesses have a wide variety of price points? Yeah. Most businesses have, you know, a big menu has, I’ll call it, right. They have the, the appetizers and the main courses and the desserts, no matter what business they’re in, they have, you know, wide variety of price points. They’re not just one price point. It’s not just that you’re not selling just widgets for price of X. Usually almost every business we deal with has a wide variety of price points. Yeah. So do most small businesses have enough data to accurately project each price points?
No. Here’s where we go wrong. A lot of times where the small business owners, they start getting all of their price points and maybe they have, you know, five price points, 10 price points, 20% month, maybe even a hundred price points. And they’re trying to make projections on each one of those up on each one of those price points. But in reality, like most small businesses don’t have enough data at each price point in order to project accurately on it. You know, I make the example all the time about onion rings and you know, the average small business owner trying to project if they had a restaurant, how many onion rings they’re going to sell. Um, you know, they’re not a, and w they’re not selling millions of orders. Volume brings, you know, they, they really need to know those averages more. So speaking of averages, will average price points be more reliable in predicting the future of Edmonton Business Consultant?
Yeah, so the averages, you know, if we boil all those price points down and start taking some averages, those averages are very likely to recur. You know, we even small businesses, they’ve all seen, you know, dozens or hundreds or maybe even thousands of customers at, at some point. So even though they haven’t sold, you know, dozens or hundreds or thousands of items off of each item on the menu, they have generally for the customers. Um, so those average price points will start to become really reliable. And you know, the average in year one will look very similar to the averaging year too. And that helps you, you know, make accurate projections into the future. So should you group transactions with similar margins? Yeah, so that’s generally the, the, the goal. So although we don’t want to plan on every item on the menu sort of speak, we want to group certain items that have similar margins together with Edmonton Business Consultant.
You know, let’s say if your a medical facility for example, maybe you’re a dentist or a family doctor and for every exam, um, you know, you pay out 70% in locum fees. Uh, I guess that would be a little high for dentists and right on the mark for family doctors. But, um, you know, for every dollar that you build a patient, you’re going to pay out x percentage to a locum doctor. Um, at the end of the day they have the exact same margin. If it’s a basic exam that’s, you know, 80 bucks, it’s, you know, your margin is 30%. And if it’s a comprehensive workup and it’s a $500 bill point, it’s still, your margin is 30%. Make sure to call us now at 780-665-4949 or please take a peek at spurrell.ca. So it has that civil a margin so it can be grouped together. Um, but for example, if that, you know, same, uh, clinics getting into selling supplements or selling some sort of product that, you know, revenue stream will have a different margin altogether.
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It has a different cost to sales cause they’re actually, you know, selling a, a product or good so that that revenue, so you would probably grouped into another grouping if you will. So you want to look at every opportunity to group transactions with similar margins together. It doesn’t matter if they’re big and small, you can group them together as long as they have similar margins. Right. So now you have these groupings. How many groupings where most small businesses have, I would suggest that most small businesses have between one to three groupings. So a lot of small businesses, they can group them all together. Give these guys a call now if you want a Edmonton Business Consultant! There was a lot of medical clinics that we see and you know, they just have, how much do they make per patient visit that that’s the grouping. And whether it’s a simple, you know, $50 exam or a $50,000 treatment, uh, it’s a similar grouping with a relatively similar margin.
Right. But if they’re selling maybe a product that might be a little bit different, right? Or if they get some of it from Alberta health care and some of it are, um, you know, private patient pays sales, uh, those margins might be different. Right. And we look at, you know, our construction clients, they might have, you know, one day, $200 job that they go out there for a service call or a $200,000 job. A lot of them can be grouped together. And we see a lot of our, our construction clients where it’s, um, you know, with service falls where they, you know, it’s called on the phone, they dispatch their technicians with plumbers or electricians or carpenters or whatever it is, as opposed to the project where they go out and bid the project, you know, multi-decade project. Right. Um, but you can see it in business like that. We’re only talking about two groupings, the service call and the projects that they’re building, right. Or maybe they might have different project, uh, profit margins for the residential work as opposed to the commercial work. Um, but the idea here is the simplicity, the simplicity of the groupings. The fewer groupings that you can get that are somewhat similar, the more reliable your projections are going to be. And some people think that it’s the opposite of what’s counterintuitive. Some people think that, well just because it’s, you know, more comprehensive price lists actually the more comprehensive price lift because we don’t have enough data actually tends to be unreliable per transactions. But if we can get really simple groupings, those average points tend to recur and we can get, you know, a really reliable projections moving forward. So should you identify the average price for these groups in the executive summary?
Yeah, I think it’s, it’s, you know, first and foremost it belongs right there. And the executive summary, you know, we’re normally looking at the problem, vision, mission and values of the business, number one and number two in that executive summary rate at the front of the business plan. You know, we want to have the average price for revenue group one, and if there is a group two or group three, we’re going to put it, you don’t rate in there, let’s, let’s make it a, um, you know, really tangible rate from the start of the business plan because everything flows from there. So should your customer acquisition objectives predict on the same groupings? Yeah. Make sure to call now if you want the most amazing Edmonton Business Consultant! So that, that kind of flows through. So we start with it in the executive summary. Um, you know, we start with the prices and the margins on it. And then when we’re looking at, you know, acquiring customers, we’re looking at acquiring customers in those, you know, one to three groups at those exact price points that we’ve already demonstrated or the ones that we’re predicting for the future.
Um, so those price points, they flow right through to the customer acquisition objectives and they make them more real and you know, more likely that they’re accurate, uh, you know, an accurate source of predicting the future revenue. Yeah. Um, so should you separate expected sales from repeat and new customers? I think it’s really valuable, you know, because there’s a certain amount, a lot of businesses that are going to generate repeat customers from their existing customers email, even in, you know, uh, uh, businesses that aren’t, you know, a recurring model. Like we get general contractors and you know, people don’t, you know, renovate their house every year, but they will, you know, tend to hire a general contractor every three years or maybe every five years depending on the, the size and the scope of the work that that general contractor does. So there’s a certain amount of business that if you mine your database effectively of your existing customers are likely going to recur. But then we want to identify how much revenue needs to come from new customers because that tells us, you know, how much time and effort and money we should be putting into these advertising initiatives. Um, you know, we want to make sure that, uh, uh, efforts are worthwhile and, and at the same time, we’re, we’re putting enough effort in to get those new customers. Right. Uh, so why do your business plans only projected three years with year one being the current tier? I think it’s a little bit unreliable and we’ll small businesses to go longer. You know, I see people, sometimes they go five years tends to be the other conventional norm, but you know, I didn’t see crazy ones are people that are projecting like 10 years now. The future, which I think is just absolute insanity in a small business to predict 10 years out in the future.
I would suggest that even predicting 10 years out into the future and a lot of big companies is a little bit of insanity, but I think three years is it? So keep in mind that year one is the current year you’re already planning, if you started planning this, businesses is already incorporated. Maybe you’re starting from zero or maybe you’re one is the year you’re already operating. And so you’re, you know, a quarter of the way through the year or halfway through the year, three quarters of the way through the year, and you’re really projecting two years in the future. And I think that’s long enough really. Um, I think that gives them an idea and I think most people should be redoing those projections every year because you’re going to learn so much about your business and where you are and circumstances will change. So I think three years is kind of the maximum, keeping in mind that we’re year one is really the current year early, just finishing off where we are in the current year. We’re projecting two years in the future. I think that’s long enough that starts giving you a trend and it starts to, you know, help you think about strategically, uh, you know, maybe accumulating new cash for bio to building or major equipment or something like that, but not so long that it just becomes guesswork. So I think Edmonton Business Consultant are awesome and that’s what we have here today. Thanks so much for joining us. Again, as always, pleases the like and subscribe button so we can continue to deliver you tips on how to beat the odds at business. And as always, you know, we look forward to any calls that you have so we can respond back and use your input for future videos. Call us now at 780-665-4949 or check out spurrell.ca now! Thanks very much.