THE MARKETING SYSTEM
There various views on how many Key Performance Indicators (KPI's) a business should track, we like to focus on seven:
- The Number of Leads Generated
- The Percentage of Leads Converted Into Customers
- The Average Number of Transactions per Customer per Annum
- The Average Transaction Value
- The Gross Profit Margin
- Average Number of New Clients From Referral Per Customer
- Average Buying Lifetime in Years
By systematically working on each of the key performance indicators and measuring the improvement of each, stopping initiatives that don't work quickly and focusing on activities which deliver results; the results are typically astounding.
If you've done your research or played secret shopper you will be only too aware of the inadequacy of the existing sales and marketing processes many businesses employ at present. It is this fact above all else that makes an effective sales and marketing system such a sure fire winner. If the competition are marketing their businesses in an poor or ineffective manner it is easy to out perform them and in so doing capture more market share.
Consider the following example, a small business currently generating just 10 new leads a month and converting 25% into paying clients retained for three years, their business could look something like this. Typically it is not easy to map these metrics exactly to a business but focus on the underlying principle and the logic cannot be argued with.
| Key Performance Indicators (KPI's) | KPI | Result | |
| KPI 1 Number of leads generated | No. | 120 | 120 |
| KPI 2 Percentage of leads converted | % | 25% | 30 |
| KPI 3 Average No. Transactions Per Annum | No. | 12 | 360 |
| KPI 4 Average Transaction Value | £ | £20 | £7,200 |
| KPI 5 Gross Profit Margin | % | 55% | £3,960 |
| KPI 6 Number of Referals per Client | No. | 1 | £7,920 |
| KPI 7 Average Buying Lifetime in Years | No. | 3 | £23,760 |
Set up the tools and use them in a systematic and logical manner there can only be one result; each Key Performance Indicators (KPI's) will be impacted in a positive manner. Consider what a 10% increase in each of the KPI's could do for this business:
| Key Perfromance Indicators (KPI's) | KPI | Result | Increase | KPI | Future | Increase | |
| KPI 1 Number of leads generated | No. | 120 | 120 | 10% | 132 | 132 | 110% |
| KPI 2 Percentage of leads converted | % | 25% | 30 | 10% | 28% | 36.3 | 121% |
| KPI 3 Average No. Transactions Per Annum | No. | 12 | 360 | 10% | 13.2 | 479.16 | 133% |
| KPI 4 Average Transaction Value | £ | £20 | £7,200 | 10% | £22 | £10,542 | 146% |
| KPI 5 Gross Profit Margin | % | 55% | £3,960 | 10% | 61% | £6,378 | 161% |
| KPI 6 Number of Referals per Client | No. | 1 | £7,920 | 10% | 1.1 | £13,393 | 169% |
| KPI 7 Average Buying Lifetime in Years | No. | 3 | £23,7690 | 10% | 3.3 | £44,197 | 186% |
It is highly unlikely a 10% increase will be achieved for all Key Performance Indicators; profit margin in particular may be ‘untouchable'. Other KPI's will improve by more than 10%, but as can be seen in this fictitious example the impact is huge. Gross Profit Margin over the lifetime of each customer relationship is up by 186% from £23,760 to £44,197.
The example above only considers the impact on the new business; it does not take into account the impact on the business of increasing KPI's 3, 4, 5, 6 and 7.
