Michelle's 5-Steps to Business Success

The bank notified Michelle that she had insufficient funds for her credit card bill. She decided to pay the minimum payment once again so that she would have money in her checking account.

Michelle knew that she could always get money from her husband but she didn't want to do that again. She didn't want to face her husband's criticism about her business one more time. She also didn't want to keep losing money.

Michelle started a business from her hobby of creating custom masks. Michelle made custom masks that were used as wall hangings. At first, she just liked creating these artistic masks. Then she started giving them as gifts. Her friends and family kept referring their friends to Michelle, and so she started charging for her masks. She charged double what it cost her to make them, and she was still losing money. It didn't make sense. If she increased her prices, sales would plummet; and there seemed to be no way to cut costs. How on earth could she make money in her newfound business?

Michelle knew she needed help, but how could she pay a consultant when she couldn't even pay off her credit card bill?

Michelle decided to talk to her husband to get one last bit of money to hire a business coach. She saw that Coach Russ was offering an introductory coaching package that included four 1-hour sessions for $500. He claimed that he could double profits by the end of the four sessions.

If Michelle could double her profits, she would be able to pay off her credit cards and possibly invest in growing her mask business. Michelle's husband willingly gave her the $500 she needed. Although, he said that if this didn't work, she’d need to think about going back to hobby mask making instead of draining their savings.

The first session was over the phone.

Coach Russ asked Michelle some basic questions about revenues, profits and how she was currently marketing her business. Michelle was getting $500 per month of revenue as she could only sell 20 of her $25 masks each month. She indicated that it only cost her $13 for materials, but that shipping charges and a lot of expenses made her company a loser.

After they discussed the basic vital signs of the business, Russ explained how he could help Michelle with her business, "I've created a simple formula to help startup businesses gain enough clients and improve their prices to become profitable relatively quickly. I call it my 5-Steps to Business Success.

  • Step 1 is getting more leads.

  • Step 2 is increasing the conversion rate of those leads.

  • Step 3 is increasing the number of transactions per each conversion;

  • Step 4 is increasing the price of each transaction; and

  • Step 5 is increasing your overall business profitability.”

Michelle was intrigued, but also disappointed, "I’m interested to learn more, but I think I’m doing as good as I can at all of these things. What if people just don't want to buy my masks?"

"That would be a problem. However, I think you’ve already demonstrated that at least 20 people a month like your masks and are making purchases. Let me show you how the math works on my formula. You’re currently getting about 30-leads per month. Of those 30 leads, you are converting 20 into paying customers. Since you’re selling your masks for $25 for each mask, you are getting $500 of revenue. Your gross profit on this $500 is $250 or 50%. Unfortunately, this gross profit is insufficient to pay for some of your small expenses."

"I know. That's what I told you."

"Right you are. What if I can show you how to increase each one of the five aspects that I described in my steps with your business by only 10%?"

"I suppose I’ll get $550 per month in revenue as my income will increase by 10%."

"That's a common perception. Your revenue will increase much more. Let’s think about it. If you increase your leads by 10% from 30 leads to 33 leads; then increase your conversion rate from 2/3rds of your leads to 3/4ths of those leads, you’ll have 25 customers, right?"

Michelle seemed bewildered by the math, and said, "I guess so."

"Then, if you can increase the numbers of transactions by10%, you’ll have roughly 28 transactions instead of only 25 transactions for 25 customers. If you then increase your price by 10% to $27.50 instead of $25, you’ll have $688 per month in revenue, right?"

Michelle was overwhelmed, “Look, Russ! You are throwing a lot of numbers at me. I can’t do all of this math in my head.”

Russ could see that he was getting too detailed and so he wrote down the math on a piece of notebook paper and Michelle agreed that the math made sense.

Russ continued expanding his math even further on the notebook, “Since you currently have a 50% gross margin, you would normally make only $344 on that $