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How to improve your cash flow
A cash flow statement usually includes money flowing in and out of a company, but this article is full of ideas and tips to get more money flowing in.
Because cash is king for all entrepreneurs, SME/SMBs, and home based ventures, it is crucial that you can generate as much revenue as possible, as early as possible.
This article will look at a very simple sales forecast and provide plenty of great sales strategies, ideas and advice for you to incorporate into your own plans.
In particular, we'll focus on Internet marketing and online sales strategies for both traditional organizations that have websites, and online ventures (i.e. bloggers, affiliate marketers, eCommerce stores).
By using a sales forecast to highlight where there is room for improvement, you should, in theory, be able to cherry pick the strategies that will have the biggest positive impact on your bottom line.
Sales forecast
In order to properly understand the cash flow coming into a business from operations like sales (as opposed to investments, etc), we're going to use a basic monthly sales forecast.
We'll then use this as a basis for isolating effective tools, software, services, ideas and strategies that can boost earnings down the line.
Forecasting sales & profits
For the sake of argument, I am going to make up a small affiliate marketing company with some numbers to plug into our sales forecast.
You can plug in numbers that are right for you, while following along.
To get the ball rolling, we need a number of leads or prospects. A lead is someone who is a potential client or customer, who we want to convert into a sale(s).
Calculating the number of paying customers/clients
To work out the number of paying customers we have each month, we can use the following equation:
Leads/prospects x conversion rate = customers
Calculating annual turnover
Knowing how many customers we have is a start, but we also need to know how often they make a purchase/conversion (on average), and what the average value of that purchase/conversion is:
Customers x transactions x average sale amount = annual turnover
Calculating annual profit
To work out our profit from the annual turnover, we need to use the margin - how much we actually make once the costs of a transaction are factored in:
Annual turnover x margin = annual profit
Calculating monthly profit
It's a simple case of dividing the annual profit by 12 to give our monthly sales and profit projection:
Annual profit / 12 months = monthly profit
Affiliate marketing sales forecast demo
We can now put all of this together into one long equation to show how all the numbers fit together to give a good sales forecast.
As mentioned, I will use a make-believe affiliate marketing SME to demonstrate.
To begin with, our company has the following numbers:
- Leads/prospects = 300 000 (annual Website traffic)
- Conversion rate = 1.2% (how many visitors convert into customers - as a percent)
- Average conversion amount = $5
- Average number of transactions = 1.2
- Margin = 65% (What percent of total sales is actual profit)
You would need to analyze your own business in order to get these figures. For online enterprises this is quite easy using Google analytics - especially if you have assigned values to events/goals, pageviews, etc.
Plugging these numbers into our merged sales forecast equations, we get:
300 000 x 1.2% = 3600 customers x 1.2 x $5 = $21 600 x 65% = $14 040 annual profit / 12 = $1170 monthly profit
How to increase sales and profits efficiently
Having your incoming cash flow broken down like this makes it a lot easier to target specific areas to see what effect they have on your revenue.
For example, off the top of your head, is it better for our make-believe affiliate marketing venture to increase their annual Web traffic to 320 000 viewers, or increase their conversion rate from 1.2% to 1.5%?
Plugging these new changes into the equation gives:
- 320 000 x 1.2% = 3840 customers x 1.2 x $5 = $21 600 x 65% = $23 040 annual profit / 12 = $1920 monthly profit
- 300 000 x 1.5% = 4500 customers x 1.2 x $5 = $21 600 x 65% = $27 000 annual profit / 12 = $2250 monthly profit
Clearly, a slightly higher conversion rate leads to a significantly higher monthly profit than an additional 20 000 annual website visitors.
This would suggest that our efforts might be better spent increasing conversion rates rather than driving additional Web traffic.
You might be thinking "sure, but obviously it helps to increase both".
You're right, but there are costs involved in advertising, and sales. Because there are costs involved, some strategies are going to produce better results for less cost.
There is also risk involved - some campaigns may bring no returns whatsoever.
So now, let's look at the key components of our equation one more time, and include some of the best software, services, ideas, tips and advice that will help improve them.
You can then decide what strategies to implement based on which parts of the equation need the most improvement, and which will bring the biggest gains with the least amount of risk.
Tips & advice for increasing profits
This section will take out each piece of the sales forecast equation and provide links to great ideas and advice.
There are quite a few linked resources and articles, so feel free to bookmark this page and come back to it later.
How to increase leads/prospects
When it comes to driving high volumes of Web traffic to a website, the strategy with the best long term return on investment is high quality content.
Starting a good blog, and sticking to it, will serve as a platform for other Internet marketing activities like email, and social media.
SEO (Search Engine Optimization) plays a big role here too. It's important to research SEO keywords and target specific niche topics and audiences, in order to capture top page rankings in Google and other search engines.
Here's a list of the best articles and services:
How to increase conversion rates
In order to improve conversion rates, it is important to do two things:
- Improve the quality of traffic arriving at your site
- Analyze and refine your Web design and content for conversions
Since the quality of traffic arriving at the site relies heavily on the content and marketing you implement in the previous section, we'll focus on the second option - optimizing a website for conversions.
The best way to create a website for marketing & sales will tell you everything you need to know in order to punch up your conversion rates and increase profits.
How to increase transactions per customer
Convincing customers to come back and make additional purchases is cheaper than spending money finding new customers.
Getting repeat business only works if your products and services are of high quality, and you have some great strategies in place to keep customers in-orbit around your site.
Check out the following articles and resources that will help you maintain contact with customers, gain brand loyalty and lots of juicy repeat sales:
How to increase average sales amount
There are only two technique to increase the average sale amount on products and services you sell:
- Cross selling: Offer customers related products/services that they are likely to purchase
- Up selling: Offer customers more expensive related products/services that they are likely to purchase
It's up to you how to implement these techniques. Obviously the type of Web platform you are using will play a big role in how well you are able to cross and up-sell.
If your website is not flexible and cannot easily be modified, it may well be time to upgrade.
How to increase margins/net profits
There are two ways to increase your margins or net profits:
- Increase prices
- Decrease costs
Increasing prices is not generally a good move because it reduces your competitiveness, and you may well lose customers to cheaper competitors.
It is far better to streamline your company using the right tools, software and services that increase productivity and lower costs at the same time.
Fortunately, it is generally easy to do that with today's new technology. The following articles and resources will help you locate the best productivity tools and software:
So that is my advice on how to find the right techniques and strategies to boost your income in the most efficient way possible.
What other techniques do you use to generate bigger profits online? Share your tips and advice in the comments.
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