Think first: When other people cannot achieve something they tell you it’s impossible for you to achieve that thing.

Have you travelled to a place where you do not know how to speak the local language? How did you survive? If you speak English, probability was you found some people who were able to speak English, therefore you managed to find your way around and get the things you needed to survive? However, imagine how much better your vacation could have been if you could speak the local language?

Accounting is the language of business but yet so many people venture into business without speaking the local language. There is often a “disconnect” when it comes to how accounting actually relates to business. Very little wonder why building a profitable small business is a wonder to small business entrepreneurs.

How accounting is related to marketing

While accounting is the language of business, marketing is the life blood of a business. You cannot grow a business without any marketing. Marketing deals with communicating value to potential customers and accounting tracks the effectiveness of marketing strategies used. There is a relationship between accounting and marketing. Take for instance the revenue generation formula.

Revenue generation is the system of bringing in paying customers. Any business that wants to grow would have to figure out where its money is going to come from. A revenue generation system is a system that is efficient at bringing in and keeping PAYING customers.

The equation is as follows:

Sales pipeline * Conversion = Acquired Customers

(Acquired Customers + Existing Customers) * Retention Rate = Total Customers

Total Customers * Average Sales * # of repeat sales per customer = Total Revenue

Total Revenue – Cost of goods sold = Gross profit

Gross profit – Operating Expenses = Net Profit

While accounting tells you what to do to make a profit, marketing is the system you must build to go out and get it.

Two systems within the revenue model:

1. Customer acquisition system: For a business to consistently bring people in, the market has to be big enough to have people who need your service or product. If you were a dog walker but only ten people in the world had dogs, your market will be limited to only ten people.
   
2. Customer retention system: Not all customers return after their first purchase. So therefore while projecting revenue, the customer retention rate needs to be considered. To increase your customer retention rate, you will need to develop a system for engaging customers. Acquiring new customers is more expensive than retaining existing customers. Keeping existing customers happy has to be a part of your marketing strategy.
   

Building a profitable business: Where most people get stuck?

I am yet to meet a small who does not know that marketing is essential to building their business. Yet, while most small business owners know marketing is essential for growth, few have effective growth plans. The most common problems I see are:

1. Filling the sales pipeline with prospects: This is often caused by not creating a customer profile. So when you market you speak to all, but yet speak to none.
   
2. Retaining clients: Your price should communicate the “perceived value” you provide. If you are priced to attract a specific demographic then you better know the kind of service that demographic have come to expect. If customers find a “disconnect” between your price and service/product, they are very unlikely to come back.
   
3. Repeat sales per customer: The main difference between a retained and repeat customer is “loyalty”. Repeat customers are more loyal than retained customers. A repeat customer looks forward to buying from you and they are the best evangelist for your products / services. Repeat customers bring in referrals. A retained customer passively thinks of your business and may need some motivation to come back. A repeat customer actively thinks about your business and may even schedule their next appointment before leaving. Turning retained customer into repeat customers means knowing your customer and giving them what they want.
   

    

The bottom line of building a profitable business is to have paying customers who choose to patronize you over extended periods of time. It will be hard to build a business if you consistently have to look for new customers and have no recurring revenue. Having the right marketing strategy and an accounting system to keep track of it all will take you much further than you imagined.

What about you reader? Do you struggle with building a profitable business? Drop me a line with some of the challengers you have faced.