how to scale your company, when you think you can't

Summary

do you know what your actual problem is right now. most entrepreneurs default to “I need more customers” no matter where they are in the business. it becomes a habit. but it might not be the real problem anymore.

1. years one through three of a business, more customers is usually the right answer. after that, the answer starts to depend on the math. here are three levers and what each one is actually worth.

2. lever one, acquisition. improve the number of new customers per month by 1%. overall revenue moves about 3% over the year. not a bad trade. but stop and ask if there are higher leverage moves before you spend another quarter optimizing the funnel.

3. lever two, churn. if you have any continuity revenue, monthly memberships, retainers, subscriptions, reducing churn by 1% improves overall revenue by about 7%. more than twice the impact of the same acquisition improvement. and the work is way more enjoyable, you sit closer to the customer and figure out what they actually need.

4. lever three, average revenue per user. raise it by 1% and overall revenue moves about 13%. four times the acquisition return. this isn’t just raise prices. it’s cross sells, complementary services, additional offers for the existing customer base. another product they can buy from you without you having to acquire a new person.

5. you can stop being stuck. start with baselines. what’s your current churn. what’s your current average revenue per user. then design 1% experiments per quarter. fix the problem you actually have, not the one you have a habit of solving. if it sounds like a lot of work, try harder.

Transcript

the problem you think you have

The most impactful business is the business that genuinely improves another human, a better human business. And to grow a business like this, you have to continually improve yourself. This podcast is a documentation of that thesis, scaling businesses and also personal growth. My goal is for you to shortcut this journey.

So if you’re ready to try hard, subscribe. If you like what you’re hearing, please share and enjoy. Hey, Jerry Moon here, and welcome to the better human business podcast. Question for you today is, do you know what your problem is? Honestly, do you know your problem is? What are you trying to solve right now as an entrepreneur?

And I’ll be honest, that’s most of our job is problem solving. If that’s if there was a true title for entrepreneur, it’d be chief problem solver. Like that’s all we do all day. Customer’s not happy. How do we make the customer happy? Or how do we create a solution or process that never happens again?

So every customer moving forward is happy. There’s a broken system, back end thing, marketing, like every like all we do is solve problems with our best hypothesis. But sometimes we can get focused on the wrong problem, and it can be a problem we think is the problem, but it’s not actually the problem that we should be focusing on anymore.

And let me give you a very clear cut concrete example. With a question, do you think you need more customers? Do you need more leads and customers in your business right now? You’re probably going to say yes. And that’s because when you start as an entrepreneur, that becomes the habit. The habit is I need more customers.

1% acquisition equals 3% revenue

I need more leads. I need more leads. I need more customers. That’s all I need. That will solve every problem I have. If I just get more clients, more customers, I won’t have any problems. But have you ever asked yourself, where does that cap off at? Like, where does that cap off? When are you no longer going to need more customers?

Or is that never really a thing? Do we always have to be growing? Or are there other ways to grow a company without constantly having to acquire new customers? Have you asked yourself these questions? Are you making sure that you’re still solving the right problem? Because in the first one to three years of entrepreneurship, if you’re just saying, hey, I need more leads.

I need more customers. I probably agree with you. I need to be doing everything you can to get more leads and get more customers. But if you’ve been doing this for five years, seven years, 10 years, is that really still what we need to be focusing on? Is that all there is in business is more leads and more customers?

So let me hit you with some math, some data. So on average, these are averages. You can try and run these projections in your own business. But if you improve acquisition, so more the number of new customers, if you improve that number by one percent, the improvement to your bottom line at the end of the year is going to be three percent.

If you can improve your number of new customers every single month just by one percent, that’s going to increase your overall business revenue by three percent for every one percent you increase it. It’s not a bad tradeoff, right? Let’s focus on that. But are there other things that we could be doing?

1% churn reduction equals 7%

Well, how about this data point? If you reduce the churn in your company by one percent, you’re going to improve your overall revenue, your bottom line by seven percent. Now, you might not have a monthly recurring revenue business, but most every single business is figuring out how to have monthly recurring revenue.

Someone’s on a continuity plan, a membership, something, and I highly encourage if you don’t have that in your business, go figure it out because it’s a lot more comforting to run a business when you have MRR. That way, if you have an off month, you’re not scrambling or super stressed out. But going back to the comparison here, reducing churn by one percent and we’re going to improve revenue by seven percent.

That’s incredible. All right. How about this last one? If we improve the average revenue per user by one percent, one percent increase in the average revenue per user, per client, per customer, we’re going to improve our revenue by 13 percent. Thirteen percent. So if we improve our average revenue per user by one percent, we’ll improve our overall revenue by 13 percent.

So now let me ask you again, knowing that data is true and factual, are you focused on the right problem? I’ll let that sit for a second while you contemplate your life and your business decisions, but at some point you can’t just be focused on more customers because it’s never going to end. You’ll never have enough.

There will never be enough. There might be enough that you can get in a month. There might be enough that you can handle or fulfill, but at some point after you figure that out, you’re going to want more and you’re going to want more. And that becomes a hamster wheel that’s, quite frankly, not very fun.

1% average revenue per user equals 13%

So if we do get to a level for, hey, let’s say 30 customers per month and it’s going to be very dependent on the business. Let’s just say you had 30 customers per month and you’re like, you know what, 30 is good. I can live with 30 and it would sustain my business and I’d be good. That doesn’t mean that you can’t do new things or other things to grow your business because if you can only get 30, say that’s like the best you can do.

You’ve tried every marketing tactic, advertising, you’re just not figuring out acquisition. You can’t crack this threshold, but ultimately you still have a successful business because you’re still getting a consistent number of new customers every single month, which is the dream. But you can’t scale anymore and you feel like you’re stuck, but you need to start focusing on these two other items that are way more important and will impact your revenue and your bottom line way more than just acquiring more customers.

So if we reduce churn, that’s a little, that’s a little more fun to work on, honestly, than acquisition and sales. Reducing churn is more fun. You get to sit with the customer and figure out every single thing that they need. How can you be better? How can you meet every single need that they have?

How can you make sure they get the best results possible? To me, those things are more fun than all of the other business data, acquisition, sales, marketing, all that kind of stuff. I would rather work with a customer and create everything I could to keep them as happy as possible. And in doing so, you’re going to reduce churn and you’re going to impact your revenue by 7% or increase it by 7%.

Now, another thing that you could focus on is the average revenue per user. So if your average revenue per user was $100 and you can just increase that by $1 for every single customer, it’s gonna be an increase of 13% to your overall bottom line. This doesn’t just mean charge more for your service.

shift the focus, baseline first

That’s not the only way. What other cross sells or services that are complimentary could you add or offer to your existent client base to where they are spending more money, but maybe for a different service, but still within your company? Now you’re adding a new product or service. There’s gonna be more revenue for the same acquired customer, and now you’re dramatically increasing your overall revenue in the business, dramatically increasing it.

So a lot of entrepreneurs get stuck, heavily stuck on acquisition, where they’re just like more customers, more lead. That’s all I need. That’ll solve all of life’s problems when they could be focused on the reduction of churn and the improvement of average revenue per user, and that would impact their business so much more.

You will transform your business if you can focus on those things and actually reduce them. So first, how do you do these things? You can brainstorm all the tactics in your business, but first you have to have a baseline. You have to find out what your churn is. You have to find out what your average revenue per user is.

Find those things out, get your baseline, work on improving that by a simple one percent, and you will be so much better off in your business over the next year. So if you ever feel stuck or that you’re not scaling anymore, you can’t scale. It doesn’t mean you need more customers always. Sometimes you do, but doesn’t always mean you need new customers.

Sometimes it just means you need to focus on taking care of your customers better and giving them more options to work with you. If this all sounds like a lot of work, try harder.