How to Understand the Secrets of Exponential Growth and the 1% Factor

Think about the last time you heard the words ‘grow your business.’ Did it stress you out?

Perhaps you’re just trying to get through each day at the moment learning how to run your venture. Or maybe you’re just getting used to not being an employee any more!

These feelings are normal. You’re not alone. 

But learn about exponential growth, and your business may experience massive expansion quickly.

So, how does it work and which is more beneficial? Traditional or exponential growth?

First, make sure you understand the following terminology when calculating business growth:

1. Your potential customers – leads you gain who have not purchased as yet.
2. Conversions – the percentage of potential customers that become buying customers.
3. Transactions – the number of times your customer buys from you.
4. Pricing – the price your customer pays per transaction.
5. Profit margin – the amount by which revenue from sales exceeds cost in your business. 
6. Net profit – total revenue over a period minus total expenses over the same period.

Second, understand how the traditional potential new customer growth process differs from the exponential method:

Many new and inexperienced business owners have heard about, and follow, a traditional potential new customer growth process. Let’s make our goal a 10% increase per year in new potential customers, they say. So, in year one, they gain 500 new potential customers. They set the goal at a 10% increase in new potential customers in year two (550). Let’s say 20% of these customers buy their products. That equates to 110 new customers. 

Then, factoring in the above terminology, the following pattern emerges:

Number of potential new customers	500	550
Customer conversion percentage	20%	20%
Number of new customers	100	110
Revenue per transaction	£150	£150
Number of times customer buys	10	10
Total revenue	£150,000	£165,000
Profit margin	25%	25%
Net profit	£37,500	£41,250

In summary, a 10% increase per year in potential new clients yields 10% per year more net profit –  £3,750.

This is not a substantial increase in profits, and this figure is before taxes!

So, let’s consider another way…

You achieve this by growing each of the six steps by 10% per year, not just new potential clients:

1. Your potential customers.
2. Conversions. 
3. Transactions. 
4. Pricing.
5. Profit margin.
6. Net profit.

Number of potential new customers	500	550
Customer conversion percentage	20%	22%
Number of new customers	100	121
Revenue per transaction	£150	£165
Number of times customer buys	10	11
Total revenue	£150,000	£219,615
Profit margin	25%	27.5%
Net profit	£37,500	£60,394

In summary, a 10% increase per year in the six steps above yields 61% net profit –  £22,894.

And, a 10% increase per year is not too difficult to achieve if you are a startup company so, let’s say, you aim to increase all steps by 50% per year:

Number of potential new customers	500	750
Customer conversion percentage	20%	30%
Number of new customers	100	150
Revenue per transaction	£150	£225
Number of times customer buys	10	15
Total revenue	£150,00	£506,250
Profit margin	25%	37.5%
Net profit	£37,500	£189,844

In summary, a 50% increase per year in the six steps above yields 406% net profit –  £152,344!

Consider that a 50% increase per year is only around 1% growth per week.

And… This 1% growth per week may be easier to achieve if you also follow the: 1% FACTOR.

Sir Dave Brailsford, former Performance Director at the British Cycling Federation, introduced the theory of marginal gains.

Sir Brailsford believed that if you make a tiny 1% improvement in a host of areas daily, the benefits will be extraordinary. He tried and tested his belief on the British cycling team and transformed the team to success from an average performer to the winner of 16 gold medals over two Olympics and seven Tour de France victories in eight years.

So, what were the improvements? 

Many little things, including the redesign of bike seats for increased comfort; rubbing of alcohol on the tyres for enhanced grip; testing of massage gels for fast muscle recovery; painting of the floors in the team’s truck bright white to spot dust on the floor; custom-design of mattresses and pillows to enhance the athletes’ rest and recovery.

Alone, these things may seem standard, but together the changes led to the team’s longer term success.

The 1% factor became an integral part of the British cycling team’s culture and philosophy – their goal was a marginal 1% gain in every aspect of their training and environment.

Learn how to ‘mentally master’ positive progress towards growth and focus on multiplying the good things in your business.

Celebrate the ‘big’ moments in your business. But it’s not all about these. Never put pressure on yourself to make only big gains. Never underestimate the value of making slight improvements daily. They may seem unnotable but, in the long run, they may just sustain your business for years to come.

As the late John Wooden, American basketball coach and trainer said, ‘It’s the little details that are vital. Little things make big things happen.’

The great news is that a tiny margin of improvement, as little as 1%, may affect the results of your business and, in the longer term, as we see from the examples above, with consistency, the growth may be extraordinary.

Retrain your brain.

It’s important to retrain your brain to think positively about your business at all times. It’s not natural for most human brains to do that.

Think about the last time you had a problem in your business. Did the pressure escalate to boiling point and compound to more problems? 

If so, reverse the thinking. Try to improve something in your business by just 1% per day. Reverse the negative compound to a positive one.

But, you say, ‘I don’t have the time.’

You have 24 hours in your day. Try the 1% factor here too. That’s 1440 minutes. One percent of 1440 minutes is 14.4 minutes. Surely you can invest 14.4 minutes of your day to change a habit?

Increase the number of potential new customers.

Improve the efficiency of your marketing activities. Analyze the success of your existing marketing and advertising and change strategy if the results are not flowing in. Focus on the habits of your target audience and know how to reach out to them. Aim to increase the number of potential new customers by 1% per week.

Increase your customer conversion percentage.

Aim to increase the percentage of your potential customers who complete the desired action of buying from you. Whether you use account creation, an ebook download, a newsletter sign up, a contact form or some other method of acquiring new potential customers, make minor improvements to entice more customers to buy per week – you only need a 1% growth per week.

Increase the number of new customers.

Aim to sell an extra 1% per week. Think about:

• Introducing new products or services.
• Market research and the testing of new markets.
• The enhancement of sales channels and marketing activities.
• An improvement in community relations.
• Refining customer service policies.

Increase revenue per transaction.

Don’t try to grow your business by only increasing your number of customers. Reach your goals faster, with fewer customers. Use less effort and expense! Do this by:

• Increasing the perceived value of your offering.
• Positioning your business at a higher level of quality than your competitors.
• Upselling and cross selling.
• Packaging up products and services that complement one another.
• Offering discounts for bulk purchases.
• Promoting point of sale/online shopping cart check out incentives.
• Educating your customer on your full range of products and services available and the benefits of all.

Increase the number of times your customer buys.

Introduce the following ideas, little by little:

• Rewards/points programmes.
• Referral programmes.
• VIP programmes.
• Exclusive discounts for loyal customers.
• Incentivise repeat purchases through target personal campaigns.
• Email retargeting to win back lapsed customers.
• Ask customers for product and service reviews and experiences.

Increase your profit margins.

Let’s dive into some ways to increase your business profitability by streamlining your operations and reducing operating expenses:

• Cut excess staffing and overtime.
• Analyze areas of waste.
• Reduce supplier spend.
• Streamline fancy packaging. 
• Automate business processes for repetitive activities. There is a wealth of apps out there which will streamline your time and increase your productivity.

Try to improve in each of the above areas regularly and watch for long-term growth.

Tiny gains are powerful, OVER TIME… Tiny gains yield long-term success.

There is no quick fix. Define your PROCESS and stick to it, PRECISELY.

And if you falter? We’re all human! Get back on track quickly!

Power plan for slight improvements and slow gains. Master your habits. 

For example, let’s say you start with a list of all the little things you could do. The little adjustments:

• Get up half an hour earlier, ideally before 6.30 am each morning… In a short time, you may see a change in productivity. It’s amazing how even minor tasks like checking emails in the morning’s silence, with no interruptions, can improve your productivity. 
• In the evening, spend half an hour reflecting on the day gone and planning for the day ahead – it may have a snowball effect on your business success!
• Positive mindset too – a one 15 minute meditation session once a day for two weeks may be all it takes to see the changes.  

And, don’t overlook finding 1% improvements in other areas of your business. For example:

• Organize a monthly online event. If successful, change to bi-weekly and run the events regularly.
• Invest in bi-weekly advertising. If successful, change to weekly.
• Never produced a newsletter? Try it!
• Not a fan of monthly team meetings? Why not? Give them a go! Not just for meetings’ sake but to target and focus on a collective goal added value to customers.
• Sit down for half an hour each Friday, reflect on the week gone, and make a list of all the little tasks that may bring you in more customers and sales for the next week. Do the finances.

Analyze and repeat the improvements if successful, or get rid of, if a failure! 

Don’t repeat your errors, but learn from them and refocus.

The 1% improvements will soon subconsciously become habits. And, these habits will become the essence of your business growth.

Just try to improve 1% each day. Progress from where you are right now. Get a little better today, tomorrow… You’ll see things compound. 

The small gains will breathe new life into your business. Keep the end goal in sight, but never let it become the master of the energy in your business.

As Vincent Van Gough said, ‘Great things are done by a series of small things brought together.’

Be the best you can be.

It’s your choice. 

Make it compound count.

1. Understanding exponential growth processes will help you expand your business quicker and more efficiently than following traditional growth methods.
2. A tiny margin of improvement, as little as 1%, may affect the results of your business in the longer term and, with consistency, that growth may be extraordinary.
3. The potential results all begin with your mindset. Retrain your brain, progress your power plan, take action and watch the results!

 

Richard Pulitzer