Part 2: An Inside Look On the New Business System
This is part 2 of a 5 part mini-series on the different systems that comprise a business.
Here’s part 1: The 4 Systems Every Agency Owner Should Know About
In a recent article, I made the analogy of businesses working like machines. In short, every machine is comprised of different systems that work both simultaneously and separately. When the machine is well-oiled, everything goes well. When it isn’t, it all burns down in flames.
So, how does that relate to your business?
Before I answer that, allow me to make a quick side note. I am the CEO of Jakt –a digital product and innovation studio. I only talk about things I know which, in this case, is service-based businesses: agencies, professional firms, etc.
This might still work for you if you sell goods and not services, and I truly believe the same principles still apply. But that’s the type of company I’ll be focusing on throughout this piece.
Anyway. Where was I? Your business, right.
It is made out of 4 systems: new business, production, back-office, and finances. In my previous post, I gave a bird’s eye overview of how they all work and interact.
After great feedback from fellow business owners, I decided to create a mini-series where I focus on each system individually. I really think it can bring you radical value. Sounds good? This week, we jumpstart this with:
The New Business System:
This system’s main focus is bringing in new clients to your business. It gets people ready to throw dollar bills at you. Simple, right? There’s no need to overcomplicate this.
There are three steps to it:
- Generate leads.
- Qualify them.
- Close them.
It’s a cycle that should be operative at all times. No matter how many clients you are working with right now, having a full pipeline of prospects it’s essential. You never know when someone will end a contract without notice, and it’s better to be safe than sorry.
Also, while you –the business owner– might start being in charge of all three steps, the idea is to gradually remove yourself from them. As you grow, they will all have one specific individual assigned. And, over time, you might have a whole team specialized for each one.
So, let’s do a quick rundown through them:
“How can you generate more leads?”
I like to separate leads between inbound and outbound.
At Jakt, we generate the vast majority of our business through referrals (aka, inbound leads). Obviously, the longer you’re in business, the easier it gets: you have more clients, your network grows, etc.
Inbound leads have the huge advantage that you don’t have to go and seek them out. That saves you time, effort, and marketing dollars. At the same time, you do have to deliver A1 work for people to be willing to refer you.
Makes sense, right?
From my experience, referrals that come from personal relationships –whether they’re current/former clients, friends, acquaintances, etc.– work better than paid partnerships.
That’s not to say that paid referrals partnerships don’t work. I’ve used them for Jakt, and they did bring me clients. The most important thing is that both you, your referral partner, and the client win.
Now, outbound leads do offer better predictability and repeatability. I haven’t used them much until now, but it’s something I’ll be focusing on moving forward this year.
Things like PPC, FB and Instagram ads (even cold emailing or, God forbid, cold calling) are different ways you can go out and directly offer your services to potential clients.
The truth is, there is no “perfect way.” You’ll have to test what works for you and your business.
“Why is qualifying them so important?”
Qualifying leads is a step that is often overlooked because it isn’t as sexy as its companions. Generating leads is cool. Closing clients with adrenaline pumping down your veins is… well, addictive.
But qualifying leads seems kinda… meh. And it shouldn’t –because it’s a crucial moment in this system.
Each company has different factors that will determine whether a lead is suitable or not. And they can –and will– change with time, by the way.
Things that we look at Jakt are: industry, budget, project type, customer size, timing, etc.
When qualifying, you need to find a balance between cutting off early unsuitable leads and not turning down prospects prematurely.
For example, imagine a new lead says their budget is not large enough to afford you. Maybe they’re right, and you should go ahead and disqualify them.
But maybe they just don’t see the value in your services yet because of weak marketing materials, etc. What if all you needed is to educate them better and they’d sign with you?
“From leads to clients.”
And the last step is turning those leads into paying clients.
At the end of the day, this is what really matters: how much revenue and profits did you bring in. Not how many leads, not even how many clients. It’s a meaningful distinction.
Closing deals could be an article by itself but, in short, here are the basics to it:
You start closing the deal way before you sit down at your last meeting. It starts at the very beginning, and it’s a constant process.
Your relationship with sales and your decision-making are two critical factors that will help you close more business. Check those articles out if you’re interested.
And finally, you have to measure your numbers and performance. As the saying goes, “only what can be measured can be improved.” In fact, you should be measuring the whole sales funnel. Here’s how it works:
Funneling Your Way Out
If I asked you, “how many leads do you need to generate the revenue that you want?”…
…would you be able to give me an exact number?
Or even worse, do you even know the revenue you’re aiming for the year?
The New Business System works like a funnel:
At the top, we have all the new leads that you bring in. And, at the bottom, the clients you sign. Through each step, the funnel will tighten and a certain percentage will drop off.
If you know your average deal size or the Long-Term Value of your clients, all you have to do is reverse engineer the equation.
Theory aside: working out the funnel.
Let’s say you want to make $1M/year — that’s your target revenue. Your average deal size is $50,000/year. And let’s assume you don’t have any past recurring income, cool?
Now, that means you need to sign 20 clients to get there. If you sign ¼ qualified leads, that tells us that you need at least 80 suitable leads to get to $1M.
Moving forward. If only ⅓ of all the leads you generate are qualified, you’ll need 240 leads to reach your revenue target.
240 leads → 80 qualified leads → 20 clients → $1M/year.
Once you break it down like this, you know that, as long as you generate 240 leads, you’ll get to 7 figures. Numbers don’t lie: 240 leads/year is 20/month which is only 5/week.
That’s why it’s so important that you measure and document every single aspect of this process.
Optimizing the New Business Funnel:
“But Anthony, what if I want to double my revenue? Or what if that’s too many leads?”
All you have to do is go through each level of the funnel and optimize it.
For example, you could try to adjust your lead to qualified lead ratio from ⅓ to ½. With the same number of leads, you now have 40 more qualified leads, which really is 10 more clients or $500k/year.
The closer you are to the bottom of the funnel, the larger its impact in the grand mathematical scheme.
Doubling your leads is possible, but terribly hard. You thought 240 leads were a lot, how about 480? That’s really the last variable I want to adjust.
Instead, increasing your conversion rate has a MASSIVE compounding effect. If you up your conversion rate to ½, now you have halved the number of needed leads.
Final note: Another variable is the average deal size. If you are capable of increasing that by only 10%, you’ll decrease your target leads by that same percentage. There are 4 different ways to do that –but I’ll cover them next week. (Opt-in in the form below to stay tuned.)
The New Business System Takeaway:
- There are three steps to it: generate leads, qualify them, close them into clients. This system should be “on” 24/7 365. The number of people assigned to each step will change as your business grows.
- It works like a funnel. If you know the variables of the equation, you can reverse-engineer it to predict how many of each you will need to hit your target goals.
- You can optimize each step of the funnel to either increase your top-line revenue or decrease the number of leads needed. Adjustments close to the bottom of the funnel will have a larger compound effect.