Hopefully, you know what conversion is! The word describes when someone responds to something on your website in the way you want them to, eg by making a purchase or signing up for something. But it can just as easily apply to a decision made at an in-person meeting. The question: How many conversions do you need? implies the number of sales you need to break even.
This question in the circuit questionnaire is about your business viability. If you cannot meet this target, it means sooner or later your business will fail. This is not about your aspirations but the practicalities of making your business work.
For the values-centred business, your business follows the same rules as everyone else’s. Once you know you can meet your target, you have capacity to invest your income in your causes.
How to Make the Calculation
Conceptually, the calculation is not too difficult. You divide the price you charge for your offer into the amount you need to live and pay for your business (your annual turnover). However, these can be more complicated than they first appear.
Your Turnover
Your turnover or outgoings are the sum of your business overheads and costs plus your drawings. The linked post explains them but here is a quick summary:
- Business Overheads are your fixed business costs. However much activity you have, these costs are constant. Usually they cover things like staff pay, premises, heat and light, taxes, etc.
- Business Costs vary with business activity. You may need to buy more things as your business grows. This includes occasional or one-off purchases, including training and coaching.
- Drawings are the finance you take from the business to live on. Not everyone does this, some people pay themselves a salary, typically once they set up as a company. If so, drawings will be zero. Also, if you receive other income from paid work, benefits, pensions, etc; then you can subtract these from your total.
Don’t get hung up on detail here. The main thing is to find an approximate figure. You can refine it later as you get figures from your business practice. Your outgoings will change as your business develops. You may find that when you hit your target, your costs increase because your business activity has increased! So, be generous in your calculation and careful about your actual expenditure!
Your Charges
If you have a single offer, this is simply how much you charge for it. But take care. Many business owners charge less than their advertised fees for various reasons. For example, I charge on paper £1500 for one of my offers. For various stated reasons though, I usually cut this by £200. So, the fee is actually nearer £1300.
If you have a single offer, you simply divide its price into your total outgoings and this tells you how many sales you need over a year.
However, few business owners have a single offer. I generally recommend having between 2 and 4 offers. With two offers, you can offer a choice and this reduces prospects saying no. More than 4 offers are likely to be confusing for you and your prospects.
There are a few options here. You could use your highest priced offer and this will show you how many of these sales you need to make. Some people argue you should aim to sell your highest offer because it is hard work finding clients and so you need to get the best returns you can when you find one. The alternative view is you want to sell the best package for the client and they might not need your high-end package.
If you have many packages or sell a range of products or have a specialist market with individually tailored offers, perhaps the easiest approach is to calculate your average monthly income, divide it into your turnover and multiply the result by the average number of customers. No approach is accurate but you don’t need absolute precision.
If you know on average how much a customer spends, it is the figure you need.
What To Do Next
When you complete the calculation you have the number of customers or purchases you need per year. Divide by 12 to get the monthly number. This is a useful figure because it gives you an idea of the challenge you face to find enough customers to break even.
There are broadly two ways you can respond to these figures. If the number of customers are higher than you are already experiencing, you must either find more customers or increase your prices.
Price increases become easier as you become established. If you have a positive reputation and find people are recommending you, this is the time for a price increase. There are various strategies but it is far and away the most effective strategy towards business viability, so long as your marketing is effective.
It may be possible to increase customer numbers, as you become more experienced, review packages, adapt them to your customer’s needs and improve your marketing.
Perhaps the most important outcome is it shows you whether have a viable business. Do not despair if the outcome shows you are not viable. A minor change in direction may be all you need. This may be where you need a coach to help you think through your next step.
Has this post been helpful? Let me know what else you need to know about this topic.