Last Updated Jun 29, 2011 2:14 PM EDT
Use something researchers call "trade-off analysis" -- a simple way of pitting one choice against another where the winning choice goes on to be tested against another option. Think of it like a tennis tournament in which the winner moves on and the loser goes home.
Step 1: What is the ideal number of customers?
As you plan your million-dollar business, first consider the number of customers you think would be ideal. For example, ask yourself if it would be easier to generate $100,000 in sales from 10 customers or $10,000 from 100 customers. I would imagine a business with only 10 clients would sell to other businesses and have perhaps two partner-level salespeople. A business with 100 customers, each buying $10,000, likely would also sell to other businesses but could get away with perhaps two or three more-junior salespeople.
Let's say you think 100 businesses buying $10,000 each is easier because you can more readily find three junior salespeople than you can two partner-level sales professionals. Now ask yourself if it would be easier still to find 1,000 customers willing to purchase $1,000 worth of what you sell. With 1,000 customers, the complexity would increase, but presumably the difficulty of making each sale would go down. With 1,000 customers, you would likely need a superb telesales team, a customer relationship management (CRM) software platform, and some in-house marketing skills.
If you think 1,000 customers buying $1,000 worth of stuff is the easier path, up the ante again and think about selling $100 worth of your product or service to 10,000 buyers.
By doing this kind of trade-off analysis, you should arrive at the ideal relationship between the size of the customer and the number of customers.
Step 2: Pinpoint the ideal number of products
Next, look at the number of products that would be the ideal portfolio to get to the $1 million mark. Would it be easier to sell $1 million worth of one product or $200,000 worth of five products? How about $100,000 of 10 products? Keep weighing the relationship between the market potential for any one product against the complexity of managing multiple product or service lines.
Step 3: Pick the ideal number of locations
Now look at geography. Is it easier to get one location to generate $1 million in revenue or three locations to do a third of a million dollars each? Some geographic markets get saturated quickly, so it may be easier to set up a second physical location than squeeze the lemon too hard. For example, a Subway franchisee might find it easier to run two stores, each generating $500,000 in revenue, than trying to eke out $1 million from just one location.
Step 4: Pull it all together
Once you have estimated the ideal number of customers, products, and locations, it's time to put it all together. For example, you may decide that you want to sell 100 customers $10,000 worth of your products. You estimate the right balance between product variety and complexity is three, so you know you need three products with the potential to sell at least one third of a million dollars on average. Furthermore, you may decide that there is more than enough demand for your products in the local trading area, so one location is sufficient. Now you know you need 100 customers to buy from a set of three products out of one location.
This kind of trade-off analysis can help you plot the fastest course to a seven-figure business.
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