"Give me a lever long enough and a fulcrum on which to place it, and I shall move the world." - Archimedes
Sometimes, the best way to enhance your business profit and fuel its growth is to pull out the pocket protector and blackboard for some old-fashioned math fun. Don’t worry if math wasn’t your strong suit, we’ll handle all the heavy lifting.
Speaking of heavy lifting…
Every business has growth levers: areas of the business that can and will fuel business growth if you apply the right force at the right time. For SaaS payment processing businesses, some of those levers might be:
- Customer acquisition via advertising
- Customer acquisition via partnerships
- Driving more revenue per client
- More frequent purchases per client
- Reducing costs
Many other examples exist, they’re different for each unique business and industry, and they won’t all actually have an equal effect on revenues. But, for the sake of discussion, we’ll assume they will. No doubt, you can name five or more of your own company’s growth levers if you think about it for a few moments.
No matter what the levers actually are, when they’re working together, they multiply each other’s effect. They become more powerful than the sum of their parts.
In other words, if we could improve each lever by a 10% margin, the cumulative effect wouldn’t be a 10% improvement across the board, or even a 50% improvement (10% X 5 levers). Rather, a 10% improvement in each of 5 growth levers offers a 61% net improvement on the business! (1.10^5th = 1.61)
Using those figures, if we could create a 15% improvement across the board, we’d see the value of our business double.
Using ‘Sub Levers’
Now, that’s not to say that making a 15% improvement on even one of the growth levers affecting your business is a simple or quick task. But it doesn’t need to be overly daunting, either, if we break each lever into “sub levers.”
Let’s use customer acquisition — one of the levers common to every SaaS business — as an example. We could break customer acquisition into the various channels your company uses to make it happen. For instance,
- Facebook ads
- Google Adwords
- Blog outreach
- and direct mail
In this example, we have four individual channels (or, sub levers) that make up the customer acquisition growth lever. If we could improve each sub lever by just 3.5%, we will have met our 15% goal for customer acquisition. And achieving a 3.5% improvement in any one of those channels is a much less daunting task than just shooting for a 15% boost in customer acquisition.
And even sub sub levers
Now, let’s extend this sub lever thinking.
If we identified three impact areas that could improve our Facebook ads, we would only need to improve each by less than ½ of a percent to create the 15% overall growth metric.
Not to get too far into the weeds on this concept, but there’s really no limit to how many layers of sub levers your growth strategy can identify.
To further illustrate the power of small incremental improvement let’s say we have five main levers for profit growth. Each has four sub levers and three “sub sub levers.” What does just a 1% increase in three sub sub levers produce?
Don’t worry, we’ll do the math for you: [[[1.01^3]^4]^5]] = 82% improvement.
The Power of Cost Cutting
Of course, improving growth levers isn’t the only way to boost profits for a SaaS business. Cost cutting and creating efficiencies will also go a long way toward improving the bottom line.
As an example, consider a business with $500,000 in annual revenue and profit margins of 30%. This translates to profits of $150,000 per year. If we’re able to reduce costs by just 10% our business profits move to $200,000. But that doesn’t just translate to a 10% profit improvement. Instead, cutting costs by 10% gives us a 33% profit boost!
If you can identify and optimize those areas in your SaaS company that power your business and maximize your potential sub lever areas, you can achieve significant growth in your business.
Likewise, if you can identify unnecessary expenses or inefficiencies and cut costs without sacrificing quality or customer success, you can further fuel business and profit growth.
In both cases, even seemingly tiny, incremental improvements (and a little bit of math wizardry) can have a huge impact on your company’s success.