Do more with the 3 sources of sales growth

I had some push-back from my first Insights email on the 3 sources of sales growth. You remember? ... sales growth can only come from:

  • winning customers at a faster rate
  • losing customers at a slower rate
  • customers buying at a higher rate

"Customers", "buying" and "sales" are just shorthand for terms that vary between different contexts. "Customers" may be subscribers, owners, followers, or recipients of services, e.g. in non-profit or public service cases. Buying may actually mean transacting in a variety of ways - purchasing, yes, but also acquiring, consuming or taking physical, service or information products at some rate. And sales is, in more general terms, the total rate at which those customers are taking what we offer.

"That's way too simplistic!" I heard.
Well, no, but yes.

First, no it's not too simplistic because those are indeed the only 3 numbers that will explain how next week's customers and sales will differ from this week's numbers. (If needed, we can copy the same structure and maths for different customer segments and/or different products, and sum the answers)

... but then, yes it is too simplistic because there is a lot going on behind those three basic numbers.

There are three important extensions to that customers-drive-sales model ...

Winning customers is a process, not an event

We must make potential customers aware, then informed, before they adopt our product and become loyal. The customer choice pipeline is a more rigorous, quantified way to apply the well-known AIDA framework or marketing funnel. See my post on this here.

Customers are not all equal! That 3rd number - customers' purchase rate (the quantity bought per week) changes for any or all of reasons (another '3' !) See my post on this here.

  • current customers may decide to buy more next week, and/or
  • new customers we win may buy, on average, more or less than current customers, and/or
  • customers we lose may not be 'average', but may also buy more or less than that average (... so we would be more alarmed to lose our 'best' customers than smaller ones).

Competitors want customers too! Competitors can hit all three of those sales-growth drivers (yet another '3'!). See my post on this here.

  • we may be in a race with competitors to win new potential customers (part of rate-1 above) and/or
  • we may be in a fight to steal their existing customers (also part of rate-1 above), and stop them stealing our existing customers (rate-2 above)
  • we may be in a tug-of-war to grow our share of sales to shared customers (part of rate-3 above)

Add those extras to extend the customers-drive-sales model

Over the years, I have applied these frameworks and models many, many times to a wide range of cases. Either:

  • using the frameworks alone with teams, sketching on a white-board and adding in estimated time-series for how numbers are changing, or
  • building digital-twin business models to capture and simulate how and why customer numbers and sales have changed, and how they will likely change in future

The frameworks and models are rigorous and reliable, and help understand why our sales have changed historically, plan marketing and sales strategies and tactics to build future sales, then manage those efforts continuously as the future unfolds.

An example ... If you have not come across digital-twin business models before, they convert principles and frameworks such as these into rigorous, quantified models that play out how the real world works over time. This example shows 2 scenarios for the launch of a pharmaceutical drug product against a competitor that previously had the only approved product in the category.

  • in the green scenario our lower price captures physicians faster (but at a cost in lost margin)  
  • the physicians prescribing rate drives our sales
  • Revenue is sales * price drives revenue ... subtract the unit cost to get the product's gross profit contribution

ignore the 'week 10' note at top left

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Learn how these frameworks can help, in our short online course on Marketing & sales here.
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(I owe this one to my friend Lars Finskud at Vanguard Strategy – thanks Lars!)

Most of us are familiar with the idea of the marketing “AIDA” framework – how potential customers are first made Aware, then Informed about a product, then Desire it before Acquiring it. And there are many variations of marketing and sales “funnels”.

But we can do so much more with these concepts – rigorously quantifying them – with a dynamic structure known as the “choice pipeline”. Modifications to that model can also handle shorter term sales funnels, online promo campaigns, or customer on-boarding journeys, for example.

You can get a working model of this choice pipeline at sdl.re/choicepipeline. It is set up to show the marketing build-up of a simple consumer brand, but can be modified for B2B cases or for the marketing of services. The model can reflect the impact of word-of-mouth feedback on customer acquisition and sales, and if segmented could deal with cross-interactions between, say, key-opinion-leaders, early adopters and laggards.

Here’s two scenarios for how the allocation of marketing spend along that pipeline could play out over 36 months. (The 3rd chart included both loyal and disloyal consumers). The figure shows why there is a minimum viable launch budget for this or any product – the model calculates that spending half of that minimum amount on marketing captures too few customers to pay even for that lower expenditure.

But the marketing of a product or service is just one broad case in a much wider class of challenges – any situation where we want to understand and influence how any new behaviour is “adopted” by a target audience. Examples include:

  • The adoption of new medical procedures by physicians, whether basic prescribing practices or advanced surgical methods.
  • The adoption of new farming practices, such as precision agriculture.
  • The acceptance of some desired behavioural change in an organisation.
  • The take-up of low-carbon-emission behaviours by both organisations and households.

In all such cases, we need people to move from being unaware of the new behaviour, to being aware (though still not understanding it), to informed (understanding it, but not doing it), to active (doing it, but not committed), to committed (they will always do it, when the occasion arises).

But we need to be conscious of some other mechanisms, such as the tendency for people to slip back down the pipeline – forgetting a brand, or becoming disloyal in the consumer product case. And the carbon-emission case warns there is another possible state for people to be in – rejectors. who will not have anything to do with the desired new behaviour, and who may well influence others not to flow up the pipeline.

Incidentally, this model reinforces my case in an earlier post that “net promoter score” is a wholly inadequate tool for driving sales growth.

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You can save the model at the link above, and modify it for your own case. If you want to learn more about how to model pipelines – not just for customers, but for staff, product development and aging assets too – the “Extension” class #6 of our online dynamic modeling course will show you how.

By the way, if you are intrigued by the organisational behaviour change application of the choice pipeline, the states are 1. “I never heard they wanted me to change behaviour” 2. “I heard they wanted me to change, but don’t understand how” 3. “Now I understand how they want me to change behaviour, but I’m not doing it yet” 4. “I’m having a go at behaving in the new way, but may give up” 5. “I am fully committed to the new behaviour” … plus of course “I am having nothing to do with changing my behaviour!”. Barriers to moving forward include inadequate training on how exactly to do the new behaviour, fear of being penalised for failure, and discouragement from others in the last group. A division of GSK used this model to figure out training and communications plans to persuade people at lower levels to take more decision-responsibility, and backed it up with regular “how are you feeling” surveys to inform those plans.