Column: What is Your Engine of Growth?

I hear all too often from business owners and managers, “I’m not happy with my rate of growth.” My first question when I hear that complaint is, “What is your engine of growth?”

Which is usually followed by a crinkled up forehead or blank stare.

Even though the economy is chugging along, albeit at a slow rate, most business owners are not satisfied with their flat or single digit gains. If you want to outpace the economy, you’ll need to add more fuel to your engine of growth.

Most business owners can quickly tell you what their sales were for their last reporting period, but few understand the engine or measure the metrics that drive those results. There are two primary engines of growth categories: paid and organic.

You can certainly fuel both engines, but knowing and tracking the right metrics are critical to accelerating your rate of growth.

Paid Engines require an investment in traditional or digital promotion. The most important metric is the margin between the Lifetime Market Value (LMV) of a customer and the Cost Per Acquisition (CPA) of that customer. Divide your CPA by your LMV to determine your margin. As long as the margin is greater than one, you will grow. For example, if you spent $1,000 on an advertisement that generated $2,500 in lifetime sales, your margin would be 2.5. The higher your margin, the faster you will grow.

Organic Engines include growth from word-of-mouth and viral (not to be confused with a viral marketing campaign, which falls in the paid growth engine category). To generate a bankable organic effect, however, you need to deliver a truly outstanding customer experience… I mean you have to really WOW your customers and sustain that WOW factor. The difference between word-of-mouth and viral growth is that word-of-mouth (getting people to share their experience with family, friends and colleagues) is less controllable and more difficult to measure; although, you can still track word-of-mouth and networking referrals by sourcing new customers.

Viral growth, on the other hand, happens as a side-effect of using the product. It usually involves an embedded or automatic system to spread the word, and doesn’t require evangelists to transmit the message like word of mouth does. A good example is social media networks that automatically email you when you have a new post, request, photo, connection or tweet.

The way to measure a viral growth engine is through what Eric Ries — author of “Lean Startup” — calls the “viral coefficient.” In essence, you measure how many new customers will use the product as a result of each new customer you acquire.

Example, if each new customer generated one additional customer (on average), the coefficient would be 1.0 and the company would grow. With a coefficient of less than 1, the growth wouldn’t be sustainable.

The higher your viral coefficient the faster your product will spread. The same engines (and math) work for service and nonprofit organizations as well.

It doesn’t matter whether your engine of growth is paid, organic or both, as long as your margin and coefficient are greater than one, your business will grow. And, the best way to ensure a sustainable growth rate is to deliver a stellar customer experience.

To paraphrase Maya Angelou, people will forget what you said, people will forget what you did, but people will never forget how you made them feel. If you make your customers feel special — like they are your only customer — your Cost Per Acquisition will go down and your Lifetime Market Value will go up.

Lastly, if you’re a small business owner interest in discovering new engines of growth, be sure to attend the North Puget Sound Small Business Summit on Nov. 2 at the Lynnwood Convention Center. It’s a free event, and one I believe you will find informative and inspiring. You can register at www.EconomicAllianceSC.org.

Andrew Ballard is president of Marketing Solutions, an agency specializing in growth strategies. For more information, call 425-337-1100 or go to www.mktg-solutions.com.