When it comes to growing your business profits with small improvements, there are effectively five key components that you need to focus on as the owner of your business. If you want to grow your profits in your business, then focus on each one of these and plan for a small incremental increase in each of these components, say for example 10% increase for each component, and surprisingly enough it is likely to increase your overall bottom line profit by approximately 50%.
So what are these five components?
1) The number of leads or inquiries your business gets on a daily, monthly or annual basis. This is usually in direct response from your marketing and advertising efforts. For example, lets say you normally get 200 inquiries a week, lets see what happens along the way as we aim to increase this by 10% to 220 per week
2) Your Conversion rate. Don’t confuse a ringing phone, or a large volume of email inquiries with your conversion rate. The conversion rate is the number of prospects that actually made the decision to buy something from you.
Following along with our example, lets assume you normally convert 30% of your prospects into customers. A 10% increase will mean we now try and close 33% of those prospects.
3) The Number of time your customers buy from you. This comes back to marketing to your existing customers, and how many business owners either don’t do this, or they do it very spasmodically. Lets assume your customers buy from you ten times a year. Again with our 10% increase example, lets aim for 11 sales from these existing customers. This will probably require a more focused level of marketing to your existing customers (Something I can help you to achieve if you’re interested)
4) What is the average $ value of each sale to your customers. This is something that you calculate by totaling the complete dollar sales for all customers, adding them altogether and dividing by the number of sales. This will give you the average $ per sale. For arguments sake, lets assume for this example that your average $ sale is $50. Since we are wanting to increase this by 10%, we need to focus on a few cleverly thought out specials, and upsells to boost this average to $55 per sale.
5) Lastly, we need to look at our margins, or the amount from each sale we make as gross profit. Many business owners absorb increasing costs, and or discount their products to gain sales, however by increasing prices by a small amount to maintain or improve margins often has no adverse impact on the level of sales, especially if it is accompanied by an overall improvement is customer service. So lets assume our margin in our example is 20%. We now aim to make our margins 22%.
So putting the whole picture together in our example, we have 200 leads per week, (10400 leads per year) with a conversion rate of 10% = 1040 customers, which all purchased on average 10 x times per year = 10400 sales, at $50 per sale = $520,000 in sales for the year, and at a 20% margin = resulting in $104,000 Profit.
Now with our renewed focus of improving each of our components by 10% (what impact does that have on our $$$?) Now we have 220 leads per week, (11440 leads per year) with a conversion rate of 11% = 1144 customers, which all purchased on average 11 x times per year = 12584 sales, at $55 per sale = $692,120 in sales for the year, and at a 22% margin = resulting in $152,266 Profit.