The economy may finally be turning around and showing signs of a rebound. Interest rates have begun to rise and the stock market is recovering from the lows it experienced in the last couple of years. Is your business ready to take advantage of these improving times? Can you translate these improvements into increased profits? You can. Read on…
Wouldn’t you like to see your profits increase? Sure, but in reality, what influence do you have over any increase? Create a forecast and have profits appear, wow, if only that were true! You have no impact on profits but you do have an impact on the factors that generate your business profits.
Profits are influenced by five factors. These are: number of leads, conversion rate, average dollar sale, number of transactions and profit margin.
Number of Leads x Conversion Rate = Customers x Average $$ Sale x Number of Transactions = Revenue x Profit Margin = Profit
A mere 10% increase in each of the five factors will lead to a 21% increase in customers, a 46% increase in revenues and a phenomenal 61% increase in profits. These percentages seem incredible but a little effort directed in the right areas can mean a huge difference.
Let us consider the first two factors: number of leads multiplied by conversion rate results in the number of customers. So how can you generate leads and then convert those leads to customers?
The best known method of increasing leads is advertising. Every business that wants to increase the number customers needs to use some form of advertising. How many methods do you apply? How many different adverts do you test each week? Equally important is knowing how to write an advert that brings in customers. How good is your headline? How good is your copy? How amazing is your offer? Other methods of increasing the number of leads include public relations, direct mail and trade shows, amongst others. How many do you currently use?
It is all very well that customers show up at your store or call for a quote but can your team convert those leads to customers? How does your business assure these leads spend money? Again there are a large number of ways to increase your conversion rate some of those include a trained sales team with a tested sales script, a checklist, and asking for the sale.
Once you have increased the number of customers that buy from you, the next step is to increase your business revenue. Again you cannot directly influence revenue, but it is obtained by multiplying the number of customers by the average dollar sale and then by the number of transactions each customer makes. These three factors multiplied together generate Revenues.
It is easier to get current customers to spend more with you than it is to find a new customer. Think in terms of ‘wallet share’ not ‘market share’. Once your business has a customer that is familiar with your level of service and the quality of product or service you offer convincing them to spend more with you is easier, more from their wallet!
You could increase the number of transactions your customers make by keeping in regular contact with them and informing them of new products, upgrades, and other general information. It is important that a past customer never forget your business, particularly if your business only sells to a customer once every three years, such as in auto sales. Stay in touch, use your database well.
Examples of ways businesses increase their average dollar sale, include the typical Biggie Size, or “fries with that?”; selling additional warranties on a product; charging for delivery and providing discounts for bulk buying. The most obvious and easiest way to increase the average dollar sale is to increase prices.
By increasing the last four factors discussed by only 10% a business will have been able to increase its revenue by 46%. What business would not be happy with a 46% increase in revenue?
Besides revenue, a business is most interested in profits. If revenue is multiplied by profit margins the business profits are obtained. Like the other factors profit margins too can also be increased using numerous methods. These include knowing your actual costs, reducing overheads, systematizing and not discounting.
To increase your business profits during 2004 you only need consider the five factors discussed above to make a marked improvement. A 10% improvement in each factor is not a lot to ask but even if you only increased each factor by 5% this will still result in a 28% increase in profits. Imagine what a business owner could do with a 28% increase in profits. Imagine a 61% increase in profits. These results are obtainable with a well focused effort.
GRAEME NICHOL, President, Arcturus Advisors.
Graeme Nichol has worked on 4 continents and in 117 unique businesses gaining experience in manufacturing, transportation, agriculture, communications, banking, direct marketing, consumer goods and retail amongst others. He has significant management experience and consulting experience, including Business strategy, project management, change management, big six consulting, team productivity, business productivity and quality improvement, ERP implementations.
Arcturus Advisors works with businesses and teams that are struggling to formulate a strategic plan that delivers bottom line results. Using tried and tested planning systems that have achieved results internationally for 20 years we ensure that you transform your business through focus, alignment and accountability.