(12) Turn Incremental into Massive Growth Profit
Does this headline sound unrealistic? Today I'm going to further illustrate a
An example is a manufacturing process. By dividing the manufacturing process into fine segments and then focusing on improving the quality and efficiency of each segment, the multiplicative effect is a large improvement in productivity, quality, and cost reduction for the company.
Do you want to massively improve your profits? Pause in your reading, right now, and think about what a 50% improvement in your bottom line would mean for your business and lifestyle. Sound too good to be true? Hang on- keep reading.
Is your mindset: Profit = Sales Revenue- Expenses? Then you are correct. In that case, we must increase sales and/or decrease expenses to increase our bottom line. How do we increase sales? "Just do it" as Nike says. "Easier said than
Introducing the 5 Ways Business Chassis! Every business, no matter what type, (including you professionals and nonprofits) runs on this chassis. The 5 Ways is a great example of the Divide to Multiply principle. Here it is: # of Leads X Conversion Rate = # of Customers X Average $ Sale X Avg. # of Transactions = Revenue
The items in bold are the 5 ways to increase profits. Those behind equal signs are the results; not the ways to obtain the results.
What would happen to our bottom line if we focused on making small increases in each of the 5 ways? Let's take a look at each of the 5 Ways.
# of Leads:
The number of potential buyers with whom you've communicated (also known as prospects). Can you apply the Divide to Multiply principle to # of Leads to gain deeper understanding? Yes! Remember my recent article describing the "Customer Ladder of Loyalty"? Your prospects originate from your suspects.
One last point; don't confuse responses, or the number of potential buyers, with results. The sound of ringing phones does not mean that the cash registers are ringing as well- which allows me to segue into Conversion Rate.
Conversion Rate:
The percentage of Prospects that become Shoppers (the next rung on the Customer Ladder of Loyalty). For example, if you communicated with 10 prospects today and 3 made a purchase from you, your conversion rate is 30%. Do you see how the question of how to get more customers becomes clearer? By increasing our number of leads and our conversion rate!
# of Transactions:
The average number of times an individual or company purchases from you in a year. Some of your Prospects will only become a Shopper. Others will become a Customer, and others will become a Member, Advocate, or Raving Fan. Some will only purchase from you once, some will purchase twice a year or maybe as high as daily, depending
It helps to keep a database of past customers. Don't make the mistake of subscribing to the myth of "once a customer, always a customer". The average number of transactions is closely related to the average sale of each purchase, which is also over the course of a year.
Average $ Sale:
Your total sales volume divided by the number of sales. This Way is one of the least expensive and the easiest to improve. The result of multiplying these 4 Ways is your total sales revenue.
Profit Margin:
The average amount of money from each sale that is leftover after subtracting expenses as a percentage of the sales for the year. For example; you sell something for $100. After subtracting expenses you have $25 left. Your profit margin is 25%. Multiplying your sales revenue by your profit margin yields your profit.