5 Ways to Increase your Profit by 61%
What many businesses tend to measure are outcomes. Most businesses we speak to will have a clear idea of how many customers they currently have, will know their revenue, and often will understand their profit. These three things, however, are the results of work put in in other areas. What we look to do is to encourage people to look and measure what gets them the results and not just the final number. Once you understand these principles you will be well on your way to building a better business and have your very own success story.
So, what does this mean? To give it some context, you can’t have customers unless you first have people who are interested in your product, or simply put, leads, that group of people who express an interest with your product or service. Once you measure this, and where the interest has come from you have to measure how good you are at getting them to part with money, i.e., converting them from leads to customers.
The first part of the equation then is simple. Leads multiplied by your rate of conversion gives you the number of customers you have in your business. Without measuring these things to understand where the customers come from and how effective you are at closing them you can’t improve or manage the process to increase the number of customers you have!
Once you have the customer you then need to drive revenue. Again, simply put, your revenue is made up of the following:
How many customers you have multiplied by how much they spend (Average order Value) multiplied by how often they spend it (££ per sale).
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As above, once you understand this you can use various strategies to increase either the frequency of the spend or the amount the customer spends with your business; How active are you at measuring these areas now? Through measuring the numbers, you can then look to make improvements and manage the results.
Once you have a handle on the customers and their spending habits you then must ensure that there is profit in the business! Managing and monitoring your profit margin ensures you keep on top of the results to maximise opportunities internally and help grow your business.
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In Summary:
- Leads multiplied by your conversion rate (%) will equal the customers in the business.
- Times this number by the average value per sale and the average number of times a customer buys over the given period will give you your revenue.
- If you multiply this number by the profit margin, you’ll be left with the profit from the business.
- Breaking the numbers into these simple categories allows you to manage the results and identify the potential for improvement. A 10% increase on each of these areas can lead to a 61% growth to the profit, and with more focus and planned activity it can be easy to achieve.
To put this into perspective, please have a look at the example below:
By focussing on these 5 areas and looking to increase each area by 10% as shown can lead to a massive increase of 61% in profit. To improve your profit margins, you should ask yourself how you are currently measuring your business and what steps you can take to move to the next stage.
If you would like a conversation about the ideas included in this article or want to look specifically at how to make more money for your business, please get in touch.
