If there was a way of increasing your profits by 61% would you be interested to learn how?

Ask any business owner what their business needs and you will get a host of different answers including new equipment, better staff and more time. However, the most common responses will invariably be related to the following:

  1. More Customers,
  2. More Revenue, and
  3. More Profit.

Ask them how they plan to go about improving the above and their responses will likely be related to marketing or sales. Some may have ideas but few will have a very clear and documented plan to achieve it; and even less will have considered how they will be able to test the impact of their plan.

Many successful business owners I speak to work really hard to drive profits up but are missing a trick, a really simple trick. And I am going to share this simple concept with you now…

The Standard Profit Model:

Normally we look at profit development from the standpoint of three variables, namely sales, expenses and profits defined by the formula:

Sales – Expenses = Profits

In this approach, each variable depends on the other, so normally businesses look at either increasing sales or decreasing expenses in order to improve profitability.

 

The ActionCOACH 5 Ways Profit Model:

The ActionCOACH 5 Ways Model moves away from this narrow view and breaks the sales variable into five separate components. You can work on these variables individually to leverage profits on the bottom line using the “Divide to Multiply” principle.

The 5 Ways principle is a very powerful business tool that will enable you to have:

  1. Total control of your business growth
  2. Predictable marketing functions within your business
  3. Maximised profits in your business

 

According to the “Five Ways” Model all business is driven by five key profit generating areas:

  1. Lead Generation
  2. Conversion Rate
  3. Average Sale
  4. Average Number of Transactions 
  5. Profit Margins

Lead Generation  X  Conversion Rate =

CUSTOMERS  X  Average Sale  X  Average # of Transactions 

= REVENUE  X  Profit Margins 

= GROSS PROFIT

These 5 areas make up the profit generating equations. Increasing any of these variables can increase your sales and profits, while keeping expenses constant.

As you can see, customers, revenue and profit are the “outputs” or results in this formula. Leads, Conversion Rate, Average Sale, Number of Transactions and Profit Margin are the “inputs” that drive the “outputs”.

So, if you want to change the outputs in the formula, you must first change the inputs.

For example, if you increase either the number of leads or the conversion rate then the number of customers will increase.

Increasing Your Profits:

In today’s highly competitive business world, it is not possible for business owners to sit back and see the profits roll in. We want more Customers, more Revenues, and more Profits. However, as we have seen, these are outputs of the “5 Ways”. Understanding these 5 key areas, and knowing how to test and measure everything, is critical in driving your profits effectively.

 

The second blog on this subject will explore the 5 key areas in more detail, explain how the 5 Ways can maximise your profits, and discuss why testing and measuring your marketing and sales is so vital for your business.

For further information on this subject why not see our workshops where we cover this in great detail and explore the potential additional profits on your business.