Focus on Your 5 Ways to Increase Your Profits

In the first part of this blog we explored how the businesses can generate far greater profits by using

The ActionCOACH 5 Ways Profit Model:

Lead Generation  X  Conversion Rate =

CUSTOMERS  X  Average Sale  X  Average # of Transactions 

= REVENUE  X  Profit Margins 

= GROSS PROFIT

 

Now we 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.

Lead Generation:

This is defined as the total number of potential buyers, or ‘prospects’, that a business contacted or that contacted the business over a year. Leads are generated by effective marketing. The challenge is knowing which marketing strategies are working – this is where “Testing and Measuring” is critical.

Conversion Rate:

Most people confuse responses, or the number of potential buyers, with results. The sound of ringing phones does not mean that the cash registers are ringing.

Conversion rate is the percentage of people that did buy versus those who could have bought. For example, if 10 people walk into a store and 3 buy something then the conversion rate is 3 out of 10, or 30%.

Number of Transactions:

Average number of transactions is the number of purchases the average customer will make over a year. Developing repeat customers is a great way to cost effectively increase your profits.

Many business owners make the mistake of subscribing to the myth of once a customer, always a customer – not true. Successful businesses have effective ways to ensure they keep coming back.

Average Sale:

Average sale is the average amount spent by the average customer with each purchase. Up-selling and Cross-selling products that are of value to the customer at the point of sale will really help to increase your revenues.

Think of how many times you have been asked “Would you like to go large?”, and how many times have you spent slightly more than you initially intended? Having consistent up-selling or cross-selling tactics in place will make a huge difference in profits.

Profit Margins:

The margin is the profit percentage of each and every sale. Simply put, if a business sells something for £100, and £25 was profit, the profit margin is 25%. Profit margins are vital to know for each product or service you sell; that way you can ensure you are maximising sales of your most profitable lines and not spending time and resources selling low profit margin lines.

Utilising the 5 Ways to Maximise Your Profits:

So, what happens if we increase both the number of leads AND the conversion rate? Well, the two do not simply add together, but rather one multiplies the other. It has a compounding effect – this is the great strength of the 5 Ways Principle.

With a compounding formula, small improvements to each part of the formula can quickly improve your results in a dramatic way.

There are five variables in this formula and each can be affected by a whole range of activities or strategies. There are dozens of strategies any business owner can implement that will improve each area to maximise profits.

This innovative idea of focusing on the 5 Ways has helped many businesses dramatically increase their profits. Even businesses with a long-term buying cycle or a limited number of transactions can leverage the concept by working with the other variables to improve bottom-line profit.

By stepping outside the conventional accounting perspective of profit, and recognising that a number of additional variables drive the bottom-line you can have a massive impact on your business.

 

Test and Measure Your Results:

There are many different strategies to improve each area, although some that might work for one business may not work for another. That is why it is so important to measure the impact of every implemented strategy.

If it works increase your activity, if it doesn’t then adapt and adapt again until you find a winning formula, or it is obvious it will never work.

Testing and measuring is vital to maximising your profits.

The questions to consider for your business are:

  1. Where are you going to start focusing to increase your profits?
  2. How are you going to improve each area?
  3. How are you going to test and measure the impact of each strategy?

 

Once you understand the “ActionCOACH 5 Ways” then you can explore exactly how you can achieve massive increase in profits with some simple tactics.

 

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.