…and driving your business profitability!

At ActionCoach we refer to ‘the business chassis’. The idea being that, whatever the business does, they are all built on the same ‘chassis’. This is made up of 5 profit generating areas …

These are critical to running a successful business because your entire operation runs on these components. No business operates without them as they are so fundamental and when you consider them as a maths equation, they represent the key figures that lead to business growth and success or business failure and death.

The sad thing is that most business owners don’t know the numbers associated with any of these five areas even though they are a critical part of running any business.

But the good news is that when business owners really get to grips with and understand this powerful equation, and begin to implement it into their business, it can be the catalyst to drive long-term success …

So, let’s take a look at each area:

  1. Leads – This is the total number of leads – those people who have contacted or who have been contacted by the business – over the course of a year.

  2. Conversion rate – This is the percentage of people who actually bought. For example, if 10 people walk through a store and three people buy something, that store’s conversion rate of 3 out of 10, or 30%, for that day.

  3. Average pound sale – This is the average £ amount per sale (yes some will spend £5 and some £5,000, but we need the average over the year).

  4. Average number of transactions – This is the average number of purchases a customer will make over the course of a year. In a retail setting, this will probably be larger than those companies that operate in the professional services industry.

  5. Profit margin – This is the profit percentage of each and every sale. Simply put, if a business sells something for £100, and profit was £25, the profit margin is 25%.

There are a couple of caveats here. Firstly, the time period you use will vary depending on your business. For small retailers, it may be daily, weekly or monthly whereas some services may only be yearly purchases. Secondly, to plan for growth you will need accurate figures, and this will require testing and measuring to understand what your current numbers are.

“Here comes the maths!”

if, for example, you want to increase the number of customers in your business, you need to look at improving one or both of the top 2 areas, “Number of Leads Generated x Conversion Rate = Number of New Customers”. Both can be done, but will each require specific strategies to make your efforts effective and productive.

Moving further down the chassis, “Number of transactions X average £ sale = Total Revenues”, so again, to increase revenue, you need to increase the number of transactions and/or the amount they are spending each time.

However, as this is a maths equation, the numbers don’t just add up, they multiply! For example, a 10% increase in each of the 5 components of the Business Chassis will result in a 61% increase in the bottom line profits. Small improvements focused on each of these five areas will have a dramatic increase in your business.

This is a powerful concept that most business owners overlook! Simply understanding how the maths equation works is game-changing. Then taking the time to develop the specific strategies to use to make the improvement can change the future course of your business.