Increase Profits in Your Business by Focusing Your Time and Energy on these 5 Profit Drivers…
Businesses that increase profits each year thrive. If your profits aren’t rising, the chances are your company isn’t thriving. You’re probably feeling anxious about cash flow and wonder where your time is going.
Here are the only five ways to Increase Profits to help you solve the problem.
Before you read on here are some assumptions I’m making;
- You’re in business and have been for at least a year. (although if you are just starting read on)
- You currently have some customers/clients who buy your products or services.
- You want to know how to, maximise your effort and Increase Profits in your business.
Is your profit higher than it was last year?
I asked that question, along with several others, in a previous post. I explained the importance of understanding the vital numbers in your business. And strongly suggested a basic measuring system to get started.
Now let’s look at the vital profit drivers in your business and why you are unable to increase profits compared to your efforts. And what to do about it.
I believe that your profit trend is the single most powerful indicator of your company’s health. As profits decline, companies cut their sales and marketing efforts. Manufacturers postpone plant upgrades and delay research and development. And it becomes a lot less fun to own a business. Obviously, something needs to change to avoid the typical business trend of repeated boom and bust. And its detrimental consequences.
Here are the five vital areas to focus on to help you increase profits in your business:
1. Your Number of Leads.
Leads – The total number of POTENTIAL buyers of your product or service. Sometime called; prospect, suspect, opportunity or potential. Here’s the rub do you know how many leads on average you get in your business in any time period, (day, week, month year). Whenever I meet a potential new client, lead generation, they inform me is a priority concern for them. I say “not yet” read on and you’ll discover why…
Your number of leads is determined by your marketing activity.
2. Your Conversion Rate.
Conversion Rate – The percentage of people who did buy compared to the people who potentially could have bought. (your leads). Do you know this number? If you don’t measure this and from my experience most don’t – there is a potentially HUGE opportunity for you to increase profits and seriously improve your cash flow.
I recently worked with a new client, I asked him what’s his conversion rate. He responded with, about 70%. So I asked him to confirm this by measuring it over 6 weeks. He recorded 23% and was gutted. I was delighted, I knew where the opportunity was to increase profits in his business and FAST.
This number is determined by your customers confidence and your ability to make a sale.
3. Your Average £ Value of Each Transaction.
Average £ Value – Here’s one area I find business owners generally do measure. If you don’t, I recommend you start. What you are looking for is the average. Some customers might spend £5 or some may spend £500, but the average is what you’re after. (Add up all your sales and divide it by the total number of sales/invoices)
Improving the average value of each transaction is where, as a proactive and focused business owner you’ll find golden nuggets. A small increase on average £ value will dramatically increase profits for you.
This number is determined by your business acumen, how well do you spot and seize opportunities?
4. The Average Number of Transactions of Each Customer/Client.
Number of Transactions – Again what you’re looking for here is the number of times the AVERAGE customer/client buys from you in a year. Not the best, not the worst. Some businesses have customers buying daily, some weekly some every year or even after several years. If you are not measuring this number, seriously you’re missing out. Did you know it’s 6 times more expensive to generate a new customer compared to getting your existing customers to come back more frequently?
This number is mainly determined by your pro-activity. And your how well your customers perceive your level of customer service.
How loyal are your customers?. Do you measure your customer service levels?
To increase profits and I mean really increase profits. You need to understand the life time value of loyal customers.
5. Your Profit Margins.
Profit Margins – Are the percentage of each and every sale (transaction) that’s profit. In other words sale something for £100, and it cost you £60 your overhead contribution consumes another £20 you’re left with £20 so that’s 20% profit margin. It’s again another potential gold mine to tap into. And where I’d encourage you look first (see “not yet” lead generation above).
This number is generally an indication of your effectiveness at managing your business and its resources. Importantly it is also affected by every other function in your business. You’re either decreasing or increasing potential profits with EVERY activity you perform in your business.
So there you have it. The 5 vital numbers to focus your time and energy on, to increase profits.
Remember change starts from your awareness of the current reality. (know your numbers)
You’re then in a position to;
- Identify the areas of opportunity (from your numbers).
- Set yourself some improvement goals/targets and then;
- Focus on these areas of opportunity, by allocating yourself time to work ON this important business development activity.
- Measure the outcome
Remember this bit of sound advice
“You can’t manage what you don’t measure”