- Have you ever noticed that no matter how much money you make, you seem to find a way to spend all of it?
- Or maybe you’ve had the experience of growing your business only to find that you are making less and less on more and more?
- Are weak profits and inconsistent cashflow resulting in unmet financial goals?
All this pain and uncertainty uncertainty around profits is a result of a lack of a plan.
Your Profit Improvement Plan
Most people are taught that –
Sales minus Expenses equals Profit.
So if this were the formula for profit, what are the two ways you can increase your profit?
- Increase sales, or
- Reduce expenses
Making more profit just isn’t a two dimensional formula. Making more sales (on products with low / no margins) will send you broke and blindly reducing expenses can find you cutting the very expenses that are make you money.
Few people are familiar with the real formula for profit (as we are never taught this in schools). This profit formula actually gives you 7 ways you can dramatically increase your profit and business value!
New Clients + Existing Clients = Total Clients x Retention x How
Revenue x Margin = Profit x Multiple = Value
7 ways to dramatically Increase Your Profit
Increase Leads
Increase Conversion Rates
Increase Retention Rates
Increase How Much your customers spend with you
Increase How Often your customers spend with you
Increase your Profit Margin
Increase your Business Sale Multiple
If you implement the new profit formula, you will -
- Get more customers
- Grow your revenue
- Boost your profits, and
- Increase your business value
The incredible power of 10
If you were to work out your numbers using this equation and then focus on strategies to improve each key area then you would have a vastly different result.
Consider the numbers for an example marketing agency –
100 leads X
50% conversion rate =
50 new clients +
275 existing clients =
325 total clients X
80% retention rate X
$1,250 per project X
2 projects per client =
$650,000 of revenue X
20% profit margin =
$130,000 profit X
3 x business sale multiple =
$390,000 business valuation
If we were to make a 10% improvement on all areas then you would have a 43% increase in revenue. Let me explain…
110 leads X
55% conversion rate =
60.5 new clients +
275 existing clients =
335.5 total clients X
88% retention rate X
$1,375 per project X
2.2 projects per client =
$893,101 of revenue X
22% profit margin =
$196,482.22 profit X
3.3 x business sale multiple =
$648,391.22 business valuation
- A 37% increase in revenue.
- A51% increase in profit.
- A66% increase in business value.
- 89% increase in revenue.
- 129% increase in profit.
- 177% increase in business value.
That is the incredible power of 10.
Small changes to the numbers that matter most can make a radical impact to your revenue, profit and business value.
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