One of the things that many people do not realize is that the entire way that we have calculated profit allows for incremental changes to have a significant impact. Since most businesses are only truly concerned with profit, it means we have lots of points of leverage for us to go after. Leverage is a term that is used to describe the way that one number can impact another.
So far we have looked at Customers, Revenue, COGS and OPEX. Each one of these is a point of leverage.
Can you get more leads in the front door? If so, then you will end up with more customers. Can you improve the targeting of your prospecting? If so, then you might get a better conversion rate on those Prospects that show up. Those better customers might by more than average amount of product and might buy more often than the current average customer. A basic formula looks like this:
Revenue = Number of Prospects * Conversion Rate * Average Revenue per Customer * Number of Purchases per Period.
For our example let’s say we have 1,000 prospects with a 10% conversion rate that buy $10,000 of product once per quarter. So our quarterly revenue looks like:
Revenue = 1,000 * 10% * 10,000 * 1 = $1,000,000.
If we get a 10% improvement on each of those we get:
Revenue = (1,000 *1.1) * (10% *1.1) * (10,000 * 1.1) * (1*1.1) = $1,464,100!
This represents a 46% increase in Revenue. This does not require a huge increase in any single factor and can be imagined to be done in any business. That means significant increases in Revenue (and Profit as well) are within anyone’s reach. The question for you, especially as we are in Q4 of 2015 as I write this, is what plans do you have in place to make those changes? If you don’t have any, then you should develop some straight away! If you are not sure where to start, then someone who does what I do can be of great value. A Coach can provide an objective perspective on what you are doing and what you might change. Maybe it is time for you.
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