2 Ways to Increase Business Profits?

Hello %%First Name%%

I wanted to share with you, the basic concept of how to increase profits in your business.

Of course, keeping it simple, there are just 2 ways to increase business profits.

You either…

• Increase sales, or
• Decrease costs

However, the amount you can reduce costs by is limited but the amount you can increase sales by is unlimited. So there is far more potential in increasing sales.

So how can you increase sales? There are 3 ways to do this...

• Increase the number of customers.
• Increase the value of each transaction.
• Increase the frequency of sale to each customer.

But if you do all 3 together, you can achieve far higher growth.

For example, lets look at the following scenario...

• You presently have 100 customers
• The average transaction value is £100 for a product that costs you £30 to produce
• The average frequency of purchase by a customer is 10 times a year
• Fixed overheads are £20,000

Sales are presently £100,000 (100 x £100 x 10), cost of sales are £30,000 (100 x £30 x 10) and with fixed overheads of  £20,000, this leaves a net profit of £50,000.

If it was now possible to increase all three sales generators by 10%, we can increase sales to £133,100 (110 x £110 x 11), cost of sales become £36,300 (110 x £30 x 11), and with fixed overheads still at £20,000, the net profit now becomes £76,800.

So profits have now risen by £26,800, a 53.6% increase as result of improving all 3 generators by just 10%. This shows the power of working on all 3 areas at the same time to achieve maximum results.

The marketing tools you can use to get growth in all three of these areas can be categorised into the following areas.

• Lead Generation - of quality leads
• Lead Conversion into sales
• Re-selling to existing customers

An overriding factor in all these is outstanding customer service, particularly in re-selling to existing customers. Increasing your number of customers is a factor of both how many you gain and how many you don't lose.

Remember never to sacrifice profit for growth. There is the saying...

"turnover is for vanity, profit is for sanity"

The effect of different changes in the sales generators will vary from business to business and to maximize profitability you need to also measure the effect of changing prices on the volume of sales. You can't manage what you don't measure.

For help and assistance with this or for any of your accountancy and tax needs, please give me a call. I';m very happy to visit you without charge for a consultation to discuss how we could help you further.