Most business owners struggle for years chasing higher profits.
Most fail. And they do so because they are relentlessly trying to make their bottom-line grow by focusing on upping sales or cutting expenses. After all, those are the only factors you can work, right?
What if I told you there are many paths to bigger profits? And showed you a way to drastically increase your bottom line by working any one – or all of them?
You see, most people either my team or I have coached are so stuck on getting more customers, more revenues or more profits, they miss seeing a much bigger picture. They don’t realize all three of these numbers are the result of 5 other factors …
And when you know all 5, you can MULTIPLY your bottom line.
Well, I’m going to do exactly that. In this post and next, I’m going to guide you through what I call the “5 Ways” – a formula for profit I believe is responsible for more business growth than any other “secret” I know.
Best of all, it works for any business. How? By ignoring generic terms like “sales” and “expenses.”
Instead, the “5 Ways” focuses on the following 5 factors that drive profit in any business – and these 5 alone:
- Lead Generation
- Conversion Rate
- Average Dollar Sale
- Average Number of Transactions
- Profit Margins
Increase one – or any – of these factors and you are guaranteed to increase profits. I’ll show you how, and we’ll work through each factor one-by-one.
The first factor in the “5 Ways” is leads. So what’s a lead?
It’s simply the total number potential buyers a business has contacted – or that contacted the business – over the course of a year. Leads are also known as “potentials” or “prospects.”
This is the percentage of people that actually bought. If 10 people walk through a store and three people buy, that store’s conversion rate of 3 out of 10, or 30%, for that day.
Average Dollar Sale
This is the average dollar amount per sale – estimated over the course of a year.
Average # of Transactions
This is the number of purchases the average customer will make over the course of a year.
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%.
What does this look all look like? Let’s run some numbers.
Let’s say your company has determined the following:
Number of Leads 4000
Conversion Rate 25%
Number of Customers 1000
Number of Transactions 2
Average Dollar Sale $100
Profit Margins 25%
What does this mean?
Simply, you are running a business that converts 1 in 4 prospects into paying customers; customers who average two purchases at $100 per purchase. Your company enjoys a 25% profit margin on revenues of $200,000. Total profit? $50,000.
An Increase of 10%
Now what if you decide to increase each factor by just 10%? Not a bad goal. You also determine to keep expenses in check.
Watch what happens to your bottom line:
Number of Leads 4400
Conversion Rate 27.5%
Number of Customers 1210
Number of Transactions 2.2
Average Dollar Sale $110
Profit Margins 27.5%
Interesting, isn’t it?
The $30,525.50 increase in profit ($80,525.50 – $50,000) in percentage terms equates to a 61% boost in the bottom line ($30,525.50 / 50,000). Phenomenal leverage.
All the result of boosting 5 measurable factors that exist in every business. Including yours – right now.
A Free Resource
If you are interested in learning how to leverage each area, this downloadable chart lays out all 5 areas, as well as over 350 strategies to use in each area:
It’s simple, it’s free, and it’s designed to give you an idea of how powerful the “5 Ways” can be for your business. Later this week, we’ll see which of the 5 factors to work first, how to really use the formula and how to create an unlimited marketing budget.
Hopefully, this glimpse at this great “secret” will guide you to greater profits, and also show you how powerful knowledge can be. Because as I’ve said before – there are no secrets in business or life. There’s just information you don’t know yet.