6 STRATEGIES TO DOUBLE YOUR PROFITS
Everyone wants to double their net profits. Sure, doubling your sales is one way to accomplish this task. However, what if you could double your profits by adopting a 5% improvement strategy focused on 6 primary areas of your business? Is a 5% solution easier to achieve than a 2X increase in sales? By sharing ownership of these strategies across your team, you can double your profits without creating a significant burden on any one functional area of your business.
Six Strategies Defined
Last article we looked at the six levers that run your business. By focusing on a 5% improvement in each of these areas, you will have a transformative impact on your business:
- Increase your generated leads per day by 5%
- Improve your conversion rate per lead
- Increase your customer’s average spend per transaction
- Employ strategies to increase customer loyalty and frequency of purchase
- Optimize your costs per product and per transaction to improve profits
- Reduce your overhead costs by 5%
These 6 strategies, when combined, create a compounding effect that more than increases your bottom line.
Let’s take a hypothetical $1 million business with 10% net profit, 25% overhead, and 65% cost-of-goods sold. The typical income statement before taxes would look like the following:
Table 1: Income Statement Comparison
The business above generates $1 million in revenue from 520 customers based on 10 leads per day. By employing a 5% improvement strategy, we increase the number of generated leads per day to 10.5. The conversion rate improves from 20% conversion to 21%. Combined, we improve our customer rate by 1 customer per week.
Customer Spend and Loyalty
The next 2 strategies focus on improving a customer’s spend per transaction and increasing a customer’s loyalty. How many times are we asked if we want a warranty with our electronics purchase? How many times do we see that soda or that candy bar in the check-out aisle of the store? Alternatively, do we as consumers consider upgrades to large ticket items as a benefit? Increasing prices is only one way to increase the “spend” per customer transaction.
Loyalty programs are a key to a sustainable business. You want your best customers coming back each day, week, or month. Identifying strategies that can drive customer loyalty is important to making that 5% improvement. Learning the needs, wants, and motivations of your customers will help drive that improvement.
The last 2 strategies focus on cost improvements. The first strategy focuses on a 5% improvement in your COGS rate (i.e. from 65% to 62%). In the simplest form, this is a re-negotiated reduction in your supplier costs ($1000 per product down to $950 per product) or it is a mix change that improves your COGS rate. Because of volume leverage, this 5% reduction has a significant impact on your bottom line.
Your overhead costs are typically not impacted by an increase in volume. Therefore, a straight 5% improvement in overhead goes directly to net profits. This may be as simple as reducing overtime or in reducing your expenses by 5% each week.
The overall effect of each of these strategies is an increase in net profit of 127%. The net profit margin (before taxes) improves from 10% to 19%. Revenue improved by 22% to $1.22 million. While this is only a hypothetical business, the concepts apply to all businesses. Changing the parameters above to fit your business will help you form your own baseline. Employing these 6 strategies will drive your business to a two-fold increase in net profits. Business brokers will tell you that doubling your profits and showing growth in the years leading up to a sale of your business will substantially increase your valuation and gain you additional cash at closing. Therefore, are you ready to make the changes necessary to double your business?
About the Author: Garrett Grega is a Certified Business Coach with FocalPoint Business Coaching in Branchburg, New Jersey, where he specializes in reconnecting executives, business owners, and managers with their business passions! Garrett has his own passion for supporting others through transitions and exit strategies. He has 20+ years helping international companies launch new products and processes. He previously spent 8 years launching LED lighting products for various lighting companies. His professional experience includes: strategic planning, business development, marketing, and product development. He can be reached at firstname.lastname@example.org. See more at www.garrettgrega.focalpointcoaching.com