2 Strategies To Double Your Profitability
So, you want to double your turnover, eh? Here is a way to do just that by focusing on just two key levers of your business. let me refresh your understanding of the five key levers you can manipulate to grow your business.
- Number of Leads – Get more customers coming through the doors
- Conversion Rate – Convert more enquiries into sales
- Number of Transactions – Increase the frequency a customer purchases
- Your Profit Margin – Increase the profit margin per sale
- Average Dollars per Sale – Increase the average sales sum per customer
By pursuing a regular marketing campaign based on networking, referral gathering, direct contact, writing, public speaking,advertising and promotion you can explode the number of leads pouring into your sales funnel.You can also push your conversion of leads into customers up by 5-10%. This takes a little bit of work but is well worth it.
You can put up your prices – this is a fast way to increase profits. Make sure price inceases are made to products or services that have high volume or are moving at an acceptable rate. Throw in higher conversion rates from leads to customer and this will put a smile on your face!
All the above strategies work to better your profits, yet to obtain the best bang for your buck you cannot beat the following one two punch:
Increase the number of transactions
If your customers usually make 4 purchases per year, then stretching this to 5 per year will have a profound effect on your bottom line. This is a strategy to use on your existing customers. How do you get them to come back more often and buy? Here are just some of the tactics you can use:
- Customer Loyalty programs
- Invitations to special promotions
- Email marketing or newsletter ( keep in touch or else they will stray to your competition)
- Customer appreciation nights and notifications of exclusive offerings
Increase the average dollar amount of each transaction
If you are not already actively encouraging your customers to spend more via the following tactics you should be, for example:
- Upselling – Guide them to the $400 suit rather than the $200 one
- Cross Selling – Would they like a shirt or tie with that suit? (Buy the $400 suit and we will throw in the shirt and tie for a bundled price)
- Down Selling – Ok so you don’t want the more expensive suit how about the cheaper one?
To appreciate the impact that adjusting these two levers makes to the net profit of this example business let’s look at the following lists. The amount of transactions is increased from 4 to 5 and the average dollars per sale rises from $100 to $125. Everything else remains the same.
- Customers
- Transactions Per Year Per Customer
- Units Purchased Per Transaction
- Average Sale Price
- Gross Revenues
- Return %
- Bad Debt %
- Net Revenues
- Gross Profit Margin
- Gross Profit
- Fixed Costs
- Pre-Tax Profits
- Pre-Tax Margin
Figures Before
450 4 1 $100 $180,000 2.00% 3.50% $170,100 50% $85,050 $50,000 $35,050 21%
Figures After
450
5
1
$125
$281,250
2.00% 3.50%
$265,781
50%
$132,891
$50,000
$82,891
31%
The bolded figures in the after list are what you should be interested in. The net profit has more than doubled.
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