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Turning Up the Profit$
How to survive (and thrive) during tough markets.
I’ve asked hundreds of business owners the following question: “Pretend I’m a business genie and I can give you more of three things in your business. What do you want more of?” Can you guess what the answers were? There were three that rose to the top of all other answers, by far. Here they are: more customers, more revenues/sales, and more profits. I always tell people that whatever it is you’re specifically after, that’s often times where your efforts will be. If you’re top answer is “more revenue or sales,” you’re probably pretty focused on that.

Here’s the problem: these three things (number of customers, revenues, and profits) are RESULTS. I’ll explain what I mean by that in a minute. But first think back to elementary math. A “result” always follows what? An equal sign. And to get a change in a result, you must have a change on the other side of the equal sign. One of the “variables” needs to change.

For example, if you have 2+3=5, you can’t just change the five to a six. You have to change one of the variables, either the two or the three, or both, need to change as well. So you can change it to 2+4=6, or 3+3=6, but you can’t just change it to 2+3=6, right?

Okay, math time is over. Let’s look at why this is important. In business what follows the equal sign is also called the “result.” And we know that, just like in math class, you can’t just change results. So why are so many owners chasing the WRONG things: more revenues/sales, more customers, and more profits? You can’t get more of those directly. If you want better results, you must look on the other side of the equal sign. In math those are called “variables.” In business, I refer to them as “drivers.” They’re the “things” that drive results.

Seven Ways to Change the Variables

In business many owners are trying to just change the RESULT, without paying attention to trying to change the variables and letting the results come. What I mean is this: you can’t just change/increase the number of customers you have, or your revenues, or your profits. They are all results of other “variables” (drivers). They are the things that drive the increases in these areas. There are only a few ways to grow a business and/or increase profits. But most business owners honestly could not name them.

I’ve found there are only seven drivers of growth and profits. Here they are:

Number of leads, conversion rate (%), customer retention (%), average number of transactions, average sale amount, gross profit, and overhead.

So why are these seven drivers important? It’s because if you can increase these separate drivers by a certain amount, you’ll get EXPONENTIAL growth in your sales and profits. What does that mean? It means this: if you increase your conversion rate and your average sale amount by 10% each, you don’t get 10% growth, you get about 21% growth. And if you add in another of the seven drivers, like average number of transactions, you’ll get about a 33.3% increase. And it keeps increasing at more than 10% each time you increase another driver by 10%.

This is very reasonable for many companies due to neglecting these areas often over long periods of time. I’ve worked with clients to increase sales by over 500% and profits by over 2000% using this exact process, and many other clients to achieve results similar to those.

Focus on the Core of the Company

These seven drivers are the core to any company’s financial success, and most owners are not focusing on them, or not enough.

Some businesses don’t even track where their leads are coming from.

Many don’t use sales scripts.

Most have little or no customer retention strategies or plans.

Nor do they measure and work to increase their average sale amount, their number of transactions with customers, their profit margins, or strategies to improve their overhead. 

It’s a real shame. Instead they worry constantly about their revenues, their profits (or cash in the bank, often times – which is far worse to measure success or failure by!), or they focus on getting more customers but don’t seem to implement new strategies to attain new customers (which means they probably are using the worst “strategy” of all time: hope – they passively hope more customers come to them). They’re chasing the three RESULTS, which they cannot directly increase. It’s a little insane, but it’s the way many businesses are run.

Remedying the Issues

So, what to do if you find yourself in this situation? First, ask yourself “What could my company look like if I increased each of these seven drivers by small amounts? What would it be like if we increased our sales by 75% and our net profits by 250%? It’s important to first have a clear idea of how things could be so we’re motivated to implement change.

Second, your company needs to assess where you’re at in all of the seven drivers areas. Figure out what your current numbers are and record them.
Thirdly, it’s important to develop a big picture game plan to grow each area, but then identify the fastest, more obvious places to work on improvements to start on (most companies are currently leaving lots of money on the table in different ways – these are the smartest areas to hit first).

Lastly, if you’ve got little or no experience with this, reach out to someone who can help you identify the smartest places to work to get gains. Often times, when I work as a business coach with my clients, the areas of “conversion rate” and “average sales amount” are the two easiest, fastest areas to get growth and profit gains. This is because most small businesses (under $25 million in sales by my definition) neglect these two areas to a large extent.

I’ve taught this process to thousands of businesses. Interestingly only a small number of them use these “Seven Drivers” to really grow. Why is that? I believe it’s because it’s easier to not use it and not grow sales and profits, just like it’s easier to not exercise than it is to do so. Most people revert to what’s easiest.

If you want to generate more cash, own a better company that’s worth a lot more money when it’s time for you to exit the business, and one that has more profits and therefore better ability to hire and retain great people, take this information seriously and do something about it. If you’re not sure what to do, get some help from someone who specializes in this. I am very good at helping companies grow profits substantially and offer a free consultation where I’ll help you identify one or two of the seven drivers and a couple strategies you can start on right away to improve those areas and get more of the results you’re looking for. 

Jon O’Malley is Founder of YouProfit Coaching, Inc. He’s founded four companies and has sold two. He’s helped hundreds of companies grow their top and bottom lines, find and retain better employees, acquire other companies, and exit their companies with far more money and life. Most importantly he helps business owners enjoy being entrepreneurs again. He can be reached at Jon@YouProfitCoaching.com or 651-275-8999.

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