5 Ways to Grow Your Profits

The "5 Ways" are a simple, "secret" formula to help you maximize profit margins in any business. It is a strategy that pinpoints the five key factors that exist in every business. The key is that we are multiplying factors -not adding- which has a massive impact on profit. The "5 Ways" is simply looking at your business in a different way and working with a set of numbers that exist in every company.

These are the five simple factors:

1. Leads: The total number of people who have contacted or who have been contacted by the business- over the course of a year.

2. Conversion rate: The percentage of people who actually make a purchase. For example, if 10 people walk through a store and three people buy something, that store's conversion rate is three out of 10, or 30 percent, for that day.

3. Average dollar sale: The average dollar amount per sale, estimated over the course of a year. The average can range from $5 or $10 (say, for a discount retailer) up to tens of thousands of dollars (for a business such as a car dealership).

4. Average number of transactions: The number of purchases the average customer will make over the course of a year. Again, it can be an estimate. This number will probably be larger in a retail setting than in companies that operate in a professional services industry.

5. Profit margin: 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 percent.

In your sample company, we use a very simple formula to multiply the factors we've just discussed. Remember, this formula multiplies factors instead of just adding them, so the cumulative impact is massive.

The "5 Ways" formula looks like this:

Leads x Conversion Rate = Customers
Customers x Avg. Value/Dollar Sale x Number of Transactions = Revenue
Revenue x Profit Margins = Profit

In your company, let’s say you have either estimated or fully determined the following numbers:
4,000 x 25% = 1000 Customers
1000 x $100 x 2 = $200,000 Revenue
$200,000 x 25% = $50,000 Profit

So what would happen if, over the course of the next year, you increased these results by just 10 percent in each of the five areas?

Let’s do it, and then let’s take a look at what happens to your bottom line:
4,400 x 27.5% = 1210 Customers
1210 x $110 x 2.2 = $292,820 Revenue
$292,820 x 27.5% = $80,525.50 Profit

Even though we’ve increased each factor by just 10 percent (including top-line revenue), we were able to boost bottom-line profit by 61 percent--or a total of $30,525.50.

While your competitors will be in an endless cycle, trying to increase top-line revenue and cutting expenses to generate more profit, you'll have at least five other factors with which to work. And there are literally hundreds of strategies you can use to boost those numbers immediately and over time.