Discovering the DNA of Profitability for Your Business

Business people often think that they need to take dramatic steps to improve the profitability of a business. Many believe, for example, that if they want to double their profits they need to double their sales. Still others think that they need to take on more people, bringing with them, many more headaches. This doesn't have to be the case.

The difference between the DNA of a chimpanzee and a human is only 2% but what a difference that makes. 2% less and you are spending the rest of your natural life learning how to crack open a nut and 2% more and you can fly a rocket to the moon. You may be surprised to find that the difference between a successful and an unsuccessful business is surprisingly similar.

“So what is the DNA of profitability in a business?“

Broadly speaking there are five simple areas that we can look at to improve the profitability of a business. Let's start to build these areas up one by one.

  1. Leads: This is any realistic, potential customer to your business. Someone who might realistically buy from you. For example, someone who enquires about your product or service by walking into your premises, phoning, faxing, e-mailing or any other method of contact.
  2. Conversion %: This is the percentage of leads who actually decide to buy from your business. They actually reach into their pockets and buy.
  3. Average $ Sale: This is the average amount of money a customer spends with you whenever they buy something from you.
  4. Transactions: This indicator is how many times in a recorded period (for example, a year) that a customer will purchase from you on average.
  5. Margins: It is no use having a huge turnover and no profits. Therefore, this indicator is what net profit your business achieves on its turnover.

These will, of course, vary considerably across businesses and industry sectors. The Average $ Sale might be $100 in a white goods shop but it might be 25,000 in a car dealership. Most business owners are aware of these concepts but many cannot tell you what these measurements are for their businesses.

We find that simply measuring these elements on a consistent basis can increase the profits in a business and always (without fail) surprise a business owner who has not had a policy of measuring them before.

Having measured them how can I get them working for my business?

If you focus on making small changes in all of these 5 key, they will have a multiplying effect which will deliver huge increases in profitability.

Increase each area by just 10% you add 61% extra profit. Double each area you experience an amazing 3,100% profit increase. Now - do the maths for your business.

“That's all well and good but my business is different!“

Many business people (normally those who can't tell you what the above metrics are for their business) say that it would not work for their business but in reality I have never seen a business where some form of this won't work. It is always possible.

This article was supplied by Icon Business Solutions of which Tony Gattari is an accredited business advisor.

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