The Famous Five Percent Model
Increase Your Net Profit By 61.75% With A Simple 5% Formula - What Is It?
Small Changes = Massive Results
In business we constantly look for the “Big Increase” The Massive Marketing Campaign at aggressive price points and really pushing to increase new customers! Whilst may be one aspect of your business strategy, or in some cases the only aspect, consider this … small changes = massive results.
Put simply, it revolves around these three points:
- To make small improvements in the business in the area of sales, cost of sales, overheads and taxation
- To recognise and account for the benefits of these improvements
- To quarantine these benefits and to invest them separately for the future.
Its purpose is to make the business more profitable for today and to provide the business owner/manager for the necessary funds for the future.
In doing this, we are hopeful of redressing two tragedies in the area of small/medium business today.
(A) To give owner/managers a decent return for their labour inputs. (Many take home less pay than their staff!)
(B) To provide owner/managers with a decent return on their investment in the business.
And so to the model.
What if we could make a number of small changes around the key areas of our business namely:
- Increasing sales
- Reducing our costs of sale
- Reducing our overhead costs
- Reducing our taxation burden
Specifically what if we can:
- Increase sales by 5%
- Reduce our costs of sale by 5%
- Reduce our overhead costs by 5%
- Reduce our taxation burden by 5%
Then, the average business in Australia can:
- improve its profits by 61.75%
- improve its spending power by 66.3%! (the amount of cash we can spend on ourselves or invest)
Of course, your specific industry might not be able to achieve this result because your margins might be different. Then again, you might be able to make these figures look sick.
For those who are mathematically minded, here’s proof:
Objective
- Increase sales by 5%
- Reduce product costs by 5%
- Reduce overheads by 5%
When we say “reduce product costs by 5%” we mean this:
If it currently costs you $1 to buy an item, then shrewder buying or negotiating means that you can cut this by 5%. In other words, you can now buy for 95 cents.
In our example, we have sales as follows:
Ok, I’m prepared to admit that some people might find it a little difficult to grasp, but check with the bean counters they’ll confirm that it’s right.
Just keep in mind that it does work. The results are in the bank to prove it.
Even small improvements produce dramatic results. The average business in Australia can improve its net profit by 12% just by increasing sales by 1% and reducing product costs and overheads by 1%.
Better Business Group is dedicated to helping you achieve these three objectives... that is, to increase sales, reduce product costs and overhead costs. It’s not as difficult or as complex as you might think. But it does involve discipline and systems.
John L McCaffrey was so right when he said: “The mechanics of running a business aren’t complicated. You make some stuff, add to it and then sell it to somebody for more than it cost you. That’s about all there is, except for a few million little details.”
Oh yes, let me also give you Josh Billings’ interpretation: “The happiest time in any man’s life is when he is in red hot pursuit of a dollar with a reasonable prospect of overtaking it.”
Now, what our Mr Billings didn’t ask was this: Having overtaken the dollar... how many people invest it wisely?
Answer: Precious few. Look for next month where we show you the power of using the 5% model in your business and the results of investing that extra income wisely.
If you want a confidential Profit Improvement Module Analysis (PIM) for your business that will show you what these small changes mean for your business in cold hard cash email me here.
About Yale Morgan, SME Business development specialist
Yale heads up the Better Business Group (BBG), which, as a company has proven business development products and systems, that range from "Do It Yourself" products to fully systemised Business Coaching Programs.
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