How to increase profits in your business (part 2)
How much will profit increase?
Above, we have listed five methods for increasing profits. How much profit will increase depends on how effectively we implement all the changes in the business and how much we are able to “work” them together. Let’s look at a specific example of how much we can increase profits if we improve each of the 5 indicators by 10%. At the same time, of course, it will be difficult to do this, but it can be done gradually and in turn.
So, we are analyzing not a real, but a fictional, but still a concrete example, with numbers. Let’s see what we get, how much profit will increase.
Our initial figures are as follows: 500,000 rubles revenue, 1,000 potential customers, 10% conversion (100 real buyers), 25% repeat sales (i.e. 25 additional sales to old customers), we sell goods with a margin of 100%. It is easy to calculate that we have only 125 sales for 4000 each.
If we increase the number of potential consumers by 10%, we will have 1,100 of them. With a 10% conversion, these are 110 real buyers and 27.5 repeat sales. Or 137.5 sales worth 550,000 rubles.
Next, we will improve the conversion from 10 to 11% (quite a bit, of course, but for clarity, we took that each parameter in the example will be improved by 10%). So, we have 121 out of 1100 potential customers, 121 real customers, or together with repeated 151 sales, even a little more :-). In money it is 605,000 rubles.
We are now improving the number of repeat sales to 27.5%. We had 121 customers and there will be 33 repeat sales, resulting in 154 sales or 617,100 rubles.
This amount with a margin of 50%. Now we increase the margin by 10% and we get revenue of 678.810 rubles. We also add 10% due to increased efficiency (although this is not a completely measurable indicator, but effective, do not hesitate) and we get the total amount – 746.691 rubles.
Compare – we had 500,000 rubles, of which 250,000 arrived, taking into account a margin of 100%. Now we have 746.691 rubles with a margin of 55% or 410,000 rubles profit. You like? I like it, honestly :-).
So … you can, let’s say, increase the number of potential customers not by 10%, but by 100%. Either a conversion of 30%, or an extra charge of 30%. Indeed, 10% for some parameters is indeed not enough – I repeat once again, the example is fictitious. It depends on your business, on its competitiveness and USP. How much this will increase the profit of your business, consider for yourself – this is a pleasant thing, I think :-).
You, of course, do not have to work with all the parameters. Sometimes it happens that something in this sense will be difficult to improve. But you can always improve something. But only if you think about it and take measures to increase profits from the business.