Marginal gains = Big profits

July 12th, 2019     More profit

If you’re wanting to get your business to make more profit, sometimes you don’t have to make big changes.

The theory
If you break down everything that goes into running your business and then improved each by 5%, you will get a significant increase when you put them all together.

So how can this theory be applied to your business?
Start by identifying your goals. Consider where you want to be and how you are going to get there. Analyse relevant data and see if there is statistical evidence to support the attainment of your goals over time.

Next, spend some time thinking about the gap between current performance and your goals. Create a tangible measure for assessing how far away each goal is, and how well the business will need to progress in order to achieve those goals.

Now consider what is needed to close that gap. Break the gap down into its component parts and identify the differences between where you are now, and where it needs to be in order to achieve your goals. Look at successful firms in your industry sector and create a comparison document. What do they do well that you could implement in your business?

An example with numbers
Accountants love numbers! So here is a simple example showing how making changes of 5% at key stages, increasing sales leads, improving the conversion ratio, increasing selling price and reducing the cost of production, gross profit can be increased by 32.8%.

    Before   Change %   With 5% changes       Improvement
                     
Sales leads   4,000   +5%   4,200        
Conversion ratio   50%   +5%   55%        
Sales units   2,000       2,310        
Selling price   £500   +5%   £525        
Total sales   £1,000,000       £1,212,750        
Unit cost of cost of production   £250   -5%   £237.50        
Total production cost   £500,000       £548,625        
Gross profit   £500,000       £664,125   +32.8%   £164,125

 

Execute your plan. Commit to carrying out the plan meticulously and reassure employees of the importance their roles and responsibilities play in the process. Use KPIs and regular reports to monitor progress and continually refine and tweak your plan as you move towards achieving your goals. If you stick to your plan you should get there.

We work with business owners to build the businesses they need to have the life they want, so if you want to talk about how to improve your profit get in touch with me on 01803 296678 or email andrew.price@andrewprice.co.uk