bottom line · Business Growth Articles

How Focusing on 5 Key Profit Drivers creates massive increases in Profit!!

With the holiday season coming to an end most business owners and senior managers would be analyzing financial results year to date and how they compare to budget.

business growth

How do yours stack up? Are you on track?

Even if you are exceeding budget I am sure that you would not refuse the opportunity to greatly increase your profits by having your Sales Team focus on 5 Key Profit Drivers? Remember, what gets measured gets results. So what are these key drivers?

  1. Leads
  2. Conversion of these Leads
  3. Frequency of Sales per Customer
  4. Average Sales Value per Customer
  5. Profit

Now to give you some idea of the potential gains to be achieved lets do a case study of a small to medium size business that gets 100 leads with a 20% conversion ratio i.e. 20 customers. The average sales value is $25000 and the frequency of sales per customer yearly is 5 with a net profit of 20% before tax.

The business owner has just completed this year’s strategic workshop with his key personnel and they have committed to an aggressive 3 to 5 year expansion plan. As part of this plan the senior management team agreed that a 10% increase in each of the Key Profit Drivers was feasible thru inter-department collaboration and employee buy-in.

So using these figures what is the potential?

Currently Increase% After
1 Leads 100 10% 110
Conversion % 20% 10% 22%
= = = =
Customers 20 Becomes 24
Currently Increase% After
2 Frequency 5 10% 5.5
Average Sales Value $25,000 10% $27,500
= = = =
Average Customer Value $125,000 Becomes $151,250
Currently Increase% After
3 Customers 20 21% 24
Average Customer Value $125,000 21% $151,250
= =
Total Sales $2,500,000 Becomes $3,660,250
Currently Increase% After
4 Profit % 20% 10% 22%
Currently Increase% After
5 Total Sales Increase $2,500,000 46% $3,660,250
Profit % Increase 20% 10% 22%
= =
Profit $500,000 Becomes $805,255

How good would that be??
With a 10% improvement in their 5 Key Profit Drivers they will increase their bottom line by $305,255!
That’s an increase of 61% on their bottom line all by focusing on a 10% improvement.
What sort of improvements do you think can be achieved in your own business?
Even a 5% improvement of each of the drivers would deliver great results!
As you complete your own analysis and subsequent feedback to your team, consider implementing a similar focus for the coming year.

Set targets, get buy-in & measure the results.

Be S.M.A.R.T.  that is the targets must be Specific, Measurable, Achievable,Realistic & Time based.
With clear direction and the regular use of metrics, you’ll be surprised at what is possible.

To a great 2013!

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5 thoughts on “How Focusing on 5 Key Profit Drivers creates massive increases in Profit!!

  1. Thanks for the insightful illustration and analysis. Sometimes all you need is a small increase in effort to produce great results.

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