Most business owners struggle for years chasing higher profits.

Most fail. And they do so because they are relentlessly trying to make their bottom-line grow by focusing on upping sales or cutting expenses.

After all, those are the only factors you can work, right?

What if I told you there are many paths to bigger profits? And showed you a way to drastically increase your bottom line by working any one – or all of them?

You see, most of the owners coached by my team or me are so stuck on getting more customers, more revenues or more profits, they miss seeing a much bigger picture.

They don’t realize all three of those numbers are the result of 5 other factors …

And when you know all 5, you can MULTIPLY your bottom line.

Would you be a little more excited about your business every Monday morning if you knew your profits were “multiplying”?

Well, in this issue and the next, I’m going to guide you through what I call the “5 Ways” – the formula for profit I believe is responsible for more business growth than any other “secret” I know. Best of all, it works for any business, including yours.

How?

By remembering that profits, revenues and the number of customers are all the result – an end score. And just like baking a cake, unless you change the ingredients, the results stay the same.

The “5 Ways” focuses on the following 5 factors that drive profit in any business – and these 5 alone:  Lead Generation; Conversion Rate; Average Dollar Sale; Average Number of Transactions and Profit Margins.

Those are the same 5 factors are highlighted in our “5 Ways” illustration.

Increase one – or any – of these factors and you start multiplying your profits.

I’ll show you how, and we’ll work through each factor one-by-one.

Leads:

The first factor in the “5 Ways” is leads. So what’s a lead?

It’s simply the total number potential buyers a business has contacted – or that contacted the business – over the course of a year. Leads are also known as “potentials” or “prospects.”

Conversion rate:

This is the percentage of people that actually bought. If 10 people walk through a store and three people buy, that store’s conversion rate of 3 out of 10, or 30%, for that day.

Number of customers:

This is the number of total customers, and is determined by multiplying the total number of leads by conversion rate.

Average dollar sale:

This is the average dollar amount per sale – estimated over the course of a year.

Average number of transactions:

This is the number of purchases the average customer will make over the course of a year.

Revenue:

This is the total amount of overall sales for a business.

Profit margin:

This is the profit percentage of each and every sale. Simply put, if a business sells something for $100, and profit was $25, the profit margin is 25%.

What does this look all look like? Let’s run some numbers.

Your Company

Let’s say your company has determined the following:

Number of Leads                    4000

X                                             X

Conversion Rate                     25%

=

Number of Customers             1000

X

Number of Transactions          2

X

Average Dollar Sale                $100

=

Revenue                                  $200,000

X

Profit Margins                         25%

=

PROFITS                                $50,000

What does this mean? Simply, you are running a business that converts 1 in 4 prospects into paying customers; customers who average two purchases at $100 per purchase each year. Your company enjoys a 25% profit margin on revenues of $200,000. Total profit? $50,000.

A Simple Increase of 10% … in ALL 5 Areas …

Over the next year, let’s aim at an increase of just 10% in each of the 5 areas. Now, many companies will be able to do bigger numbers, and most of the companies we coach do far greater increases over a year. But let’s just aim at some simple things to work in each area.

Watch what happens to your bottom line:

Number of Leads                    4400

X                                             X

Conversion Rate                     27.5%

=

Customers                               1210

X

Number of Transactions          2.2

X

Average Dollar Sale                $110

=

Revenue                                  $292,820

X

Profit Margins                         27.5%

=

PROFITS                                $80,525.50

Interesting, isn’t it?

The $30,525.50 increase in profit ($80,525.50 – $50,000) in percentage terms equates to a 61% boost in the bottom line ($30,525.50 / 50,000). Phenomenal leverage.

Remember, we are multiplying here, not just adding. And if you think 10% is impressive, run your own numbers or the same numbers with a 20% increase and it will start to blow you away.

A free resource

If want to run a variety of numbers on your own, we’ve developed an interactive “5 Ways” calculator at the following link:

actioncoach.com/free-business-calculator-profit.php

It’s simple, it’s free, and it’s designed to give you an idea of how powerful the “5 Ways” can be.

Next month, we’ll see which of the 5 factors to work first, how to best use the formula and how to create an unlimited marketing budget.

Hopefully, this great “secret” will guide you to greater profits, and also show you how powerful knowledge can be for your business.

Because as I’ve said before – there are no secrets in business or life. There’s just information you don’t know yet.

This article is reprinted courtesy of My Business magazine, one of the leading business publications in Australia.