(Time to read this article is about 1 minute)

Most businesses, including some very large ones, simply do not understand the math of profitability….and it’s killing them.  They don’t understand that small improvements in pricing, sales and efficiency will have a huge impact on their bottom line. Sometimes, their accountants don’t even understand this important stuff.

So, here, in the form of 3 questions is the ‘straight goods’ on the math of profitability.  The numbers I’m showing below are averages, You need to do the specific math for your business…but you’ll be amazed at what you discover.  

  1. What would be the bottom-line impact of increasing your prices by just 5%? In most business, a 5% price increase could improve the bottom line by 50% to 80%.  Are you so good at what you do that nobody would even notice, or care if you increased prices by just 5%?  Is your total value and customer experience so compelling that price isn’t as big an issue as you think it is?   If you’re not that good, what 3 or 4 things do you need to do spectacularly well to become that good…and when will you start?  No other single action in your business will grow your bottom line as much as this. 
      
    If a 5% price increase is too much, what about 3%…or 2%?  What’s holding you back from doing this?  Is it that you’re mediocre?  Is it that you think it’s all about price when it’s actually about compelling value and extraordinary experiences?  Or do you just have an entitlement problem that’s holding you back and hurting your bottom line?  Price resistance is often between our own ears…and not in the marketplace.  Nobody will ever think you’re worth more than you do.  Funny how that works!
  1. What will be the bottom-line impact of increasing sales by just 5%, as long as you don’t blow your brains out with reckless discounting, couponing or extravagant advertising expenses to achieve that increase?  In most businesses, just 5% more sales, properly managed, will improve the bottom line by 25% to 40%.
      
    What 3 or 4 things can you do spectacularly well that would turn customers into ‘fans’ who will help boost sales by 5% simply by telling others about you? Remember, customers give you business…’fans’ help you grow your business.  How might you improve your sales training, customer response times, merchandise selection or presentation, your policies, your website, or your value message in a way that will increase sales by 5%?
      
    Heck, why shoot for just 5%.  If you’re truly going to be that much better at what you do and how you treat customers, why not go for 10% more sales?  By the way, the easiest way to increase sales by 10% to 15% in most businesses is to make sure that your existing customers know about all the ways that you can be helpful to them. They already know you and trust you and know how to find you.  Do you have a database of existing customers?  How can you use that to communicate with them, coach them and remind them?   If you’re at all like the 100s of businesses that I’ve worked with over the years, 90% of your target customers are not aware of all the value you offer…and that’s your fault, not theirs.
  1. How would reducing expenses by just 5% grow your bottom line?  In most businesses, a 5% reduction in expenses will improve the bottom line by 20% to 25%.
     
    What 3 or 4 things could you do to operate more efficiently in each part of your business, without diluting the customer experience or the employment experience for your team?  How could you work smarter?   How could you improve systems and processes to get it right the first time, every time?  Who are your top 10 product and services suppliers?  How could you negotiate with them for better prices, terms or offerings?   Ask everyone on your team how you can operate more efficiently.
     
    So, there they are…three approaches to improving profitability in your business.  Create ‘Idea Fests’ three times a year.  Each employee will be responsible to bring at least one idea to improve efficiency, operate more safely, add value or serve customers more wonderfully.  Your staff knows stuff and they hate it when you don’t ask.
     
    Now the question is what would be the impact on your bottom line if you could actually do all three of these things at the same time?   What reality checks, changed thinking, decisions, passion, commitments and specific actions would that require?  And, if you could double or triple your bottom line next year…would it be worth it?

One last thought.  For every decision you make and action that you commit to take, determine specifically what will be done, by whom, by when, measured how and rewarded how.  Document the commitments and then follow up.  The world is run by those who make specific commitments…and then follow up.

 

For info about booking Donald to deliver his bottom-line insights on marketing, management and profitability at an Industry Conference or Corporate Event…or to discus our effective and affordable Business Coaching program, contact us at donald@donaldcooper.com, or by phone in Toronto, Canada at 1-416-252-3703.

About Donald Cooper

Donald Cooper, MBA, CSP, HoF: Donald speaks and coaches in over 40 industries throughout the world.  He delivers the ‘straight goods’ on how to sell more, manage smarter, grow your bottom line...and have a life!  To chat about ‘possibilities’ for your next business or Industry Association Conference, call me at 416-252-3703 in Toronto, or click here to connect to our ‘Enquiry Page’.  

One Response to Finally, the ‘straight goods’ on the math of profitability:
  1. Donald, good for you for featuring this. I taught this concept for years with the American Management Association at Senior Manager seminars. They were always surprised by how the top line small changes shift the gross margin and EBIT lines of the P&L.


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