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Many have people have asked me, 'what can I do to increase my company's sales and profits?' Whether you are an entrepreneur or an employee, I am going to share with you a formula that you can use to double the profits of your department or company within less than six months. I call this the Profit Multiplication Formula. In any kind of business, profits are only determined by five variables: Leads generated, conversion rate, average dollar purchase, average repeat business and net profit margins. Leads represent the number of potential customers or prospects that the company generates through walk-ins, inquiries, cold calls & recommendations. Let's say that out of every ten prospects, two eventually end up buying, this means that the company's average conversion rate is 20%. So, if you multiply the number of leads generated a year (also known as prospects) by the average conversion rate, it will determine the number of customers. This is illustrated below. Leads X Conversion Rate = Number of Customers Now, some customers may spend more money and others may spend less, but there is always an average dollar purchase per customer. At the same time, some customers may only buy once while others may return to buy several times a year. This is known as the average repeat business per customer. If you multiply the number of customers by the average dollar purchase and by the number of repeat business, you will get the annual sales revenue of the company. Leads X Conversion Rate = Number of Customers X Average Dollar Purchase X No. of Repeat Business = Sales Revenue Now, assume that your company's sales revenue is $100,000 a year and the total cost of production & overheads are $80,000 a year. This means that the company's Net Profit Margins are 20%. If you multiply the Sales Revenue by the Net Profit Margins, you will get the company's net profits for the year. Leads X Conversion Rate = Number of Customers X Average Dollar Purchase X No. of Repeat Business = Sales Revenue X Net Profit Margins = Net Profits In order to create value to your company and increase its profits, you must either increase leads, conversion rate, average dollar purchase, number of repeat businesses and/or net profit margins. Now, the number of variables you can influence will depend very much on the role you have in the company. If you are the owner or are a department manager, chances are you can take action to increase all five variables and massively create value. If you are a salesperson, then you can influence leads, conversion rate, repeat business and dollar purchase. If you are in operations, you can directly influence conversion rate, number of repeat businesses and net profit margins. If you do your job really well and exceed client's expectations, they will keep coming back and spending more. If you can work more efficiently and come up with strategies to improve the operational efficiency, margins will increase! To what extent can you increase your department's/company's profits? Let's take a look. Do you think it is possible to increase each variable by 10%? Of course! It is only a question of testing out different strategies and taking action! Do you know that just by increasing each variable by 10%, profits jump 61%! This is the power of compounding. Small consistent increases in each variable create huge effects to the bottom line! But this is not challenging enough. Now, think what can happen if, through innovation and hard work, you can help increase each of your company's variables by 20%. When you increase each variable by 20%, profits more than double (149% increase)! Excited yet? You should be. A small increase in each variable will more than double your profits. If you're serious about doing that, take action and apply this right now!
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