Double your company's profits in less than 6 months (Part I)

Do you think this is possible? Mr Adam Khoo author of "Secrets of Self-Made Millionaires" said is possible using the Profit Multiplication Formula. He explained that any kind of business, profits are only determined by five variables. That is Leads generated, conversion rate, average dollar purchase, average repeat business and net profit margins.

I extracted from the book:

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 buyingm this means that the company's average conversion rate is 20%.

So, if you multiply the number of leads generated a year (also know as prospects) by the average conversion rate, it will determine the number of customers. This is illustrated below.

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.

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.

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 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 be continue...