There are only 2 ways to increase profits. Either you increase sales or you reduce costs. It’s that simple!

However, the amount you can reduce costs by is limited but the amount you can increase sales by is unlimited. So there is far more potential in increasing sales.

There are only 3 ways to generate more sales…

• Increase the number of customers.
• Increase the value of each transaction.
• Increase the frequency of sale to each customer.

More importantly, if you do all 3 together, you can achieve far higher growth.

For example, lets look at the following scenario…

• You presently have 100 customers.

• The average transaction value is £100 for a product that costs you £30 to produce.

• The average frequency of purchase by a customer is 10 times a year.

• Fixed overheads are £20,000

Therefore the annual profit is presently as follows:

Sales 100 x £100 x 10                         100,000

Cost of Sales 100 x £30 x 10              30,000

 

Gross Profit                                           70,000

Fixed Overheads                                 20,000

Net Profit                                            50,000

If we now increase all three sales generators by 10%, we get the following results.

Sales 110 x £110 x 11                         133,100

Cost of Sales 110 x £30 x 11              36,300

 

Gross Profit                                           96,800

Fixed Overheads                                 20,000

Net Profit                                            76,800

So profits have now risen by £26,800, a 53.6% increase as result of improving all 3 generators by just 10%.  This shows the power of working on all 3 areas at the same time to achieve maximum results.

The marketing tools you can use to get growth in all three of these areas can be categorised in the following areas.

• Lead Generation – of quality leads.
• Lead Conversion into sales.
• Re-selling to existing customers.

An overriding factor in all these is outstanding customer service, particularly in re-selling to existing customers. Increasing your number of customers is a factor of both how many you gain and how many you don’t lose.

Remember never to sacrifice profit for growth. There is the saying “turnover is for vanity, profit is for sanity”.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.