Profit or loss: How small wins can drive huge benefits
21 June 2021
What gets measured, gets done. A statement I’m sure we’re all familiar with.
When it comes to tracking your business performance, having a clear handle on the numbers will have a huge impact on the bottom line.
Making small gains in different areas can result in a huge improvement in your profitability.
We’ve previously touched on this subject when talking about justifying investment in new software, but it’s worth exploring purely focussing on the profitability benefits.
5 areas to focus on
Let’s start by breaking down the key areas that will see you make the biggest gains. There’s likely to be different factors that make up each metric in your business, but we’ll stick with the principles below.
- Number of business opportunities – The number of customers that you could quote for
- Conversion rate – the number of those customers that you’d expect to convert
- Average transaction value – the average value of a customer to you
- Number of transactions – how many products or services that customer will purchase
- Profit margin – the percentage of profit you can make on a job, factoring in time and materials.
Increasing each of these variables by 5% will have a huge impact on your profitability
Take a look at the breakdown below as an example
|New business opportunities||100||105|
|Average service value||£1,000||£1,050|
|Number of services per customer||2||2.1|
|Monthly new business||£40,000||£48,620|
The 5% uplift across the board results in over 27% profit being added to the business.
Things to consider
As we mentioned, these are the overall metrics that you want to study, but you also need to consider what makes up these key performance indicators.
For example, increasing the new business opportunities is likely to increase marketing costs. If these costs are in line with your cost of sale at the moment, there’s no further impact on the profit margin, but if your cost of sale increases, this will have an impact on the profit margin.
When considering your profit margin, this focuses on your ability to be more productive and deliver the same output with less effort. We’ve previously written in detail about how you can do more with less through software and automation.
This figure will be key in demonstrating the impact such activities have had.
Whilst it may seem like a daunting task to focus on these 5 key areas, there are marginal changes that you can make to monitor the impact.
To improve your conversion rate you could try phoning the customer and talking them through the proposal, rather than just sending it over.
To improve the number of services or products the customer buys, ask ‘is there anything else that I can help you with?’
These seemingly insignificant actions could be the difference between a thriving business and one that is barely surviving.
If you’d like to discuss a project with us and learn about how we can help your business reach new heights, get in touch.
CRM and Workflow Software
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