Business Accountants Melbourne: How much can you scale your business? Use a Profit Possibilities Calculator
For a business to grow, you need to implement 5 key business building strategies.
According to business accountants Melbourne, if you make small changes in your business, you can begin to see the massive profits that you can have within just a year. It has a multiplier effect. We have seen businesses do it. Here’s how you can do it too:
- Get more of the type of customers you want and keep your existing customers – You can do this through an effective sales system of communication, marketing and offers. You can offer guarantees and referral programs or hold special events for networking. Make sure your service is awesome and your design philosophy always focuses on your customer’s needs, wants and limitations.
- Get your customers to come back more often by managing a database that classifies customers and has focus groups. Send them offers, newsletters and questionnaires. Offer great service, promotions and guarantees that highlight a perceived positive outcome.
- Increase the average value of each sale by cross selling, upselling, bundling and adding value through adjusted margins and pricing. Offer checklists, thank you gifts and informative newsletters and educate both your customers and team members.
- Note that these three can be controlled to give you excellent outcomes.
- Improve the effectiveness of each process in your business by working ON it, not in it. Strengthen your core values and be clear with the purpose and vision of your business. Analyse the SWOT (strengths, weaknesses, opportunities and threats) of your business and systematise communication between your team and clients. Have team and client advisory boards.
- Build a committed team by making sure you choose the right people and maintain a positive culture in the work place. Develop your team, systems, teamwork, communication. You can also reward your staff to further encourage them.
- 4 and 5 are just as important because if you don’t have them, 1, 2 and 3 won’t consistently work. Without them, your processes and service won’t be consistent, and your customers would be confused. Get your processes in place and your teams onboard. Culture drives the business forward.
Synergy of all these key business building strategies is very important because it can give your business a multiplier effect. These work best when processes and people work in tune with culture.
According to business accountants Melbourne, one of the mistakes companies often make is focusing only on one of the 5 key business strategies and missing out on the synergy aspect. Often, winning new customers gets the most attention; however less expensive ways to grow the business, such as taking care of existing customers, increasing the average transaction value or getting customers to come back more often are being ignored.
Here’s where the Profit Possibilities Calculator comes in.
For example, we currently have a customer base of 1,000 (see current position). We implement tips, tricks, new ideas and processes to improve our bottom line. If we are able to increase customers by 10%, we will have 1,100 customers. If we are able to increase the number of times each customer buys from us by 10% from once a year to 1.1 times and we increase our average sale by 10% or $100 to $110, OBVIOUSLY we are able to grow the business.
You might think that we grew the business by 10%, as it would seem, but because of a multiplier effect, the overall percentage of business growth is actually 33.3% or $33,100 more income. The changes are minor and certainly not massive – but the profit sure is!
Make sure you have systems and processes in place, and that they happen consistently. Try calculating this effect on your business and think of ways how you can implement all the 5 key business building strategies to achieve maximum results and synergy.
Annual Sales – Cost of Goods Sold = Gross Profit – Expenses = Net Profit
Cost of goods sold, and expenses can be controlled. Annual sales can be controlled but the things behind the annual sales can’t be controlled.
Existing customers + new customers – customers lost = total customers x transaction per year x average transaction value.
So how does the profit possibilities calculator work?
Look at the calculator above. The revenue, gross profit, overheads and net profit are shown in your profit & loss. For example, we have 1,000 customers. Our current position shows that we have a thousand customers. We lose 20% but we also gain 20% a year so we end up with 1,000 customers. Typically, per statistics, every business loses 20% or has 20% of their customers not deal with them in a year. However, businesses pick up 20% or have a 20% inactive start dealing with them again every year as well.
For instance, we have 1,000 customers buy from us 20 times a year – when you multiply that out, it gives us 20,000 transactions. On average, they spend $100 every time they come in. Let’s multiply 20,000 by $100 and we get a total revenue of $2,000,000. In this business, our gross profit is 35% so if you multiply $2,000,000 by 35%, it will give you a gross profit of $700,000 which has to cover the rest of the expenses of the business such as rent, bank charges, interest, electricity, etc. If our overhead cost is at $650,000, our net profit will be $50,000 or a 3% return on our revenue.
Now, let’s move on with our “target” position. We know that we have 1,000 customers. If we implement new strategies, thoughts, ideas and processes, we may be able to decrease our customer deflections at least by 10% so we can put 18% on our target position (from our current 20%). If we start implementing constant contact, promotions and awesome service and we manage to get our customers to refer us to some of their friends, we may increase our customer additions by 10% so we can put 22% on our target position.
Our net customers will go up from 1,000 to 1,040. If we increase the average visit per year by 10%, we can put 22 on our target position. Let us increase our average sale value by 5% and put 105 on our target position.
By multiplying all the numbers out, our revenue will go up from $2,000,000 to $2,402,400. Let’s presume that we just maintain our gross profit of 35%. The profit goes up by $140,840. If our overheads remain $650,000, you can see that: We can take this business from $50,000 to $190,840 or an 8% return on our revenue!
Not only have we increased our net profit, if we’re going to sell your business, we’ve also managed to increase the value of your business by $563,360. Always operate your business as if you’re going to sell it. Look at your business value every year and make sure it’s going to the right direction. What does this show us? Minor changes give massive profit possibilities. You should focus on all the things you can control.
If you have any questions or if you want to use this Profit Possibilities Calculator, simply email or contact us and we would be happy to help.
Business Accountants Melbourne
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Some of our clients include Buckley’s Entertainment Center, Ballarat Leagues Club, Daylesford Hotel, Bacchus Marsh Golf Club, Campbell Point House, Midlands Ballarat, The Urban Newtown, Maryborough Midland Society, Brink Drinks, Dontek, UV Wraps and many more.
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