If you’ve chosen ‘business’ as your primary vehicle to reach your own $7 million in 7years, then it’s best that you focus on increasing the amount of profit that you get to take home each day, week, month, and year.
To non-business readers this may sound like obvious advice, but you would be amazed at how many business owners focus on two numbers:
1. Sales Volume – usually expressed as “my business turned over $2.3 million last year”, and
2. Profit Margin – usually expressed as “my business makes 7% net profit, before tax”.
These may be key numbers for a large business – particularly if listed on a stock exchange, because the market punishes stocks that don’t grow their sales (sales $) fast enough, with comfortable margins (profit %) – however, for a small business …
… these are simply ‘vanity metrics’.
The only number that really counts is:
3. Net Profit After Tax – usually expressed as “Last year I took home from my business $738,000 in my pocket”
This is the number that you get to spend and / or invest (preferably the latter) each year, and the one number that you want to grow year-over-year.
So, when aspiring or new business owners ask me:
What is the best way to increase sales volume for a small business?
I say:
According to Jay Abraham (master marketer), there are only three ways to increase sales volume:
1. More customers (customer acquisition e.g. marketing, advertising, referrals),
2. Higher sales per customer (up-selling and cross-selling e.g. bundled offers),
3. More sales per customer (customer retention e.g. backend products)
You only need small improvements in each to make major improvements in your overall sales volume i.e. a 10% improvement in each area means a 33% increase in sales volume, overall.
An example strategy (for, say, an eCommerce site) that encompasses all three elements might be to:
1. Improve your Google search rankings and run some Adwords and FaceBook ad campaigns to bring in some new customers.
2. Create some bundled packages and add some special checkout offers to entice some of your customers to increase the size of their order.
3. Capture their e-mail addresses and send out special offers once every 6 weeks to encourage some repeat sales.
If you are very successful with your bundled, checkout, and e-mail discount offers, you might find that your % profit margin slips slightly, but that your overall sales volume increases significantly.
More importantly, the amount of net profit – i.e. cash that you get to take home in your pocket – goes up dramatically, meaning that you have a lot more cash available to invest in stocks and real-estate.
Then, it won’t be long before that $7 million in 7 years starts to look pretty achievable.
I guess it is all about finding a perfect equilibrium, moving equilibrium that is(moving as the market is always in flux). As mentioned if you decrease prices thru discounts/bundling etc., margins decrease, sales volume should increase and ideally speaking net profit after tax should rise. Sometimes the reverse may be true if your product is much in demand, ie increasing prices. I feel in our world of supersavings mentality, the first avenue(or at least the appearance of discounts) will carry the day.
It all depends on what side of the equilibrium you are. Is that so AJC?