As an own­er of a busi­ness it is vital that you know your num­bers and set goals for the months and years ahead. As our busi­ness card states “Most busi­ness­es aim at noth­ing and hit it with amaz­ing accu­ra­cy”. If you don’t know what you are aim­ing for then how are you going to know if you’ve achieved it? Sim­i­lar­ly, if you don’t know what your start­ing posi­tion is then how can you influ­ence change or KNOW (not have a gut feel but actu­al­ly know) if all the hard work you’ve been doing has had an impact.

With this in mind we drill down in to our clients num­bers to ensure that they know what they need to do to achieve their goals. This often starts at the end — what is the clients end goal. What do they want to take home at the end of the day (we can then do the appro­pri­ate tax plan­ning to let them know what their net take home pay is after tax and work out what net prof­it they need to achieve this).

For exam­ple. imag­ine our client arrived at a net prof­it fig­ure (after cor­po­ra­tion tax) of £40,000 per annum to allow them to main­tain their lifestyle and have funds avail­able to rein­vest in the busi­ness. This means that they (rough­ly) need to make £50,000 net prof­it before tax.

Next we need to look at their over­heads — what were the aver­age costs over the last few years, are there any increas­es expect­ed (are they mov­ing premis­es / tak­ing on new staff etc). In this instance let’s assume that their month­ly over­heads are rough­ly £37,500 / month = £450,000 per annum. This means that to get to their net prof­it fig­ure of £50,000 they need to have a gross prof­it of £500,000.

Great, so now we know the gross prof­it fig­ure. If we know what their gross prof­it mar­gin is (gross prof­it / turnover) then we can cal­cu­late what turnover they need to gen­er­ate this income. If you don’t know this fig­ure then you need to work it out right now! In this instance, the client has a mar­gin of 33.33% so they need to turnover £1,500,000 to arrive at a gross prof­it of £500,000.

We could stop there, but what if we then drill down on this turnover fig­ure. How many cus­tomers does the client have, how often do they sell to them, what is the aver­age sales price are just some of the ques­tions that we ask and it’s amaz­ing how many busi­ness own­ers don’t know these fig­ure off the top of their heads. If you don’t know then how can you improve them! These ques­tions can also help you define what is a cus­tomer? Is it some­one you’ve sold to in the last month / 6 months / year?

Let’s assume that this client has 500 cus­tomers who they sell to (on aver­age) 10 times per year. That’s 5,000 trans­ac­tions per year = £1,500,000 turnover. The aver­age sales price is there­fore £300.

Imag­ine they increased that by 1%. Does­n’t sound like much as the aver­age sales price is now only £303 — an increase of £3. Mul­ti­ply this by 5,000 sales how­ev­er and your turnover is now £1,515,000 — an increase of £15,000. At 33.33% mar­gin the gross prof­it is now £505,000. After deduct­ing the over­heads of £450,000 the client now has a net prof­it of £55,000 before tax com­pared to £50,000 pre­vi­ous­ly.

A 1% increase in sales price has result­ed in an increase in net prof­it of 10%.

Imag­ine if they could imple­ment a 1% decrease in their costs by being more effi­cient / buy­ing bet­ter, if they increased the num­ber of cus­tomers they had by 1% and decreased the num­ber of lost cus­tomers by 1%. What if they increased the aver­age num­ber of trans­ac­tions by 1% and man­aged to shave 1% off their over­heads by review­ing and mon­i­tor­ing their pur­chas­es. That does­n’t sound like much does it.

BUT all these small changes have a MASSIVE IMPACT on the bot­tom line. Where pre­vi­ous­ly the com­pa­ny had a net prof­it of £50,000 if they were able to imple­ment all these lit­tle 1% changes the net prof­it fig­ure would increase to £95,355. A whop­ping 90.71% increase!

But why stop there. Could we increase the sales price by more than 1%, if we increased it to £305 would any cus­tomers leave (and if they did then they are prob­a­bly the types of cus­tomers that you don’t want to work with in the first place). How many leads / intro­duc­tions actu­al­ly con­vert to clients? Could we increase this and how would we do it? Is the con­ver­sion rate being tracked at the moment and if not then why not?! The pos­si­bil­i­ties are end­less and the cost of imple­ment­ing these small changes is min­i­mal (increas­ing the sales price does­n’t cost you any­thing at all!).

If you would like to hear more about how small changes can have a HUGE IMPACT then please get in touch. And why not have a look at some of the awe­some tes­ti­mo­ni­als from one of our pre­vi­ous sem­i­nars.