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How to Turn 1% Improvements Into Double Digit Profit Growth

April 21, 2012 | Comments: 0 | Views: 146

When it comes to improving the bottom line, we often look for the silver bullet - the one big innovation or idea that will turn our business around and make people notice.

Innovation is important in all areas of your business, but often small improvements over time can make a big difference on the bottom line. In fact, a mere 1% improvement in revenue, cost of goods sold and expenses can produce double-digit profit growth!

While you can try this with YOUR actual numbers, here is a simple example to demonstrate the Power of 1-1-1

  • Current: Sales are $500,000, COGS are $250,000 and Expenses are $200,000 - the Net Profit is $50,000
  • With 1% Improvement: Sales are $505,000, COGS are $247,500 and Expenses are $198,000 - Net Profit is $59,500
  • Profit Improvement - $9,500 or 19%

So now ask yourself, "Do I have what it takes to achieve a 1% improvement in these areas"? Absolutely! Can you do more? Probably. The key is to start - so set a goal. By focusing your efforts in these areas, you too can make progress 1% at a time.

Of course a goal without actions won't do much to get you there. So here are some things to consider as you plan your attack:

Revenue / Sales: There are hundreds of ways to grow sales. While generating more leads is an obvious one, here's a few that are often overlooked. You can improve revenue by improving your sales conversion rates, get customers to spend more or buy more often or expand your products or services.

Cost of Sales or Goods Sold: Based on experience with hundreds of small business owners, this area offers a lot of opportunity for profit improvement. The costs included in cost of sales or goods sold will vary based on your type of business. These are variable - and link directly to sales levels. Examples of costs include inventory, incoming freight, direct labor (associated with service delivery or production), raw materials, service related supplies and sub-contractors.

So how can you improve this area? Consider some of the following: improve labor efficiency by eliminating waste, re-negotiate prices with key suppliers and vendors, outsource or utilize sub-contractors, improve scheduling, plan purchases to get volume pricing, and eliminate rejects or re-works.

Expenses / Overhead: These are relatively fixed and include everything from wages and benefits to marketing and rent. In today's economy, many have focused on trimming the fat - but the key is to do so without impacting your ability to grow and deliver on your promise to customers.

Here's a few things to consider: re-evaluate staffing levels to align with sales and service requirements, re-evaluate benefits, develop compensation model that includes pay-for-performance elements (not just guaranteed wages), evaluate outsource options or leasing, re-quote service contracts and insurance, renegotiate rent or relocate where appropriate, track marketing to improve ROI, and establish a budget - and live with it.

Small improvements in all areas have a compounding effect on your bottom line. They build on each other. All it takes is a clear focus, some simple proven strategies and a commitment to do it.

Joan Nowak is a Small Business Profit Builder, seasoned Business Coach, and creator of the Hybrid Coaching System for small businesses. For additional resources and ideas to grow your small business, visit While you are there, join her mailing list to get her monthly eNewsletter and receive a FREE copy of her eBook, Mastering the 7 Elements of Business Success.

Source: EzineArticles
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