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Posted by  in Business Fundamentals

The cool thing about business success is that it’s a mathematical formula that is really quite simple. The complication comes in figuring out how to apply the formula to your business, but that, too, can be figured out with some creative brainstorming.

First of all, let’s tackle the actual formula for which there are 3 parts:

#Leads X Conversion% = #customers
#customers X #Transactions X Sale Price = Revenue
Revenue X %Profit Margins = $Profit

Now, let me explain this in simple terms:

#Leads – how many people each month see your business offering
Conversion% – how many of those leads actually purchase, sign up, or respond in some way?
#customers – the leads that purchased or signed up are your customers

#Transactions – how many times on average, does each customer purchase from you?
Sale Price – what is the average price of each sale?
Revenue – the total amount of money you bring in

%Profit Margins – the amount of profit you make on each sale
$Profit – how much money is yours at the end of the transaction

So, let’s plug in some numbers and see how this works:

(#Leads) 300 X (Conversion%) 3% = (#customers) 9
(#customers) 9 X (#Transactions) 1 X (Sale Price) $200.00 = (Revenue) $1,800.00
(Revenue) $1,800.00 X (%Profit Margins) 30% = ($Profit) $540.00

Now, here’s the cool thing. If, each month, you can figure out how to increase just one value, your business could look like this (figures are being rounded off to the nearest whole number):

Month one (your starting place)

(#Leads) 300 X (Conversion%) 3% = (#customers) 9
(#customers) 9 X (#Transactions) 1 X (Sale Price) $200.00 = (Revenue) $1,800.00
(Revenue) $1,800.00 X (%Profit Margins) 30% = ($Profit) $540.00

Month two – we increase the number of leads by 10%

(#Leads) 330 X (Conversion%) 3% = (#customers) 10
(#customers) 10 X (#Transactions) 1 X (Sale Price) $200.00 = (Revenue) $2000.00
(Revenue) $2000.00 X (%Profit Margins) 30% = ($Profit) $600.00

Your gain over last month: $60.00

Month three we increase the conversion rate to 5%

(#Leads) 330 X (Conversion%) 5% = (#customers) 17
(#customers) 17 X (#Transactions) 1 X (Sale Price) $200.00 = (Revenue) $3400.00
(Revenue) $3400.00 X (%Profit Margins) 30% = ($Profit) $1156.00

Your gain over last month: $556.00

Month four We increase the number of transactions to 1.5

(#Leads) 330 X (Conversion%) 5% = (#customers) 17
(#customers) 17 X (#Transactions) 1.5 X (Sale Price) $300.00 = (Revenue) $5100.00
(Revenue) $5100.00 X (%Profit Margins) 30% = ($Profit) $1530.00

Your gain over last month: $374.00

Month five We increase our profit margin by 5%

(#Leads) 330 X (Conversion%) 5% = (#customers) 17
(#customers) 17 X (#Transactions) 1.5 X (Sale Price) $300.00 = (Revenue) $5100.00
(Revenue) $5100.00 X (%Profit Margins) 35% = ($Profit) $1785.00

Your gain over last month: $255.00

Total profit over 5 months: $15,611.00 instead of $2,700.00

Month six You start all over again, increase your leads and the cycle begins.

We’ll be going over in detail how you can increase each of these numbers for your business, so stay tuned!

Darlene

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