Profit Multiplier

Perry & Co Guest Blog on WhatsWhat.ie

Great Things are done by a series of small things brought together.”  Vincent Van Gogh

 

A  Marginal Gains strategy involves making small improvements in selected parts of an undertaking. The principle is that a number of slight adjustments applied to defined areas of the undertaking will result in an improved outcome.
Dave Brailsford was the coach to the British Cycling Team and provided a perfect example of the power of marginal gains. The strategy involved finding tiny improvements in all aspects of performance.
The principle came from the idea that if you analysed multi-aspects of competitive cycling and improved them by a slight percentage, the accumulation of a series of small changes provided a significant overall improvement.
The application of the marginal gains strategy to the British Cycling Team transformed their performance as evident from their achievements in the Olympic Games and other competitions.
In business, the value of making small improvements in a number of areas may be overlooked and the importance of big defining moments overestimated. It is often thought that to get great results, massive action is necessary
 Now when we turn to profit growth simple easy steps is the key. Could you take a programmed approach so that little by little you improve things by small percentages in a defined area of your business, a couple of percentages points here and there?
Improving things by a small percentage is not very noticeable, but it can be very meaningful if correctly applied to interdependent factors.
 In business, practical low-cost business growth strategies applying a series of small percentage adjustments that when applied correctly can have a multiplier effect on your profits.
There are certain specific strategic areas to focus on that produce a multiple of your effort, to achieve that we need: enquiries, conversion rate, average sale, frequency of repeat business.
An increase of 5% to each of the above areas can result in a total profit increase of 28% (See the table below)
Applying an increase of 5%   is a slight adjustment.  By making a series of small increases to selected business areas can achieve a significant improvement in profit,
Profit Multiplier
For example
  Now    5% Increase  
Leads
100
105
X
Conv
57%
60%
=
# Customers
57
63
X
Av $ale
302
315
X
Frequency
1
1.05
=
Revenue
17,214
20,837
X
% Margin
36%
       38%
=
Profit
6,197
7918
Profit Increase
% Increase
1,721
28%
 

 

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