Tag: #businessgrowth

Are You Making As Much Profit As You Think?

A common mistake is to think you are making higher profit margins than you actually are.

Let’s say it costs you $£70 to either buy in or produce what you sell. (This is called COGS which stands for cost of goods sold).

You decide you want to make 30% profit on it.

So you add on 30% of 70 which is 21.

This is called a 30% mark up.

Your GROSS Profit margin is your gross profit (21) divided by your price multiplied by 100.

In this case 21/91 x 100 = 23% NOT 30%.

To make 30% gross profit you actually need to mark up by 21  x (100/70) = $£30.

Now suppose we sell 10,000 of these items.(This is our volume of sales).

Our revenue is now $£ 100 x 10,000 = $£ 1 million.

Our GROSS PROFIT is therefore $£ 30 x 10,000 = $£ 300,000 equals 30%.

But we have overheads such as rent, rates, salaries and wages, utility bills and so forth.

These add up to $£ 150,000.

So now our net operating profit is only $£ 150,000.

We are only actually making 15% Net Margin, (150,000 divided by 1,000,000 x 100%)

What happens if we then decide on a 10% discount?

That won’t make much dent in our profit will it?

How much would our profit fall by?

Price is now $£ 90

Variable cost $£ 70

Volume 100,000 (unless we sell more but it would have to be by a lot)

Revenue $£ 900,000

Gross Profit $£ 200,000 (33% less)

Overheads $£ 150,000

Net or Operating Profit $50,000 (67% reduction)

Question for you; how much extra volume would you need to sell to overcome the reduction in your bottom line operating profit?

The conclusion is you may be making lower profit margins than you realise.

If you reduce your prices, (or fail to raise them each year in line with the market place), you could

completely decimate them!

How To Transform Your Existing Marketing

Here are 10 key elements you should include in your marketing pieces, whether verbal or written. The more of them you can include, the better.

  1. You should address a clearly defined target market and position yourself as a specialist or expert
  2. Focus on an issue or concern that people in your target market are thinking about. Your headline or first statement should INTERRUPT by highlighting this issue.
  3. Promise them a solution in your sub headline or second thing you say. This is how you engage your target prospects and keep their attention.
  4. Explain  your “differentiator” which is what makes you stand out.  That’s how you avoid having to compete on price.
  5. You need to include an irresistible, low or no risk offer.
  6. Explain all the features and benefits of your offering. Your prospects buy emotionally, based on benefits. They then justify their purchase with the features, using logic.
  7. Include some social proof, such as testimonials, clippings and qualifications. This reduces the perceived risks of dealing with you for the first time.
  8. Give your prospects a cast iron guarantee to eliminate any perceived risk of buying from you.
  9. You need to explain why what you are offering is not “too good to be true”.
  10. You should always have a call to action with a “stimulator”.  Create either scarcity or a deadline so your prospects overcome their natural inertia and act now.