The Profit Equation

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Building, growing and maintaining a sustainable, high-value business is in part about having access to timely market intelligence, accurate financial data and tools to make sense it all. Regardless of the business you have chosen it inevitably comes back to ‘5’ Key Impact Areas. Understanding how you can maximize performance in each of these areas necessarily starts with understanding the impact of the ‘what if’ changes in assumptions.

Though likely old news to most, the ‘5’ Key Impact Areas are as follows:

  1. Leads Generated: Is the number of qualified ‘Prospects’ moved from the ‘Suspect’ category.
  2. Conversion Rate:    The % of ‘Prospects’ converted to ‘Customers’
  3. Revenue / Customer:  Represents the average Gross Revenue per Customer
  4. Gross Margin:  A company’s total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage.
  5. Fixed Costs:  Costs that do not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses that have to be paid by a company, independent of any business activity.

Unfortunately too many small / medium size business owners do not have a handy tool to measure the impact of increases or decreases in the assumptions in each of the 5 impact areas. We understood that – and have developed The Profit Barometer for our clients so that future decisions can be made on an informed basis. The sample below illustrates the impact of increases / decreases from the Company’s BASE LINE for EACH of the 5 areas …plus the COMBINED aggregated impact if all 5 areas were revised.

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To be of benefit of course, accurate data collection in all 5 areas is required.

If you have questions or would like to see how it could help your decision process, CONTACT US.