For years I’ve taught a simple, “secret” formula to massively grow profits in any business. Interestingly, those starting businesses seem to embrace this formula far more easily than owners who have been in business for a long time.
I’m sure there are a number of reasons for this. But the ignorance and stubbornness of other business owners can prove to be very profitable for you – especially as many of those “experienced” business owners continue to focus solely on revenues and expenses, which in turn drive profits. When you are comfortable with the numbers and can readily work with all the factors in the formula, you’ll start seeing more bottom line growth than your competitors.
How? You’ll have more factors to work with than “expert” owners who love to cut expenses to boost their profits. So what is this simple growth and profit-focused formula? It’s called the “5 Ways,” and it’s a strategy that pinpoints the five key factors that exist in every business – factors that can be multiplied to deliver stellar bottom line profits. These are the five simple factors:
The total number of people who have contacted or who have been contacted by the business – over the course of a year.
2. Conversion rate.
The percentage of people who actually make a purchase. For example, if 10 people walk through a store and three people buy something, that store’s conversion rate is three out of 10, or 30%, for that day.
3. Average rand sale.
The average rand amount per sale, estimated over the course of a year. The average can range from R20 or R40 (say, for a discount retailer) up to hundreds of thousands of rands (for a business such as a car dealership).
4. Average number of transactions.
The number of purchases the average customer will make over the course of a year. Again, it can be an estimate. This number will probably be larger in a retail setting than in companies that operate in a professional services industry.
5. Profit margin.
The profit percentage of each and every sale. Simply put, if a business sells something for R400, and profit was R100, the profit margin is 25%.
So how does this all relate to top line revenue and bottom line profit? Let’s see.
Check the numbers
In your sample company, we use a very simple formula to multiply the factors we’ve just discussed. Remember, this formula multiplies factors instead of just adding them, so the cumulative impact is massive.
The “5 Ways” formula looks like this:
- Leads X Conversion Rate = Customers
- Customers X Avg. Value/Rand Sale X Number of Transactions = Revenue
- Revenue X Profit Margins = Profit
In your company, let’s say you have either estimated or fully determined the following numbers:
- 4 000 X 25% = 1 000 Customers
- 1 000 X R400 X 2 = R800 000 Revenue
- R800 000 X 25% = R200 000 Profit
Examine the numbers closely and you’ll see the 10% increase is incremental, which means you could easily nudge numbers up by that amount over a period of months – or even weeks.
The bottom line is that the new bottom line looks very interesting, doesn’t it? Even though we’ve increased each factor by just 10% (including top line revenue), we were able to boost bottom line profit by 61% – or a total of R122 102.
What could you do with an extra R120 000 in your business this year?
Think 10% is impressive? Do some maths on your own and see what the numbers look like if you increase each factor by 30%, 50% or even 100% down the line.
The key is that we are multiplying factors – not adding – which has a massive impact on profit. The “5 Ways” isn’t a complicated numbers game. It’s simply looking at your business in a different way and working with a set of numbers that exist in every company. While your competitors will be in an endless cycle, trying to increase top line revenue and cutting expenses to generate more profit, you’ll have at least five other factors with which to work. And there are literally hundreds of strategies you can use to boost those numbers immediately and over time.
For now, work with your numbers and brainstorm ways to increase leads, get more customers coming back, increase the amount they buy, and raise your profit margins – and you’ll be miles ahead of the majority of owners successfully operating businesses today. Better yet, you’ll be pleasantly surprised at how easy all of this is to do – and you’ll be more than happy with your ultimate results
Leon Meyer GM At Westin Cape Town Shares 4 Experience-Driven Tips On How To Keep Your Team Productive
Productivity is a fundamental requirement for an organisation – it’s the seed that builds a business and contributes to higher profit margins.
Productivity is a fundamental requirement for an organisation – it’s the seed that builds a business and contributes to higher profit margins. But what’s the best way to ensure employees remain productive, and happy in their day job?
The answer is simple and highly effective and I choose to sum it up with three short phrases – respect, trust and teamwork.
In partnership with my management team, which consists of about eight staffers across various disciplines, we strive to tick these boxes.
In total we’re ultimately responsible for managing roughly 500 employees.
Five hundred employees across several departments is a mighty job. But with teamwork, good listening skills and the right attitude from the top to filter down, any business can run like a well-oiled machine.
I’d like share with you the essentials for building and maintaining a productive workforce, and these apply to all industries, not just the hospitality sector:
1. What’s your definition of a productive team and how do you achieve that?
We need to keep in mind that productivity is a result, one that CEOs and managing directors strive for with their teams. But what happens beforehand in order to achieve that result determines whether it will be achieved at all, and is equally important. I suggest the following to ensure a productive team:
Define roles and responsibilities: Direction is incredibly important; everyone needs to know exactly where they’re going and how they need to get there, so KPIs are essential.
Often when roles and responsibilities are unclear, things go pear-shaped. I am an advocate for setting clear KPIs, it’s a good way to steer us in the right direction, and in turn helps to grow the business and the individual in his/her role.
Be flexible: Rigid environments are the worst kind, allow your employees some flexibility and the opportunity to be themselves in the workplace. We spend so much of our time at work, we need to be ourselves there.
Celebrate the team: When there are achievements, celebrate them, single out individuals who are excelling and living the company values. This builds morale and is indicative of appreciation, which is fundamental when running and building a business.
2. What has and continues to be your philosophy since managing a large team?
Know your strengths and weaknesses, as well as your team’s and leverage off that. Be prepared to learn from others, no one can operate in isolation, regardless of the level on which you operate. Accept criticism and don’t bulldoze someone’s ideas, that’s how you build trust.
3. What in your view are the top characteristics the team look for in a leader?
- Be consistent – inconsistency screams bad leader
- Provide guidance – this is key, don’t turn a blind eye, give input and council
- Listen – always listen intently
- Be impartial – always be fair
- Give credit – it builds morale and shows you recognise good work
- Be patient – Rome wasn’t built in a day, and remember not everyone thinks the same as you do
4. What’s your view on an open door policy and how does it assist with managing a team and ensuring everyone remains productive?
I believe in an open door policy. It’s essential to build and develop trust. I’m the first to admit that it takes a while to build that trust, but once the team (on all levels in all departments) know your door is always open, and that they can trust you implicitly, half the battle has been won.
I host a GM’s roundtable every two months, just to establish how everyone is feeling and where everyone is at. It gives staff the opportunity to bring their challenges to the table, and I deal with them the best I can.
It’s 100 percent confidential and line managers are not allowed to attend. During this meeting we try reach common ground, and I commit to addressing and ultimately solving the problem(s).
Why Purpose Drives Profits
If you want to succeed, it’s time to start engaging where it matters.
Over the past two years, many clients have been extending brand positioning exercises into purpose-driven expressions.
When we look at it, it makes sense given the country’s demographics. With many of our fellow countrymen struggling to make ends meet, brands have stepped in to provide them with a picture of a future worth striving for.
Global customer-centricity study, Insights 2020, led by research firm Kantar Millward Brown, has attempted to understand how brands could drive customer-centric growth as well as the factors that really make a difference. The research surveyed 10 495 individuals in 60 countries, and there are some significant efforts worth investing in if brands want to engage where it matters most, in consumers’ hearts.
The research uncovered that for market-leading companies and brands, traditional value drivers such as quality, packaging, or distribution are necessary, but no longer provide a competitive advantage; most brands are capable of providing these drivers. What is important, are a few critical approaches.
1. Purpose-led brands
The study found that when companies or brands linked to a purpose, 80% of them outperformed the market. Only 32% of non-purpose led brands managed to perform better than the market.
Related: How To Calculate Gross Profit
2. On the ground
It’s important to engage with consumers in their space and on their terms. Through the use of memorable campaigns, experiential events and activations it is critical to engage with consumers on their turf.
3. Be truthful and authentic
Consumers can smell something inauthentic a mile away, especially when it’s coming from a brand. This forces brands to strive for authenticity in everything they do, especially when it comes to marketing. Building values and principle-based attributes into your brand as a guiding tool is essential.
4. Helping consumers commit
By allowing individuals to attach themselves to a brand with a purpose, it helps consumers personally commit to a cause that they consider important. When a consumer is personally invested, the link between the brand and product or service deepens.
5. Balancing heritage and modern relevance
There is a continuous tussle in balancing the traditional market, transitional market and the new consumers brands are trying to attract. Keeping the heritage and roots of the brand true to itself, while creating relevance for the new market, is a battle marketers are still fighting.
Need To Trim The Fat To Boost Profitability? Listen To Your Clients First
Jeff Bezos believed that once you win the client over by doing this, everything else will follow – not least profitability.
Finding the balance between offering the extras that set you apart from your competitors and keeping things ‘lean and mean’ to minimise wastage and maximise return on investment is a tricky balancing act.
I’ve noticed that many businesses try to attract or retain customers by offering what they think their customers want, rather than finding out what they really need, and then delivering that. That’s an expensive mistake to make – and it’s not going to achieve the business results you need.
I’ve also observed that now is the age of the new entrepreneur – the game changers who disrupt the status quo long set by big bureaucratic competitors who think that their customers will just accept an inflationary (or slightly larger) increase every year, just because they always have.
While Amazon has been around for a while now, there’s also an important lesson to be learned from its launch goal, which was to bring the price to the client. Jeff Bezos believed that once you win the client over by doing this, everything else will follow – not least profitability.
How have I applied these lessons in my business?
Firstly, we design our hotels backwards – we focus on the needs of our clients, very aware that what hotel guests wanted years ago is not what they want now. That’s why we don’t offer thing like a turn-down service with chocolates on the pillow. Nobody eats the chocolates, and nobody uses the toiletries – so why should we include the costs of these unwanted extras (and the cost of the staff required to implement them) in the final bill to our clients?
We do, however, offer free WiFi internet connectivity, free parking in our buildings, free laundry services and either bed-and-breakfast options or self-catering rooms.
Simply put, we’ve cut the fat that nobody wants anyway, and added the value that our guests have said they expect.
Our clients have said that they expect the whole hotel to be a workstation, and not just the business centre in a dark, unwanted corner. So, we’ve put a workstation in every room, with always-on access to the internet. Our hotels are designed with beautiful work spaces that cater for nomadic entrepreneurs and double up as comfortable meeting spaces, again – gone are days of boardroom only meetings, our spaces are primed for work and play in one integrated space.
Our clients have pointed out that they’re already paying for their room – so why should they pay for parking?
Many of our clients stay with us for days or weeks at a time, and have said it would be helpful if we did their laundry. So, we do that for them – and we don’t charge them for it.
It’s true that many of our old-school competitors offer a broader range of products and services than we do, but we’ve built a successful business on adding the value that our clients need, removing the costs and extras that annoy them, and keeping costs (theirs as well as ours) under control by cutting out unnecessary frills.
It’s an approach that’s worked for The Capital Hotels and Apartments as a disruptor in the hotel and long-stay accommodation industry, and I’m confident that its principles would apply to any other industry that’s ripe for disruption.
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