The Mathematecal Formula For Making Money: How To Apply Its Leverage To Increase Yor Profits Exponentially. Business Articles | January 22
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No matter what markets you serve; what products you sell; or what ... tools you use, in business there's one truth you cannot ... this truth and profits will flood your ...
No matter what markets you serve; what products you sell; or what marketing tools you use, in business there's one truth you cannot escape.
Embrace this truth and profits will flood your business.
Disregard this truth and financial-cancer will eat you.
What is this truth?
Quite simply, the size and speed of your entrepreneurial success is directly proportional to your understanding of The Mathematical Formula For Making Money.
Despite serving as the corner stone of every single commercial success since the dawn of commerce most businesses neglect its power. Being so familiar with the diluted version of the formula these businesses overlook the enormous profit-potential held within.
Mindful of this blind-spot
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Leads x Conversion Rate = Customers
Customers x Average Dollar Sale x Sales Per Customer = Gross Profits
Gross Profits x Profit Margin = Net Profits
Please pay close attention to what I am about to tell you: your number of customers; your gross profits; and your net profits are **the least important** figures in this formula.
Why?
Because they merely represent outcomes. They tell you how good or bad you're doing without telling you why. And without knowing why you're doing so well (or so bad) you are in no position to fix the cause with speed and accuracy. All you can do is guess and implement random strategies in the hope that one day your results will improve.
The real power of this formula is stored within the five highlighted variables (a.k.a. levers).
Quite literally, when you apply these levers to your business your profits will increase exponentially.
Allow me to demonstrate.
Assume for the moment that your business currently operates under these circumstances:
Leads Per Annum = 10,000
Conversion Rate = 0.1 (10%)
Av. Dollar Sale = $50
Sales Per Customer = 2
Per Annum
Profit Margin = 0.2 (20%)
Plugging these into the formula gives you a net profit of $20,000 per annum.
Let's now demonstrate the impact of improving progressively more levers without increasing your overall effort:
Case #1: Improve leads by 100%
Net profit = $40
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Increase in Profit(%) = $20,000 (100%)
Effort(%) = 100%
Profit to Effort ratio = 1:1
I.e. for every % increase in effort you get the same % increase in profit.
Case #2: Improve leads and conversion rate by 50% each.
Net profit = $40,000
Increase in Profit(%) = $25,000 (125%)
Effort(%) = 100%
Profit to Effort ratio = 1.25:1
I.e. for every % increase in effort you get a 1.25 % increase in profit.
Case #3: Improve leads
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Net profit = $47,052
Increase in Profit(%) = $27,052 (135%)
Effort(%) = 100%
Profit to Effort ratio = 1.35:1
I.e. for every % increase in effort you get a 1.35% increase in profit.
Case#4: Improve all levers except profit margin by 25% each.
Net profit = $48,828
Increase in Profit(%) = $28
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Effort(%) = 100%
Profit to Effort ratio = 1.44:1
I.e. for every % increase in effort you a 1.44 % increase in profit.
Case #5: Improve all five levers by 20% each.
Net profit = $49,766
Increase in Profit(%) = $29,766 (149%)
Effort(%) = 100%
Profit to Effort ratio = 1.49:1
I.e. for every % increase in effort you get a 1.49 % increase in profit.
Observation: By simply increasing the number of levers you improve you magnify your leverage. In other words, for the same amount of effort
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In this example we see that by spreading your effort over all five levers you increased your net profits by $29,766. Compared to the $20,000 increase gained from improving only one variable we see that your profit growth is almost 50% greater for doing nothing more than spreading your resources over all five levers. Imagine all the extra money you could be generating right now without any extra effort. All it takes is a simple change in focus.
Conclusion #1: To leverage your efforts for maximum returns you must focus on improving all five levers in your business.
Next, let's demonstrate the impact of improving all five variables by progressively larger amounts:
Case #1: Improve all 5 levers by 10% each.
Net profit = $32
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Increase in Profit(%) = $12,210 (61%)
Effort(%) = 50%
Profit to Effort ratio = 1.22:1
Case #2: Improve all 5 levers by 25% each.
Net profit = $61,035
Increase in Profit(%) = $41,035 (205%)
Effort(%) = 125%
Profit to Effort ratio = 1.64:1
Case #3: Improve all five levers by 50% each.
Net profit = $151
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Increase in Profit(%) = $131,875 (659%)
Effort(%) = 250%
Profit to Effort ratio = 2.64:1
Case #4: Improve all 5 levers by 100% each.
Net profit = $640,000
Increase in Profit(%) = $620,000 (3100%)
Effort(%) = 500%
Profit to Effort ratio = 6.20:1
Observation: As you continue to improve all five levers the magnification factor on your net profit increases at an exponential rate.
In this example wn.
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