Impact of Cost Control vs Revenue Increases

Over time, I will show you a number of ways to increase your revenues. You may even be tempted to think "getting more leads" or "digital marketing" is where you should start. However, if we evaluate your expenses, we can find an immediate impact to your profits. After all, it is not how much you make, but how much you keep that counts. In the experience of Profit Acceleration coaches, in over 50,000 assessments, the average impact in the area of Cost Control is about 7%. If your Net Profit Margin is 10% and Gross Profit Margin is 30%, then a 7% cost reduction will increase your profits by 63%. 

The unique benefit to finding $1 of Cost, when it is saved, the whole $1 moves to the bottom. When Revenue is increased by $1 only your Gross Profit moves to the bottom.

If you found $1,000 a month in cost savings, your profits go up by $12,000 for the year.

If your revenue goes up by $1,000 with a Gross Profit Margin of 30%, your profits will increase only by $300. You will need to increase revenue by $3,333.34 a month to earn that same $1,000 in profit a month. That means you need to increase your revenue by $40,000 a year.

Let us say your company's revenue was $240k annually or $20k a month, with the margins described above; your Gross Margin would be $72k annually or $6 a month and Net Profit Margins would be $24k annually or $2k a month. This means your cost is $216k annually or $18k a month. If you reduced your costs by 7% that would add just over $15k annually or $1,260 a month in profit. Your new profit of $3,260 is an increase of 63% (3260 / 2000).

This new profit of $39k annually would require an additional $43,466 in new revenue to get the same profit benefit. This would be an 18% increase in sales.

What I actually like to do, is both. Let's see what $283,466 in revenue would profit us if our Net Margin was 16.3% (1 - (90% original margin x 93% remaining costs)) would give us a new profit of $46,205. This is a 92% increase over the original $24k. I get laser focused on one strategy, then move to the second strategy.

This is an example of just applying two Profit Acceleration strategies to achieve compounding impact.

If you are not doing it, someone else is.

Would you like an assessment of your business to see how these strategies and others would accelerate your profits?

Are you struggling to get the reporting needed on your business to do these calculations?

Would you like to learn more about Zoho Books?

Let's get together and see what we can do about that.