The Mathematical Formula For Making Money
Category: Business Development | Date: 2003-06-02 |
The Mathematical Formula For Making Money: How To Apply Its
Leverage To Increase Your Profits Exponentially
No matter what markets you serve; what products you sell; or what marketing tools you use, in business heres 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:
Leads x Conversion Rate = Customers
Customers x Av. Dollar Sale x Sales Per Customer = Gross Profits
Gross Profits x Profit Margin = Net Profits
Heres the trick - contrary to popular belief 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 youre doing without telling you why. And without knowing why youre doing so well (or so bad) youre 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 true power lies within the five highlighted variables (a.k.a. levers).
Quite literally, when you apply these levers to your business your profits 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.
Lets now look at what happens when you improve progressively more levers without increasing your overall effort:
Case #1: Improve leads by 100%
Net profit = $40,000
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 = $45,000
Profit to Effort ratio = 1.25:1
I.e. for the same amount of effort you get a 125% increase in profit.
Case #3: Improve your leads, conversion rate and average dollar
sale by 33% each.
Net profit = $47,052
Profit to Effort ratio = 1.35:1
I.e. for the same amount of effort you get a 135% increase in
profit.
Case #4: Improve all levers except profit margin by 25% each.
Net profit = $48,828
Profit to Effort ratio = 1.44:1
I.e. for every the same amount of effort you get a 144% increase
in profit.
Case #5: Improve all five levers by 20% each.
Net profit = $49,766
Profit to Effort ratio = 1.49:1
I.e. for the same amount of effort you get a 149% increase in
profit.
By simply increasing the number of levers you improve you magnify your leverage. In other words, for the same amount of effort, the more levers you improve the more your profits improve.
And thats only half the story. Because as you increase all five levers by progressively larger amounts the magnification factor on your net profit increases at an exponential rate.
This has to be one of the most magnificent realisations you could ever make in business.
So if you want to make more money with maximum leverage you must focus on continually improving all five levers in your business.
With over 200 ways to amplify these levers achieving a 100%, a 200% or even a 1000% increase in profit is now within your grasp.
Copyright © 2003 Angelo Ioanides
About the author.
Learn how to systematically amplify all five levers of the Mathematical Formula For Making Money quickly and easily. Enrol in the FREE Web Baron E-Class now: http://www.outrageousprofit.com/minicourse/af.asp?id=96
profitformula@marketingunveiled.com
http://www.outrageousproft.com
Leverage To Increase Your Profits Exponentially
No matter what markets you serve; what products you sell; or what marketing tools you use, in business heres 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:
Leads x Conversion Rate = Customers
Customers x Av. Dollar Sale x Sales Per Customer = Gross Profits
Gross Profits x Profit Margin = Net Profits
Heres the trick - contrary to popular belief 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 youre doing without telling you why. And without knowing why youre doing so well (or so bad) youre 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 true power lies within the five highlighted variables (a.k.a. levers).
Quite literally, when you apply these levers to your business your profits 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.
Lets now look at what happens when you improve progressively more levers without increasing your overall effort:
Case #1: Improve leads by 100%
Net profit = $40,000
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 = $45,000
Profit to Effort ratio = 1.25:1
I.e. for the same amount of effort you get a 125% increase in profit.
Case #3: Improve your leads, conversion rate and average dollar
sale by 33% each.
Net profit = $47,052
Profit to Effort ratio = 1.35:1
I.e. for the same amount of effort you get a 135% increase in
profit.
Case #4: Improve all levers except profit margin by 25% each.
Net profit = $48,828
Profit to Effort ratio = 1.44:1
I.e. for every the same amount of effort you get a 144% increase
in profit.
Case #5: Improve all five levers by 20% each.
Net profit = $49,766
Profit to Effort ratio = 1.49:1
I.e. for the same amount of effort you get a 149% increase in
profit.
By simply increasing the number of levers you improve you magnify your leverage. In other words, for the same amount of effort, the more levers you improve the more your profits improve.
And thats only half the story. Because as you increase all five levers by progressively larger amounts the magnification factor on your net profit increases at an exponential rate.
This has to be one of the most magnificent realisations you could ever make in business.
So if you want to make more money with maximum leverage you must focus on continually improving all five levers in your business.
With over 200 ways to amplify these levers achieving a 100%, a 200% or even a 1000% increase in profit is now within your grasp.
Copyright © 2003 Angelo Ioanides
About the author.
Learn how to systematically amplify all five levers of the Mathematical Formula For Making Money quickly and easily. Enrol in the FREE Web Baron E-Class now: http://www.outrageousprofit.com/minicourse/af.asp?id=96
profitformula@marketingunveiled.com
http://www.outrageousproft.com
Copyright © 2005-2006 Powered by Custom PHP Programming