I once attended an expensive seminar about how to increase company profits. The seminar leader dedicated several hours to exhaustively explaining this profit-improvement formula: If a business adds 10 percent more customers, raises prices by 10 percent, and persuades customers to purchase 10 percent more offerings, the benefits of the three changes are multiplied so that revenues grow by 33 percent, rather than the apparent 30 percent.
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I wanted to ask the leader “How do I get a refund for this seminar?” He eventually pointed out that it is easier to do a little better in three areas of growing revenues than to seek the same accomplishment simply through adding more customers or by just selling more to existing customers.
Thinking that there must surely be a better lesson to learn about the advantages of multiplying improvements, I identified a four-part set of breakthroughs that can create some pretty awesome profit results. Unlike the seminar I attended, this lesson won’t cost you a penny. Are you interested?
Here we go.
(1) Begin by increasing revenues by 20 times. Yes, I do mean 20 times. For instance, if your annual or monthly revenues are now $1,000, you need to add $20,000 more in revenues over the equivalent length of time.
I know that such an increase sounds hard to do, but it’s easily achievable by many small businesses that have relatively few customers in a large marketplace. To succeed, you will probably have to improve some aspects of your offerings and customer service to make them more desirable, alert many more people to the advantages of doing business with you, and serve your customers so well that they brag about you to their colleagues and friends while themselves coming back for more. nike tn pas cher
You can do that, can’t you? I realize the increased results won’t happen overnight. But you realize, I’m sure, that if you don’t look for a large gain, you could miss a potentially big opportunity. Why would you want to miss out by just looking for a 10 percent improvement?
Are you ready to learn about the next breakthrough? Sure you are!
This time, find ways to cut the customers’ total costs of acquiring and using a given quantity of your products and services by 96 percent. While such a performance improvement may sound impossible, it’s often easier than you might think.
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In many cases, the price you charge for an offering is just a tiny fraction of all the customer costs involved in using it. Start by looking at how customers could serve more of their own needs at a much lower cost.
Naturally, if you can also eliminate most of your own costs, then you can also expand your profit margin. A good place to start is by finding out what you include with every offering that most customers don’t need or want. Be sure to consider how others could perform a lot of the necessary tasks more efficiently than you can.
As a result of such improvements in customers’ costs and by reducing prices to reflect at least some of your organization’s lower costs, you will sell many more of your offerings. With those changes in place, chances are that your profits will grow by 400 times. Pretty nice!
We’re not done. Let’s eliminate 96 percent of the investment potentially needed to expand by providing twenty times more offerings without increasing your fixed assets and working capital.
How might that be done? If your business requires a lot of plant and equipment or other long-term investments, perhaps you can either outsource to a capable supplier with excess capacity or extend the number of your weekly operating hours. If such changes aren’t enough, see what incentives you can offer customers to pay well in advance so that you can use those funds to offset some of your new investments.
When you make such changes, you can increase your cash flow by 8,000 times. That’s like an organization earning 100 lifetimes’ worth of cash in a single year. Are you still with me?
Acquiring the money you use to operate has a cost, as well. You may be borrowing (and paying fees and interest), selling stock to shareholders (who eventually expect dividend payments and whose ownership reduces the percentage of the company’s earnings and cash flow that are yours), and saving up any leftover earnings (typically after paying lots of income taxes).
When you can use lots of very inexpensive sources of cash, such as any customer advance payments that you don’t have to pay extra for, you can increase the value of your enterprise by 160,000 times. That’s equal to 20 centuries’ worth of increased value. Wouldn’t that be nice?
Okay, you probably agree with me that the arithmetic I’m describing is accurate. You may not agree about how feasible gaining these results is.
What’s it actually like to simultaneously make such related exponential changes? Let me share the example of one of my former students, a Rushmore University Ph.D. graduate in 2005, and what he accomplished during his studies.
While earning his degree through part-time studies, this student was fascinated by the potential for multiplying exponential benefits and began to look at how this approach might be applied to benefit his company.
If you haven’t seen manufacturing plants that produce chemical fertilizers, let me assure you that they are large, potentially dangerous places to work where it takes a lot of investment to produce low-cost products. The good news is that the larger the facility, the lower its costs are due to economies of scale. As a result, many companies strive to build or buy larger plants.
The student looked at the plant he worked in and realized that by making some relatively small increased investments, about 10 percent more than the total of what had been spent historically, the plant’s capacity could be increased by about 40 percent. As a result of such an expansion, the added fertilizer produced from the expanded capacity would only need about 25 percent of the fixed investment that the rest of the plant required to produce the same quantity of fertilizer.
As a result of the low-cost expansion, the cost of producing the added volume would also be quite a lot lower than the plant’s average.
By combining the three benefits of more sales, lower costs, and less investment per unit of fertilizer produced, the expanded and fully utilized plant could increase its total profits and cash flow by 20 times. The plant’s value went up even more. Are you excited?
On the heels of accomplishing this success, his company decided to build the largest fertilizer plant of its type to gain further advantages from economies of scale. Would the same investment in a new plant have occurred without the combined benefit breakthroughs that caused profits and cash flow to expand so dramatically? Who knows? But clearly the inexpensive plant expansion generated huge amounts of cash that are now being deployed to pay for building the new plant.
I asked my former student to share with me his perspective on the lessons you should draw from this breakthrough experience. I found one part of his comments to be particularly meaningful:
“Excellence has no destination. It is a journey that never ends.”
So the next time you think about improving your business, don’t just look at one possibility. Find several methods where the benefits from each success multiply the gains from one another to further multiply profits, cash flow, and value to gigantic levels.
Donald W. Mitchell is a professor at Rushmore University, an online school, who frequently writes about productivity breakthroughs and teaches students interested in career advancement through gaining knowledge of advanced business practices from MBA, DBA, and Ph.D. degree programs. For more information about ways to engage in fruitful lifelong learning at Rushmore to increase your effectiveness, visit