I was sitting in my barber’s chair talking with him (his name is Frank, and he is fantastic. Ask me about him if you are looking for a new barber) about how he thought I should come in a little more regularly. I agreed I should, and our normal banter continued. The conversation leads around to asking me if I know of anyone who could use his services. I thought for a moment and mentioned I could make a recommendation of two. My haircut finished and Frank had done an amazing job as usual. As I was paying, he mentioned a pending price increase. I knew this was coming as the prices had remained the same for quite a while.
On my way home, I got to thinking about my conversations with Frank and I realized something that is likely obvious to those reading this. Frank is building his business by managing the three lowest of hanging fruit on the business tree. Stick around to see the magic that happens when you use the system Frank is using,
Fruit 1: Increase the Frequency of Sales With Existing Clients
Frank already has clients, most businesses do. So Frank is talking to those clients and is trying to get them to buy a little more frequently. Your existing customers are often the easiest to sell to. If you can get your existing customers to buy more, even if it is only one or two more purchases, you will see a major impact on your top-line sales and your bottom-line profits. It is worth spending a little time thinking about what you have that your clients would be better served if they increased the frequency of their purchase.
Fruit 2: Increase Your Customer Count
Okay, I admit, this one is obvious. More customers mean more sales. You don’t need to be a rocket scientist to figure this out but hear me out for a moment. Frank didn’t advertise, he didn’t hire a marketing firm, and he didn’t even attend a networking event. He simply asked for a referral or two from his existing customers. We have already established that you have customers, so an ask is an email away.
Fruit 3: Raise Your Prices
Once again, this one is also kind of obvious but stick around because this is not the magic, it’s just me setting the table. The third piece of low hanging fruit Frank picked was to increase his prices. We often must raise prices to cover costs and even to increase our profits. It’s not pretty and honestly, thousands of books have been written on the complexities of raising one’s prices but ultimately, this comes down to a gut feeling as to the percentage you should raise prices.
The Payoff
Okay, if you made it this far, firstly, thank you. Secondly, I am going to show you the magic of what Frank has done.
Let’s look at the below chart:
The “Current” column is the status quo. The “10% Increase” is if we increase all three fruits by 10% and the third column is “20% Increase” is if all three fruits are increased by 20%.
When you looked at the chart, did you notice anything? Hopefully, you noticed that even though there was an increase in 10% of the three fruits, the overall increase in sales was not 30% but 33.1%. When we increased the three fruits by 20%, the overall increase was a whopping 72.8%.
This is the power of focusing your efforts by making small changes in your business. This can lead to huge gains.
This is great and all, but there is more magic. We are now going to add costs to the equation.
Look at what happens. Due to the power of fixed costs, a 33.1% increase in top-line sales (from the previous chart) amounts to a 49.4% increase of your bottom-line profit. The real magic happens when you look at the 20% increase. You have doubled the bottom-line profits. (If you don’t understand some of these terms, I will be defining them later in the newsletter). You read that correctly, in this example a small tweak to three elements of your business can make a huge difference in how much profit your business can generate.
I hope this little demonstration has got the wheels in your mind spinning.
If you have any questions, please simply reply to this newsletter. If you are curious as to how I can help you down this path, look for me in the Member's Directory and send me a message.
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