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The Mathematical Formula For Making
Money
Written by: Angelo Ioanides
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.
The Formula
Mindful of this blind-spot, let's now take a close look at the
Mathematical Formula For Making Money:
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).
A Demonstration Of Power
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 / 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 = $40,000
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 every % increase in effort you get a 1.25% 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 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
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
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, the more levers you improve the more your profits improve.
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: To leverage your efforts for maximum returns you must
focus on improving all five levers in your business.
An Even More Powerful Demonstration
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 = $32,210
Profit to Effort ratio = 1.22:1
N.B. Here's how to work out the Profit to Effort ratio. First of all
work out the % increase in profit. This is derived by taking the
original profit of $20,000 away from the new Net Profit and dividing
the result by $20,000. In this instance our $12,210 increase in
profit represents a 61% growth. Next, determine the relative effort
by simply adding the % increases in each lever. In this example our
relative effort is 50% (i.e. 5 x 10%). Finally, divide the %
increase in profit by the % relative effort and you'll have the
Profit to Effort ratio.
Case #2: Improve all 5 levers by 25% each.
Net profit = $61,035
Profit to Effort ratio = 1.64:1
Case #3: Improve all five levers by 50% each.
Net profit = $151,875
Profit to Effort ratio = 2.64:1
Case #4: Improve all 5 levers by 100% each.
Net profit = $640,000
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 we see that when we doubled our effort from case #2
to case #3 our leverage increased by 61% (i.e. ((2.64 - 1.64) ÷
1.64) x 100). But when we doubled our efforts once more from Case #3
to case #4 our leverage increased by 135%. This has to be one
of the most magnificent realizations you could ever make in
business.
Conclusion: Never stop improving all five levers of your business.
A Tragic Habit - And How To Fix It
Clearly these two examples demonstrate the power of leveraging all
five variables in your business.
Tragically, most businesses seem to care about only one of these
levers - the number of leads. To make matters worse, of all the
levers this one will cost you the most to improve! So if you're
stuck in the 'drive-more-traffic-to-my-business' trap - STOP!
Instead, harness the multiplying power of all five levers and you'll
find that your profit to effort ratio will skyrocket.
Or to put it another way, by applying all five levers to your
business (instead of only one) you will make more money with less
effort. Right about now you may be thinking to yourself, "That's all
well and good in theory but how could I possibly increase all five
levers by such large amounts?"
Although there are over 200 ways to amplify these levers space
restrictions preclude me from discussing the how-to's here. What's
important for now is that you understand the magnifying potential
stored within this formula. With this understanding achieving a
100%, a 200% or even a 1000% increase in profit is well within your
grasp.
About the Author
Learn how to
systematically amplify all five levers of the Mathematical
Formula For Making Money quickly and easily.
Visit Angelo's
website at
http://www.outrageousprofit.com. |
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