Let’s hit the boost button and apply a few leverage tips to optimize your profits. Effective use of financial concepts in your business can really add to your bottom line each year and hopefully this will help you with a couple of ideas.
Cost Cutting Mistakes
The first concept that I really want to address is cost cutting. Most people try and reduce costs instead of increasing profits and this is what keeps people poor. Stop being obsessed with “cost”. They can only ever be reduced by 100%. What you need to be doing is to focus on getting the profit and I’m going to show you some formulas to help you explain this. Lets open our eyes to bigger possibilities…
Total Sales x Margin = Profit
I have to give credit to Jay Abraham because he is the pioneer teacher of this method. Total sales x your margin = profit. So take everything you sell times your margin equals profit so if that’s true let’s just look at some numbers.
$100K x 50% = $50k
If we sell a $100k and our margin is 50%, we make $50k. Our costs are $50k and most people will try and focus in reducing that costs and try and get more of that $100k.
But what happens if we increase our costs? If we call it an investment and we go and buy some really targeted traffic using everything we’ve learned in a course like Traffic Grab? If we would increase our investment in traffic 10 times, if we would’ve go crazy and spend $500,000 and if we could scale it to a $1,000,000 sales amount then now, we have a $500,000 profit. We spent ten times more but we made ten times more.
Advanced Financial Mindset
Lets apply an advanced mindset to the process. Frankly, a lot of people just don’t have a good financial mindset so your big question should be, ‘How can I invest more into my business that converts so that I can sell more than what I spend?’ and that’s the goal.
The Next Level
Take this up a notch. If you can increase your expense by another factor now you’re generating $3 million in sales and let’s say that you have a margin of 50% because a lot of these things are completely scalable (and I know this because this is about what’s happened to my business). You’ll end up with a $1.5M profit.
Sure your cost is 1.5M and your profit is 1.5M. Now if you remember that first example you’re making $50,000. So what I’ve just shown you is pretty much my business graduation from the beginning to now and I can tell you I’ll keep looking to increase my sales if I could do $10M and it costs me $5M, that’s okay because I’m still going to make $5M profit when it’s all said and done and there’s other side effects too.
I can tell you that it’s more likely if I’m investing $1.5M a year into websites and domains and teaching my team, then I’m pretty sure I’ve got an amazing asset that could be sold for multiples and at the end of the day, the goal of the business for me is to build up equity that I could sell to somebody else. I want to create a business that has cashflow and is sale-able.
Three step Action Plan
So that’s a leverage concept worth grasping. Stop playing with ‘push button magic’ and start growing your REAL business. Here are some action steps you can take that are partly inspired by business genius Peter Drucker.
1) Identify what needs to be done that is best for your business
2) Develop an implementation plan (and be responsible to carry it through)
3) Focus on opportunity (investments) rather than problems (costs)
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