How a Profit Analysis Can Help You Set Your Revenue Strategy
by blackwoodimpact
What is A Profit Analysis?
Ask any business owner what their top three goals are, and most are likely to list increasing profits as one. If you were to ask further how they planned on growing profits, they might all unanimously respond by increasing leads and increasing sales.
While that is a viable option, there are more tactics business owners can take to increase their profits. For each company, there are usually one or more simple courses of action that can have a substantial positive impact on their revenue. How can those companies uncover their ideal profit-generating strategy? A profit analysis can help.
Profit is defined simply as income minus expenses. When a company wants to increase its profit, the tactics used to accomplish that will either focus on increasing revenue or decreasing expenses. In this article, we will focus on what companies can do to increase revenue.
Different triggers can be increased or decreased to affect revenue:
- Leads
- Sales
- Pricing
- Gross Margins
Your options for increasing profits via a revenue strategy will be either:
- Increase the amount of high quality leads generated.
- Increase the percentage of leads you convert into closed sales (closing rate).
- Increase your pricing or get each customer to spend more with you.
- Increase your gross margins.
Profit analysis is a method for businesses to predict their financial results in the short-term future accurately. This is possible by examining past performance and strategically planning for the future. Businesses in all industries can benefit from a profit analysis and use the results to make important decisions concerning the company’s growth.
Who is a Profit Analysis Beneficial For?
The best time for a company to engage in a profit analysis is right at a point where it is poised for change. Companies who are looking to increase their revenue or decrease their expenses but only have one or two approaches should conduct a profit analysis to uncover more potential strategies.
Profit analysis is also for companies looking to expand into new markets or industry verticles. When planning to offer new products or services, a profit analysis can provide crucial data that can help you make informed decisions about pricing, forecasting, and other financial concerns.
Profit analysis is an essential tool for making data-driven decisions about significant changes in your business. Ask yourself these questions:
- Is your company considering opening new physical locations?
- Do you need to predict or project future sales?
- Are you considering changing the source materials used in manufacturing your products and need to know what will be the most cost-effective choices?
- Do you need to change your pricing structure?
- Are you looking to be more accurate in your forecasting so you can set more realistic goals?
- Is your company looking to switch target markets or industry verticles?
If you answered affirmatively for any of the above, then a profit analysis is probably right for you.
Our Profit Analysis Tool and Process
To help companies begin the process of determining which revenue strategies would be the most effective at increasing their revenue, Blackwood Impact Group has created a proprietary tool called “the Profit Equation.” It is free to download.
The Profit Equation is an Excel spreadsheet pre-populated with formulas. You can plug-in data, such as your current number of leads, your conversion rates, your fixed costs, and your total sales. The formulas will automatically present you with information such as your gross profit, your revenue per customer, and your net profits. There is also room to adjust those numbers for future projections. It will allow you to see side by side how little changes can produce a significant result. This free tool is a great first step in our Profit Analysis process.
When you work with Blackwood Impact Group to conduct a profit analysis, we begin with tracking and analyzing your data. We examine your Profit and Loss (P&L) statements. We take a look at your CRM (Customer Relationship Management software) sales reports to figure out your total sales, gross margin, and other key variables. We also determine what your fixed expenses and costs are.
We also ask other questions such as how many leads do you typically generate in a year? How many of them converted into customers? What is your average revenue per customer? We use this data to calculate your net profit or how much money your company actually makes. This information helps us establish a baseline of how your company is currently doing financially. Armed with the data, we can then begin strategizing for change and growth.
As we enter phase two of your profit analysis, we take a deep dive into the goals you are looking to accomplish in the next year. We determine feasibility and start devising strategies for an increase. Most importantly, we help you decide which one of the four revenue triggers makes sense for you to pursue and the best course of action to follow.
As an example, let’s say your goal is to increase your cost per customer. We would then examine your current offerings, establish their value in your market place and determine the optimal price for each product or service. We’d also take a look at what other types of products and services you could potentially bundle together or how you can add more value to your existing clients to increase their spend with you.
If your business is poised for change and is ready to make data-driven decisions about growing your revenue, Blackwood Impact Group invites you to download our free Profit Equation. Feel free to play around with it so that you can begin to get a sense of what it may take to move the needle on your revenue goals. You are also welcomed to reach out to us at 770-502-6295 or info@blackwoodimpactgroup.com. We’ll be happy to answer any questions the tool generates for you and your team. We’ll help you interpret the data and set the appropriate strategies that will help you reach your goals.
