The NorthCo 6 Step Profit Improvement Plan

Profit improvement is not a difficult concept, more revenue than costs equals a profit, less revenue than costs equals a loss.

So why is it so hard for many businesses to make money?  In our opinion, it is because the vital ingredient is the lack of skilled execution.

When undertaking a profit improvement assignment, we start by creating a simple 6 step profit improvement plan. The 6 step process can be applied to any business, in any industry, in any country, through any economic cycle.

  1. Create a Mission Focused plan
  2. Increase customer numbers
  3. Increase the number of times customers buy
  4. Increase the average sales value
  5. Increase margins
  6. Reduce costs

SMALL changes can lead to significant performance improvements.
Here’s a model which demonstrates the impact of a 5% improvement across the profit drivers within a business:

In this example, we assume the company has 800 customers, buying six times a year and the average sale value is £500. So if you multiply the number of customers by the number of sales per year and average transactional value, you will get sales turnover of £2,400,000 a year.

Let’s say the company is making a gross margin of 50% for every sale it makes – generating a gross profit of £1,200,000 on that level of turn-over. If the overheads to run the business are £800,000, it will be producing an operating profit of £400,000 per year.

By making a 5% improvement in each of the key profit drivers, we can increase the operating profit from £400,000 up to £698,608. So that’s close to a £300,000 increase in operating profit, or a 75% increase – all from a tiny 5% business improvement plan!

Under the 5% improvement plan, instead of 800 customers, there will be 840 customers who will come and they buy 6.3 times a year and increase the average sale value from £500 to £525. The business turnover will increase to £2.8 Million dollars.

If we also increase the gross margin from 50% to 52.5% and reduce overheads by 5% we can generate an extra £300,000 profit for this particular business. So that’s a massive increase in profit by making a minimal change in the principal profit drivers.

We appreciate every business is different and some of the 5% improvements might be difficult to achieve but in saying that, there are probably some of these key profit drivers that can be increased by significantly more than 5%. Profit improvement potential may be a lot different from our example better or worse.

Strategic Interim

Strategic Coaching

Strategic Facilitation