Money, Money, Money! Profit Planning for Your Small Business

At every networking event I go to, I feel like I meet a coach of some sort, whether it’s a business coach, sales coach, elevator speech coach, speaking coach, etc.  After a while, they all kinda blur together into one big bunch of dark suits.  I always think, “Coach?  I don’t need a coach!  I am doing just fine, thankyouverymuch.”    

From DavidDMuir on Flickr

Last month, I met yet another coach, but he stood out.  He was totally low-key, easy to talk to, and interesting (meaning, he didn’t talk about himself the entire time).  I told him about the Grow Smart Business blog and how I needed to come up with finance-related topics to write about.  He said he had lots of experience with finance and would be happy to share some advice and ideas.  So we set up a meeting, and on a cold, rainy afternoon, I learned the basics of profit planning.  For someone who hates numbers, I must confess that I was fascinated by the whole process.

In his pre-coach life, David MacGillivray had quite the career.  He founded, operated, and sold a $7 million import/export business, was CEO of a $60 million import/export business, and was a Partner with Ernst & Young.  Obviously, he knows business finance.  He is now affiliated with ActionCOACH business coaching.   

The profit planning strategy he uses with his clients is called 5 Ways to Super Profits, which helps you plan numbers and identify strategies to achieve your goals.  First you look at what you made the previous year, starting with the number of leads you generated.  Then you work your way down to your profit.  To figure out your goals for the current year, you work backwards:  You figure out how much you want to make and work your way back up to how many new leads you need to generate. 

Here’s the formula, which is normally written down the page, but to save space I wrote it across: 

# of Leads x Conversion Rate = # of Customers 

# of Customers x # of Transactions/Customer x Average Sale = Revenue

Revenue x Margins = Profits

There are five things in the above formula you have control over: leads, conversion rate, number of transactions, average sale, and margins.  If you want to make more money, you need to increase one, some, or all of these things. 

Your target conversion rate should be 70-80% (didn’t know that), as it can take a lot of time and money to generate new leads (did know that).  Once you improve your conversion rate, you can decrease the number of leads you need.    

If you can believe it, there are over 300 strategies to help implement your profit plan!  I asked David if he put this all together, and he laughed and said no.  This is based on the book Instant Cashflow by Brad Sugars, who founded ActionCOACH. 

David and I finished up our conversation by talking about social media and social networking, which he doesn’t know much about.  We decided that I would help him with LinkedIn, Twitter, and Facebook, and he would help me refine my profit plan.  Seems like a fair deal, especially since we figured out I could make $108,000 in profits this year by making a few tweaks to what I am currently doing.  For someone in their second year of business, that number sure looks sweet!

This entry was posted on Wednesday, March 17th, 2010 at 8:00 am and is filed under Business Development. You can follow any responses to this entry through the RSS 2.0 feed.


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