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Why All This Fuss About One Percent

In the last election campaign the Conservatives made much play on the 1% 'jobs tax' to be imposed by New Labour in the shape of the National Insurance increase.

Now 1% doesn't sound a lot does it? Don't dismiss it however because you might be surprised at the amount of difference 1% could make to your business if you were able to implement the necessary action to make it happen. 1% can make a tremendous difference to the profit performance of your business – have you ever looked at what a 1% change could mean to your performance.

We know that we can improve profitability in three ways. Essentially:-

  • BY INCREASING SALES
  • BY REDUCING COSTS
  • BY INCREASING PRICES

Business and market situations vary enormously but those businesses that are successful simply look at all of these areas on a continual basis and seek opportunities to make a difference.

So what could 1% achieve?

As an example let's look at a £1 million business with £500,000 in variable costs and £400,000 in fixed costs with a 10% operating profit (£100,000)

INCREASING SALES BY 1% ADDS: £5,000 IN NET PROFIT

DECREASING COSTS BY 1% ADDS: £9,000 IN NET PROFIT

INCREASING PRICES BY 1% ADDS: £10,000 IN NET PROFIT

ACHIEVING ALL THREE ADDS £24,000 IN PROFIT

A 24% INCREASE in operating profit by making a 1% change in each of these areas.

To make the above happen you will need:

  • Effective selling and marketing to increase sales generically. Don't waste money on ineffective marketing campaigns. Make sure that your marketing spend is getting you measurable results and that your sale team set and achieve key goals. The best salespeople consult with customers and understand their needs – their major skill is the ability to listen – yes listen – not talk!
  • A real focus on cost control. It starts with buying well and negotiating well with suppliers. You would be surprised what suppliers will 'chunk up' when given a cohesive and persuasive 'pitch'! The importance of efficiency within the organisation is important as is valuing other people's time. Understand your numbers and evaluate just what is draining your business and costing you more than it needs to.
  • The ability, within your sales team, or personally if you handle the relationships, to negotiate price increases with customers in tough situations. Do your sales people possess the necessary skills? Price increases are the most rewarding in their direct effect on your bottom line.

It will pay you back handsomely if you possess these skills and, if you don't currently possess them, get them trained in! You will get an excellent return on your investment.

To arrange for a no obligation with one of our expert team please contact us.

David Turner

Managing Director

© Tinderbox Limited 2011

Business Marketing

Business Profit Improvement

Business Development

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