http://www.kenniffonline.com/profits-from-your/
Pocket more profits with business model innovation
Beware of business leaders who believe that you should only keep doing what we always has worked. To capture more of that potential, companies must continually update their business models (who, what, when, why, where, how, and how much of what they offer). Here are three examples of how to think about this in terms of the dimensions of who, where and why.
Who and where is served
First let's look at the "who" served. The lesson is that it is simple. Change as little as possible, while each more efficient and effective as an organization to its clients and beneficiaries. The easiest way to do this is to put more volume through an existing organization structure without adding fixed costs or increasing the proportion of variable costs to sales.
A nonprofit organization, which naturally starts by attracting the most profitable potential customers. If existing customers to buy a very small percentage (1-2 percent) of its needs from you, as an expansion cost may be possible simply by selling 40 to 50 times more to certain existing customers. You are already spending time and money to collect a small portion of total needs of these customers. In many cases, the expenses the cost of providing more products and services would not increase.
Let us assume that earnings before Current taxes are 10 percent of sales and profit contribution before overhead is 30 percent of sales. This fact means that the sale over the same combination of bids for the same price to an existing customer almost triple the margin of profit contribution in increasing sales. If this happens, 20 times increase in volume would result in a 60-fold increase in profits!
By contrast, if an organization takes people and organizations to serve who are far less profitable and the desire to offer this choice is served and where their service can increase costs to serve each customer and the beneficiary over to doing more with the same customers. For example, if the for-profit company aims to serve new customers worldwide that need local support, the overhead of the company and the cost of tenders is likely to grow faster than income. In this case, absolute benefits may decrease or even become a loss. See Figure 1, which quantifies this fact.
Annex 1: Adding a less profitable revenue in various locations to increase supply and overhead
More volume does not always translate into more profit. If you have to sell items with profit contribution less as a percentage of sales due to new customer preferences and overhead grow, you will more than offset the increase in expected profit. In this example, the corporate overhead remains almost constant as a percentage of sales through the need to support the geographic areas with the administration, while the percentage contribution profit falls 30 percent to 20 percent. However, if overhead costs as a percentage raise enough revenue, the effect may be to obtain benefits at a loss.
Annual Pro Finance Form Before volume expands
Revenues $ 1,000,000
Cost of providing offerings $ 700,000
Contribution the utility $ 300,000
corporate overhead cost $ 200,000
Earnings before taxes $ 100,000
Increase the volume 20 times with Offering higher costs and Overhead
Revenues $ 21,000,000
Cost of $ 16,800,000 offer
Profit contribution of $ 4,200,000
corporate overhead costs $ 4,150,000
Earnings before taxes $ 50,000
What is served
For sale or supply more than what we offer can be very helpful in creating efficiencies. But sometimes that is gaining almost all purchases of someone these items.
When that happens, consider what more profitable to sell or supply at a fair price with desirable qualities and service customers who have want to buy. The advent of the Internet makes this evaluation potentially much more rewarding because postal freight, air, and options enable electronic distribution service to most of the world.
As with the previous examples, this challenge requires the consideration of profit volume potential and the impact on overheads and margins of profit contribution. Figure 2 shows the type of effect positive change in volume can be done by adding volume through more profitable items that do not increase the indirect costs a lot.
Annex 2: Adding more profitable elements increase revenue without increasing overheads faster earnings growth speeds
This example shows the potential benefit of increasing multiplication margin of profit contribution of 30 percent to 40 percent while decreasing head corporate costs 20 percent to 3 percent of revenue. The result is a solution 7700 percent profit. If income could be further developed, a solution of 40.000% (a 2,000 percent squared solution) benefits could result.
Before Pro Forma Annual volume expands Finance
Revenues $ 1,000,000
Cost of tenders to provide 700 000 U.S. dollars
Contribution to profit $ 300,000
corporate overhead cost $ 200,000
Earnings before taxes $ 100,000
Volume 20 times increase with higher profit contribution and additional overheads Products Limited
Revenues $ 21,000,000
Insurance Offer $ 12,600,000
Contribution to profit $ 8,400,000
corporate overhead cost $ 600,000
Earnings before taxes $ 7,800,000
Copyright Donald W. Mitchell 2007, All rights reserved
About the Author
Donald Mitchell is chairman of Mitchell and Company, a strategy and financial consulting firm in Weston, MA. He is coauthor of six books including The 2,000 Percent Squared Solution, The 2,000 Percent Solution, and The 2,000 Percent Solution Workbook. You can find free tips for accomplishing 20 times more by registering at: http://www.2000percentsolution.com .
46. How To Protect Your Trading Profits with Trailing Stops