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The amazing math of improving your bottom line PDF Print E-mail
Written by Donald Cooper   

ImageMany business owners and managers believe they must make either big improvements in sales or deep cuts to their costs, or both, to have a real impact their bottom line. This is simply not true. In fact, very small improvements can and will dramatically improve profitability.

Here's the scoop:

a)     Increasing prices by just 5% improves the bottom line by anywhere from 50% to 100%;

b)     Increasing sales by just 5% improves the bottom line by as much as 30% to 50%; and,

c)     Reducing expenses by just 5% improves profit by 25% to 40%.

The numbers will vary for each type and size of business but you get the idea, especially when you remember the typical independent furniture, mattress and appliance retailer earns an after-tax profit of just 2.3% of sales in 2010. The impact is huge. Sit down with your accountant and determine what the actual numbers are for your business.

One of our clients doubled his bottom line by increasing his prices by 5% and nobody even noticed. But here's the even bigger impact of this. By increasing his bottom line by $100,000, he increased the eventual selling price of his business by $500,000 to $700,000.

How can this be? It's simple, because businesses typically sell for a multiple ranging between five to seven times after-tax earnings averaged out over the previous five years.

So, in this example, increasing prices by just 5% put $100,000 in the owners pocket right away and then added between $500,000 and $700,000 to his future income. This is huge. Think happy exit strategy here.

Donald Cooper has been both a world-class manufacturer and an award-winning retailer. Now, as a business speaker and coach he helps business owners and managers throughout the world to rethink, refocus and re-energize their business to create compelling customer value, clarity of purpose and long-term profitability. For more information, or to subscribe to his thought-provoking free business e-newsletter, go to www.donaldcooper.com.

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