Increasing profits by increasing sales

Increasing profits by increasing sales

The profit of your business is calculated by the sales of your business less the costs of delivering the sales/running your business. Therefore to increase the profit of your business you can:

1. Increase the sales

2. Reduce the costs

3. A combination of increasing sales and reducing costs

Here we look at increasing sales. There are 3 main ways to increase the sales of your business:

• Increase the number of customers/clients
• Increase the amount they spend (average transaction size and/or increased prices)
• Increase the frequency of transactions per customer (the amount you sell to them i.e. number of sales)

If you increase one factor by say 10% then overall sales go up by 10% BUT if you increase all 3 factors by 10% then sales increase by 33%.

Therefore to get the biggest impact it’s worthwhile not just focusing on one particular way of increasing sales.

A good starting point for this is understanding how many customers you have, what they spend and how often you sell to them in a given period. Also important is what costs are associated with these sales so what profit to you make on each customer. This may then highlight the type of customers that are profitable and enable you to make decisions on what actions you could take going forward.

If you don’t have this information available then speak to your accountant as they will be able to help you access this information both historically and on an ongoing basis.