How a 10 percent increase in revenue becomes a 61 percent increase in profit








“Don’t wait. The time will never be just right.”
— Napoleon Hill:



Sheila Kloefkorn Guest blogger Sep 25, 2014, 2:39pm MST

A simple formula governs your business: profits = revenue – costs. That formula is tried, true, and not very helpful. It can only tell you that profits go up when you increase revenue and you cut costs.

Let’s look at that age-old formula in a new way. Profits = leads x conversion rate x average dollar sale x number of transactions x profit margins. That formula is a little trickier to wrap your head around. It packs in five variables where the other formula only had two. But that’s what’s so empowering about it ─ it tracks five core profit drivers. You can use each to boost your bottom line!

Breaking it down

I’m going to define each one of those profit drivers so that I can show you how powerful this formula really is.

Leads: someone who is on the cusp of becoming your customer. Every respondent to your email campaign is a lead. Every prospective client you shake hands with is a lead. How many leads did you generate last month?

Conversion rate: describes how good you are at turning leads into paying customers. If 100 people walk into your office every month and 30 of them walk out with a subscription to your service, you have a conversion rate of 30 percent.

Average dollar sale: the average amount of money a customer spends when they do business with you. Last month 90 percent of your clients bought your basic package for $100 and 10 percent bought the deluxe $250 package. Your average dollar sale was $115.

Number of transactions: how often each of your customers buys from you. You provide a weekly service to shred sensitive documents: You have four transactions per month.

Profit margins: how much profit you make per transaction. If you charge a client $250 to have your specialist install your software, and your expenses per install are $100, your profit margin is 60 percent.

The power of leverage

Now here’s where the power comes in. Each month you generate leads, convert those leads into paying customers, and entice those customers into a certain dollar amount of sales at a certain pace, earning a margin on each transaction. Because each factor multiplies together to generate the total, small increases pay big dividends. Let’s plug in some numbers so that you can see just how big:

Imagine your company generates 100 leads every month. Of those 100 leads, 10 become paying customers. Each buys an average of $1,000 worth of your products every time they do business with you, which they do once per month. Your profit margins on each sale are 50 percent.

The “five way” formula tells us that you made $5,000 in profit last month (100 x 10 x 1,000 x 1 x .50 = $5,000.)

Now let’s say you boost each driver by just 10 percent. You track your marketing and learn that social media is generating you more leads than emailing. Focusing on what works and you bring in 110 leads. You train your staff to sell value over price and convert 11 percent of your leads into customers, and entice each one to spend $1,100 per transaction. Taking advantage of your new loyalty program, one in ten of your customers buys from you a second time this month. Realizing your high product value means that a small price increase will not scare away customers, you raise your prices, increasing your profit margin to 55 percent.

The formula tells us that you now make $8,052.55 in profit each month.

No change was astronomical: you brought in 110 leads where you once brought in 100. Yet the payoff is huge. When you bump each profit driver by only 10 percent, your bottom line increases by 61 percent. That’s called leverage.


Sheila Kloefkorn is CEO of KEO Marketing Inc and Firm Owner/Business Coach with ActionCOACH. She was recently recognized as one of the Top 25 Dynamic Women in Business by the Phoenix Business Journal. Sheila can be reached at



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I am a successful Commercial Investment Real Estate Broker in Arizona now for 20 years and I worked with banks and their commercial REO properties for 3 years. I am also a commercial landspecialist in Phoenix and a Landspecialist in Arizona.





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