When it comes to growing the business, the no.1 thing on the business owner’s mind is sales.
It is actually correct. The only way to grow the business is “INCREASING SALES”
But in this process, they miss the crucial element which is profits
Unless you are funded heavily, the only way to sustain the business is to make profits on additional sales else the business will be doomed
So the question arises how do you measure profits?
Let us understand this in detail
- Transactional Profit: In this scenario, you take the Selling Price, from here you subtract all the direct and related cost, to arrive the profit on that sale of product or price
- Life Time Value of the Customer: This is more applicable to the retail outlets and service industry where the business repeats. In this scenario, Life-Time Value of the customer is calculated by multiplying (No. of times customer buys*Average transactional price). For such product or services segment Profit should be calculated
[Life Time Value of the Customer-(Customer Acquisition Cost+ Cost of Product or Service)]
When you have this data, you know for sure how much you can afford on sales and marketing activities. This is very powerful insight indeed
- Market Dominance Strategy: In this scenario, the company prices the product or service in such a manner that it beats the closet competition by huge margin.
“In Fact it loses the money on the first transaction”.
Typically companies make the money once it has captured the market share by increasing the price or by introducing offers in the back-end.
Here profits have to be measured by looking at revenue for more than one year to two years
In such scenarios, companies have to raise additional funds to keep it’s business operations going
More often or not, the companies measure the profits at year end by being reactive. Ideally speaking, there should be robust process in place to measure profits on monthly and keeping the business model in mind,
At Soatech, we help companies to measure profits so that they know where the business is heading
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