SM2.0 80/20 Principle – Double Sales, Triple Profits

80/20 Principle: Double Sales, Triple Profits

Sales flow through your business like a funnel.

Example increasing sales:

Assumption:

Current sales: $100,000 of products

Metrics applied:

• 500,000 people in your buyer population.
• Marketing responders: 1% of the people you contact express interest = 5,000 responders.
• Buyers: 10% of responders purchase = 500 buyers.
• Average purchase = $50 per buyer.
• Repeat purchase average 4 times a year = $200 per buyer.
• Total purchases for 500 buyers = $100,000 in sales.

Results for increasing each step by 20%:

• 500,000 people in your buyer population.
• Marketing responders: 1.2% success rate = 6000 responders.
• Buyers: 12% of responders purchase = 720 buyers.
• Average purchase (increased by 20%) = $60.
• Repeat purchase average moves to 4.8 times per year = $288.
• Total purchases for 720 buyers = $207,360 in sales.

SALES HAVE MORE THAN DOUBLED.

It is likely that such small incremental improvements will not require a great deal more infrastructure, leading to an even greater increase in profit.

Example now includes costs:

• Cost per $50 sale = $25.
• Labour and other overheads per $50 sale = $5.
• Profit per $50 sale = $20.
• 500 buyers x 4 purchases per buyer at $20 = $40,000 Profit.

Results after the 20% improvement drive:

• Greater quantity purchase discount from the wholesaler means:
  Cost per $50 sale = $22.
• Labour efficiency and other overheads increases by 20%:
  Labour and other overheads per $50 sale – $4.
• Profit per $50 sale = $34.
• 720 buyers x 4.8 purchases per buyer at $34 = $117,504 Profit.

Increase in profit:

($117,504-$40,000) / $40,000 = 193% – ALMOST 3 TIMES.

The rest of this discussion aims to show you just a few ways of making these startling improvements with the 80/20 Principle.

Greater detail on the process is available under the following headings:

Sales Person Performance:
The efforts of your sales force are going to have significant impact on your businesses profitability.

Start with Your Best Sellers: 20% of your best performers probably bring in 80% of your income from sales.
Model Their Behaviour: seek out why they are so successful and package that into a Training System.
Staff Training: identify the portion of sales staff that are most likely to improve with training.
Match Like with Like: match your 20% best sales people with your 20% best clients.
Focus Sales on Your Best Products: change the emphasis of your entire sales force to focus 20% of their time on the 20% of products that are your most profitable.
Manage Geography: put together a national sales team of your top 20% of sales people and match them up with the top 20% of your clients.
Tune Your Sales Channels: your sales force may be servicing all clients with equal emphasis and methods.
Reawaken Clients: the fact that a client is not buying a great deal from you does not necessarily mean that they can’t and won’t buy more from you.

Get started now to improve Productivity and increase Profit

Index

The following topics are included in the 80/20 Skills Module available to Full Access Members:

SM2.1 The Amazing 80/20 Rule Tool
SM2.2 80/20 Problem Solving
SM2.3 80/20 and the Theory of Constraints
SM2.4 80/20 Decision Making
SM2.5 How to do an 80/20 Data Analysis
SM2.6 80/20 Business Analysis
SM2.7 80/20 Multipliers
SM2.8 80/20 Maestro
SM2.9 80/20 Staffing
SM2.10 80/20 Sales Growth; Double Sales, Triple Profits
SM2.11 80/20 Inventory Management