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Maximize profits 022010
- 1. Sales Performance Associates Maximizing Profits Developed by Bill VanSickle and Robin Bryer S P A S P A
- 3. Decrease Product Cost 10% Decrease Overhead 10% Increase Sales Volume 10% Increase Sales Price 10% Which factor will have the Greatest Impact on Increasing Profits? Base Scenario Sales $1,000,000 Product Cost 350,000 Labor 150,000 Commission 80,000 Gross Profit $ 420,000 Overhead 360,000 Net Profit $ 60,000 2.0 Mark-up on Product & Labor 8% Commission $360,000 Overhead
- 4. Net Profit $ 60,000 Sales $ 1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit $ 420,000 Overhead 360,000 Decreasing Product Cost by 10% 1,000,000 315,000 150,000 80,000 455,000 360,000 95,000 Base Scenario Decrease Cost Decrease Overhead Increase Volume Increase Price
- 5. Decreasing Overhead by 10% Net Profit $ 60,000 Sales $ 1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit $ 420,000 Overhead 360,000 Base Scenario Increase Volume Increase Price Decrease Cost Decrease Overhead 1,000,000 324,000 96,000 350,000 150,000 80,000 420,000 1,000,000 315,000 150,000 80,000 455,000 360,000 95,000
- 6. Increasing Sales Volume by 10% Net Profit $ 60,000 Sales $ 1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit $ 420,000 Overhead 360,000 1,100,000 360,000 102,000 385,000 462,000 165,000 88,000 Base Scenario Increase Volume Increase Price Decrease Cost Decrease Overhead 1,000,000 324,000 96,000 350,000 150,000 80,000 420,000 1,000,000 315,000 150,000 80,000 455,000 360,000 95,000
- 7. Increasing Sales Price by 10% Net Profit $ 60,000 Sales $ 1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit $ 420,000 Overhead 360,000 1,100,000 360,000 152,000 350,000 150,000 88,000 512,000 1,100,000 360,000 102,000 385,000 462,000 165,000 88,000 Base Scenario Increase Volume Increase Price Decrease Cost Decrease Overhead 1,000,000 324,000 96,000 350,000 150,000 80,000 420,000 1,000,000 315,000 150,000 80,000 455,000 360,000 95,000
- 8. Increasing Sales Price by 10% Net Profit $ 60,000 Sales $ 1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit $ 420,000 Overhead 360,000 1,100,000 360,000 102,000 462,000 1,100,000 360,000 130,000 490,000 * Increase Commissions to 10% 385,000 165,000 88,000 350,000 150,000 110,000 * Base Scenario Increase Volume Increase Price Decrease Cost Decrease Overhead 1,000,000 324,000 96,000 350,000 150,000 80,000 420,000 1,000,000 315,000 150,000 80,000 455,000 360,000 95,000
- 9. Increasing Sales Price by 5% Net Profit $ 60,000 Sales $ 1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit $ 420,000 Overhead 360,000 1,050,000 360,000 106,000 350,000 150,000 84,000 466,000 1,100,000 360,000 102,000 385,000 462,000 165,000 88,000 Base Scenario Increase Volume Increase Price Decrease Cost Decrease Overhead 1,000,000 324,000 96,000 350,000 150,000 80,000 420,000 1,000,000 315,000 150,000 80,000 455,000 360,000 95,000
- 10. How can I raise my prices when . . . All I need to get this deal is a 5% discount! What’s the Real Impact of a 5% Discount
- 11. The Real Impact of Discounting Net Profit $ 60,000 Sales $ 1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit $ 420,000 Overhead 360,000 350,000 150,000 76,000 360,000 $ 14,000 950,000 374,000 Base Scenario Decrease Price 5% 5% discount equals a 76.7% reduction in Net Profits
- 12. The Real Impact of Discounting Net Profit $ 60,000 Sales $ 1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit $ 420,000 Overhead 360,000 360,000 $ 14,000 950,000 374,000 Even selling at the base price you make $46,000 more than you would by discounting 5% 350,000 150,000 76,000 Base Scenario Decrease Price 5% 5% discount equals a 76.7% reduction in Net Profits
- 13. Comparison: Discounting vs. Increasing Price Net Profit $ 60,000 Sales $ 1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit $ 420,000 Overhead 360,000 Increase Price 10%* 1,100,000 490,000 360,000 130,000 350,000 110,000* 1,050,000 466,000 360,000 106,000 350,000 150,000 * 10% Price Increase with 10% Commission 84,000 350,000 150,000 76,000 360,000 14,000 950,000 374,000 150,000 Base Scenario Increase Price 5% Discount Price 5%
- 15. Comparison: Discounting vs. Increasing Price Net Profit $ 60,000 Sales $ 1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit $ 420,000 Overhead 360,000 Increase Price 10%* 1,100,000 490,000 360,000 130,000 350,000 110,000* 1,050,000 466,000 360,000 106,000 350,000 150,000 * 10% Price Increase with 10% Commission 84,000 350,000 150,000 76,000 360,000 14,000 950,000 374,000 150,000 Base Scenario Increase Price 5% Discount Price 5%
- 16. Contact us today Let’s work together to increase your profit margins and stop discounting Sales Performance Associates Dallas: Scott Espy [email_address] ; 214-641-9336 Denver: Bill VanSickle [email_address] ; 800-873-SELL www.SalesPerformanceAssociates.com S P A S P A
Editor's Notes
- I’m BVS with Sales Performance Associates. This presentation, Maximizing Profits, was co-developed by Robin Bryer and I. Robin is a consultant with Blue Sky Group, Columbus, OH There is actually quite a long story behind this presentation, however, I try to spare you all of the details and give you the condensed version. Robin and I meet in Chicago. We happened to be working for the same client only on different projects – He was consulting on some financial software and I was conducting sales training.
- Then he preceded to ask me If we decrease or increase each of these things by 10%, which one will have the Greatest Impact as a means of Increasing Profits? Well give me a scenario. One thing I omited telling you about Robin is that he has a strong financial background and is a non-practicing CPA So he grabbed a napkin and wrote the following scenario
- I took an educated guess – which I’ll tell you later in this presentation. Why don’t you select a factor and as I continue the presentation you’ll see if your answer is correct.
- Then we ran the numbers on Decreasing Product Cost – and as you can see it didn’t impact profits any more than Overhead.
- Then we went to Increasing Sales Volume. As you can see, when we increased sales volume we also had to increase Product and Labor cost and commissions. Unfortunately when times get tough companies often only look at ways of cutting costs and overhead. So might be asking yourself, at these time, should I continue to invest in my sales resources? And clearly this model shows that increasing sales volume will yield a higher return on investment. Finally, we ran the numbers on Increasing Price. And I’ll tell you now that this is the one I picked.
- However, when I saw how much Increasing Price impacted profits, quite frankly I was blown away. I had no idea that a 10% increase in price – going from a million to a million 1 hundred thousand increased profits by over 250% As you can see the other factors aren’t even close to Increasing Price. So did you select the correct factor? – and if you did were you surprised at the impact Increasing Price had on profits? I’m somewhat curious - since it had such a dramatic impact I wanted to see what affect paying a larger commission had on profits
- So I ran the numbers with 10% versus 8% commission. And as you can see even with a larger commission profits still more than doubled. Next I wanted to see what a 5% increase in price had on profits.
- Even a 5% increase in price was greater than increasing or decreasing the other factors by 10%
- I think it was the second time I gave this presentation – in the Q & A session, someone stood up and said . . . I wanted to see what the real impact of discounting. I chose 5% - that doesn’t seem like a lot.
- However in running the figures with this scenario a 5% discount actually equaled almost a 77% reduction in Net Profits
- Here the comparison between selling at your base price, discounting 5% and increasing your price 10% and 5% By the way if you plug your own numbers into here, I pretty well guarantee you you’ll see similar results What’s this all mean
- Here the comparison between selling at your base price, discounting 5% and increasing your price 10% and 5% By the way if you plug your own numbers into here, I pretty well guarantee you you’ll see similar results What’s this all mean
- I want to thank you for taking the time to view this presentation. I’m BVS with Sales Performance Associates and I hope to hear from you real soon.