February 21, 2022
I recently had the opportunity to talk with Adam King, host of the B2B Growth Think Tank Podcast, and we discussed ways that small changes to your business can have an outsized impact on your cash flow and profitability. The thing is, it is hard to know how much impact these small changes might have on your business until you actually run the numbers. You can catch the podcast episode here - How To Maximize Your Business Value With Financial Projections
It was great to chat with Adam, because his company Think Like a Fish helps companies find small changes that can have a material impact on revenue, cash flow, and profit. A key part of determining what changes to make to your business is running the numbers to see if a change can actually make a difference.
I want to give you two examples of what might seem like a small change, and show you the before and after impact to your bottom line.
How Increasing Total Ticket Size can Lead to Increased Profit for a Food Truck
We created a free calculator that can help you determine how much your food truck can generate in sales per day, and we can use that calculator to show how you can increase your gross profit simply by upselling to your existing customers and increasing your average ticket size.
For example, based on the assumptions we have pre-built into the calculator, if your average spend per customer is $8 you can generate $995 per day and serve 124 customers.
If you were able to upsell a high margin drink for $4 to half of your customers and increase your average ticket size to $10, you would be able to generate an additional $250 per day in sales, with nearly all of that going to the bottom line.
This is a good example of how increasing your sales per customer can really drive profitability because you have already done all of the work to acquire the customer, so the easiest way to generate additional revenue and profit is from your existing customer base.
How a 25% Increase in Conversion Rate for your Ecommerce Brand can Lead to a 46% Increase in Profits
The second example I wanted to provide you with is even harder to believe. Using one of our ecommerce financial projection templates, I can show an example of an ecommerce business with a 1% conversion rate (meaning 1% of website visitors purchase) generating $37,887 in annual profit based on our assumptions. When I increase that conversion rate to 1.25%, a seemingly small increase, profits actually explode by 46%.
Take a look with some screenshots from our template below.
Ecommerce business with a 1% conversion rate:
Annual Income Statement for an Ecommerce Business:
When we keep everything else exactly the same, but increase the conversion rate to 1.25%
You can see that the profit increased from $37,000 to over $55,000 a 46% increase:
Here is the thing. Most businesses would never realize how much such a seemingly small change could make to the bottom line because they don’t have a financial model that can show them the potential impact. That is why I encourage every small business to build a financial model of your business and then play around with some of the key drivers of profitability to help you and your team determine where to focus your energy. If you want help building a financial model for your business, check out our library of over 50+ CPA developed financial models to help you get started, and if you have any questions we would love to hear from you at firstname.lastname@example.org