5.15.80: DISCIPLINE SEVEN - MAXIMIZING REVENUE WITHOUT A SLIDE RULE - WILLIAM EASTMAN

PROFIT RADIO - "A Network of Entrepreneurs for Entrepreneurs"

Introduction
In our series on the Elite %5, today starts the advanced shows. We are going to cover the obvious and simpler methods of increasing revenue through frequency of purchase, size of purchase, what was purchased (margin).

Here is a quick review for how we arrived at the performance ranking of 5%, 15%, and 80%.

When we were doing our initial research in the early 2000's on fast and sustainable growth from cash flow, we developed a model for evaluating businesses. It was based on on it's performance relative to it's capability. In other words what were they doing with what they had.

Once the model was complete we built a consulting practice around it and the first phase was to validate our research. Part of that process was to review research on the same topic from other credible organizations. That is when we started a relationship with the Kauffman Foundation. One project they had just finished for a group of local governments was on the types of successful small businesses to attract with grants, tax abatements, etc. These were small, fast growing companies that would provide a solid tax base and jobs.

The study called those companies HIF's (High Impact Firms) and how critical to a healthy economy they were because of creating 95% of new jobs. The further challenge of attracting them was they represented only 5% of all small businesses. We took that research and compared it to our Library of Best Practices for Fast Growth Companies, creating the 5.15.80 Performance Model. The top 5% dominate their markets and their core concern is SUSTAINING success – to a Break Out through a major reinvention.

The middle 15% represent firms doing OK but unsure about how to take the company to the next level. Their core concern is how to Break Through.

The remaining 80% represents businesses that are struggling to compete in the current environment, they are one or two moves away from disaster. Their focus is how to Reset the business and fight another day. Their core concern is how to consistently achieve BREAKEVEN.

Our concern in this series is the 5%, not how you get here covered in the 15% and 80% series; the focus is how to maintain market leadership.

LISTEN > ENGAGE > APPLY

Show Objectives
Elite 5% Discipline #1: Maximize Profits

1. 18JAN21: Maximize Profits - Revenue
2. 25JAN21: Maximize Profits - Fixed Costs
3. 1FEB21: Maximize Profits - Variable Costs

We will not answer this question for you during today's show. We will get there during the 1FEB21 Show on Variable Costs. The reason is simple, we needs answers to all of these questions to arrive at proft maximization.
​
Key Issues - Owner Perspective:

1. What is the optimization point for each of my products and/or services?

What You Need to Know

• Profit = Revenue minus Cost (Pf = Re - Co)
• Revenue = Price times Quantity (Re = Pc x Qn)
• Marginal Revenue = Price per unit times Quantity sold (MR = Pc X Qn)
• Total Revenue = Marginal revenue times Quantity sod (TR - MR x Qn)
• Variable Cost of producing 1 unit (Vc)
• Fixed Cost of producing 1 unit (Fc)
• Total Cost of producing 1 unit (TC = Vc + Fc)
• Optimization Point = quantity where the maximum margin can be obtained.

Since are trying to solve for multiple variables, calculus is the best technique to solve the problem...except we are not going to do that. We will work on this problem and solve it with a spread sheet.

What You Need to Do

1. Follow the 5.15.80 Series all season.​
2. Get your business growth news everyday from IBGR.Network
3. JOIN the IBGR Community
4. DOWNLOAD the IBGR Growth App
5. RESEARCH anything related to Starting, growing, or Exiting a business on the IBGR Network

We are your single, one stop source for business success, period, end of story.

Make sure you leave some thoughts in the comment section below. I am interested in continuing the conversation.