Your high-ranking offers are not always the greatest profit drivers in your company.
You’d be surprised that your low or mid-ticket deals are sometimes your biggest source of income. The thing is – not every business owner knows what their profit drivers are. Since revenue is only part of the equation, profit factors can remain hidden from the public.
Let’s shed some light on the factors of profit that you didn’t know existed. As an ELITE coach and founder of Jeronamo Solutions, Monique Morrison has figured out exactly how to know which products and services are making the money – and which are blowing it. In her lab workshop, she discussed how you can compare your income against resources to build an evergreen growth machine.
We’re going to be looking at a portion of this training today, using a points-based system that Monique pinned down to show us what the real winning factors of our business are.
How to Calculate Your Profit Driver
First step: make a list of your products and services
Consultation? Done for you? Ecommerce products? Write down everything you sell so you can find out which of those services / products are a contributing factor to your profit. If you sell a lot of different ecommerce products, consider categorizing them if it makes more sense to you.
Step 2: Average how long it takes to complete these products / services
Monique does it with a point system. For every 1 hour she has spent on a task, she gives 1 point. This points system helps us determine your average sales per point to determine your profit factors.
For Jeronamo Solutions, the website build service takes around 30 to 45 hours from the team. This means that around 30-45 points are required. Your marketing services average 12 hours or 12 points.
No need to split your points by hours if you find that some products / services are taking less time to complete. You can allocate 15 minutes per point if that works better for you. If you are unsure how long a service / product will last, estimate the time (and then the points) so that you can get an idea of your winners. Then start time tracking so you can get an official average of how long each task takes and update your calculations.
Step Three: Find the Average Number of Units Sold
How many units do you sell on average of a product or service in a given period of time? You can do this monthly, quarterly, or yearly as you think about the past year.
Step four: write down the price per unit
How much does each of these services / products cost individually? Write down the unit price for each product / service on your list.
Step five: calculate the average sales per sale
It’s time to grab your calculator. The next steps will be calculations that will show you which products and services are the real drivers of your business. How to find the average revenue per sale:
Multiply the average units sold by the price per unit to get the average sales per sale. Do this for each of your products / services. Bring this number with you to the next step.
Step 6: calculate the average sales per point
This is the moment we’ve been waiting for. You will see what the real drivers of your business are – and don’t fall into the trap if you believe your high-ticket offer is your highest source of income.
Calculation of the average turnover per point::
Now you know how much you earn per point. If your points are equal to 1 hour, you know what hourly you earn for each of your services / products.
You officially know which services will give you the highest revenue per point. Now you have yours Profit drivers! 🎉 Finding out your average sales per point will give you those “ah-ha!” Moments when you find out where your sales are in terms of optimizing the time spent.
Knowing your profit factors can mean your business is changing a lot. Perhaps your low-tier offers are your winning factors, or you were spot on when you thought your high-ticket offers were your winning factors. Either way, it’s time to take action. Now you can align your business with these profit factors and move away from the services / products that are draining your resources.
This is how you benefit from your profit drivers
Isn’t data amazing? We have to say, “I think this is the best direction for my business” and “I know this is the right direction”. If we know your profit factors, now we can figure out how to relocate your business to devote more time to them.
Let’s look at what was * not * a profit driver. We don’t have to toss these offers right out the window, but we want to see how we can make them either take less time or cost more so that they get higher average sales per point.
Here are some questions to ask yourself when trying to turn not-so-for-profit offers into profit drivers:
- Do we have to keep this service / product?
- How can we make this service / product use less time and resources?
- What can we add to make this service / product more expensive?
- When will we make these changes?
- When are we going to go through these calculations again to see if this offer has become a winning factor?
Notice the last question. It’s so important that you not only make changes to your offerings that hold your team back, but also put them to the test. These offers need to be updated, and then they need to prove that they are still worth sticking to.
If you do these calculations regularly, your business will run smoothly. As Monique puts it, this is how you create your evergreen growth engine. If your offers are all winning factors, then your business is the one that everyone else will be jealous of. It’s the business that is based on profitable data and ensures that your time and resources are devoted to the internet Law Thing.
And it’s the business that can withstand more storms. Ryan Deiss spoke about fragile marketing at the 2020 T&C 360i event, and Monique’s revenue-resource approach fits his perspective perfectly.
If you build a business around profit drivers and regularly recalculate so you know when any of those profit drivers went astray, your business will not become fragile.
Use Monique’s scoring system to be sure which services / products you should spend time on and which ones you need to think seriously about to break up with. You can also paste these calculations in a spreadsheet so the computer can do the calculations for you. 😉 (you know we had to add a way to make this even more efficient).