What is Business?
To be a professional in business you have to first understand what business is, we are all familiar with it, we do business all the time, but do we know what it really means?
Firstly, business is trading, but what is trading exactly?
Well, trading is when you give something away in return for something else, but the trade has to be profitable to you/your business. That is fundamentally what its all about.
If you think about it, we trade in everyday life using money, when we go to the supermarket, when we buy some new shoes or even pay for the car park.
Now the trade will only take place if the product you are buying is worth more to you at the time than the money you hand over. This is absolutely fundamental. For example, a storekeeper will value the money you give him more than the product he is selling, he paid less for the product than the money you will give him, which means he is profiting. In this exchange both parties are getting what they want, this is the key to successful trading. No one will ever trade one thing that is worth more to them in return for something that is less valuable.
A few tips about Profits
-Profit is all that matters in business:
A turnover means nothing. You could have a turnover of a million dollars a year, but if your costs are over a million dollars a year then that is bad business. All that matters is the profit that you make.
-You can’t influence your profit directly
Although profit is everything it’s not something that you can actually influence. Profit is made as a product of other things and the business Chassis is the way of understanding what the other things are
The business Chassis
NUMBER OF LEADS x CONVERSION RATE = Number of Customers
This means what’s your conversion rate of prospects/leads into customers?
You’ll notice that number of leads and conversion rates are in green whereas number of customers is in red. This is because the green factors CAN be manipulated, for example you can buy leads from Google Adwords, you could even pick up the yellow pages and phone everybody in there, this means it’s fairly easy to get leads and it’s something you can directly influence.
Your conversion rate is also down to you, how well you sell your product is something that you can also influence.
The product of these two things is the number of customers you get which unfortunately no one can influence. All you can work on is your leads and conversion.
VALUE OF SALE x NUMBER OF SALES PER CUSTOMER = Turnover
Important – The easiest people to sell to are the people you have sold to before. Many businesses make the mistake of overlooking this factor. The fact is that it costs 7 times more to attract a new customer than it does to close a sale with a previous customer.
The Profit Formula –
Number of leads
= Number of Customers
x Value of Sale
x Number of Sales per customer
There are only 5 important things you can work on in your business and that is the GREEN part of the formula.
Remember the red part of the formula cannot be directly influenced but can be influenced by how much time and effort you put into the green.