So what is The 1% Rule? Well, let me tell you…
The Boss Wants More!
“This year the XYZ company requires a 10% increase in profits” demands the boss.
The sales staff begin murmuring and the sales manager scoffs saying “Where do you expect me to find the extra customers to deliver that amount of profit?”
And the manufacturing manager chimes in with, “I can’t make major cuts to the production costs, they just aren’t there!”
Well, let me show you how to achieve a 14% increase in profits that all departments can comfortably contribute to.
How does The 1% Rules Work?
Generally, when the boss asks for a 10% increase in profits, it is the sales team that is tasked with the bulk of the responsibility to achieve the target.
So, let’s use the following numbers to show how easy the profit target can be achieved.
The number of sales units per annum is 1,000 with an average selling price of $1,000 per unit. The cost of sales was $800 per unit leaving a profit for the business of $200.
Increased Sales.
If you were the sales manager and you were asked to increase sales units by 1%, would you find that too hard to achieve? Just by remarketing to your existing customer database, you can achieve the required increase. So, in this case, sales increased by 1% to 1,010 units. This alone resulted in a 5% increase in profits to $210,000.
Increased Prices.
When was the last time you increased the price of your goods or service? So many firms are scared to past on cost increases in case their ‘best’ clients revolt. However, I have proven in a number of businesses that regular, small increases in price are not only acceptable in the market place but can increase your profits.
When and by How Much?
You should increase your prices effective 1st of July and 1st of January each year. Why? Because these are both times of the year that business is busy dealing with year-end tax or are on holiday. So, if you put up your prices by 1% to $1,010 per unit you will gain an extra 5% in total profits. And remember a 1% increase in price twice a year is going tome below CPI.
However, if you combine the price rise with the extra sales units you have a 10% increase in profit. Now the Boss is happy!
Reduce Costs.
But what happens if you also reduce your costs by 1%? Efficiencies in production, reduced sales costs such as cheaper mobile plans, more fuel-efficient cars, better stationary purchases, can easily strip more than 1% in costs out of the business.
Adding this 1% reduction in costs to the increased sales units and average selling price, profits increase by $28,100 or a 14% increase in profits. Now that’s far more than the boss expected!
Wollah! Increased Profits.
None of these three actions are too hard to achieve. None of these actions are intimidatory on your staff. None of these actions will see loyal customers leave or reduce purchases. All of these actions are simple to implement.
Best of all, if each section of your business applies The 1% Rule, profits can improve by 14%.
Now you have the reason, and the extra funds, for a celebration that is certainly well deserved!