Sunday, October 16, 2011

The Formulas For Business Success

There are a handful of key formulas that every business owner must master to achieve success. They aren't mystical or magical, they are mathematical and they rule with an iron hand.
The first is: Profits = (Sales x (Price - COGS)

Your profits will always equal your number of units sold (Sales) multiplied by the price you receive for each unit minus your Cost of Goods Sold. When you know your true cost of production in terms of suppliers, labor, time and advertising, you can calculate your profits for any number of sales. Why is this important? Because too many managers and owners don't truly know their total Cost of Goods Sold! They under-estimate the cost of their time, the cost of marketing, shipping and production. Be rigorous about this.

The second formula helps you assess the potential value of any given marketing or advertising strategy:
Sales = (N x I) - C

This formula says that your Sales will always be the Number of prospects you reach, times the Impact you have, minus the Cost of advertising. If you can reach enough people (N) and have enough Impact (I) at a reasonable Cost (C) the advertising will be profitable. If your N or your I is too small, the Cost will exceed any possible benefits. Always run any prospective marketing plan through this formula before you sign the contract! It'll save you a world of hurt.

Business owners often get so busy doing the work of running their business that they neglect the basic math. Don't do that to yourself! Every business owner or manager should know and follow the basic formulas for success.

Thanks to The Philip E. Humbert Group, Inc

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