Base Case 4 Ways To Increase Profit

I want you to work on building your base case based around the Four Ways To Increase Profit model.

Look back at your last set of accounts.

Calculate your contribution, your fixed costs and your contribution as a percentage of sales.

Find out the number of customers you had in the year and the number of transactions.

If you divide the number of transactions into the contribution, you will calculate an average contribution per transaction.

You can also calculate your average transactions per customer by dividing the number of customers into the total transactions.

Now check your numbers.

Contribution from your accounts should be the same as multiplying the number of customers by the average number of transactions and by the average contribution.

It is easy to make mistakes and to double check now can save a lot of confusion and stress later.

Now make sure the contribution minus your fixed costs equals your profit.

When were your accounts prepared up to?

If they are very recent, you don’t need to worry about the next step but if they are many months old, I want you to try to update your base case.

Look at the period since your accounts were done.

You won’t have the contribution and cost numbers but we can make a few assumptions based on what is happening to your sales.

Find out your sales values, your number of customers and the number of transactions since your year end.

Calculate the average sales value per transaction and use the contribution margin percentage from your work on your accounts.

Compare the contribution per transaction since your accounts with the contribution per transaction for the period of your accounts.

Are they similar?

If not, can you think of a reason why they would be different?

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