Business Opportunities Weblog

August 30, 2004 by Dane Carlson | 0 Comments

Alvin Huang:

No of customers X Average Profit per sale X Repeated Sales per year = Yearly Profits

While most marketers develop marketing strategies to increase overall profits. They never really stop to really think about which component of the Profit Pyramid they are actually improving. The fault in marketing this way is that their efforts might not be optimised for maximum profits.

Let us take this example. Assuming you have 1000 customers which generate an average profit of 100 per sale and make 2 purchases a year. This would equate to:

1000 X 100 X 2 = $200,000

Assuming a company adopts an marketing plan to dramatically increase the amount of customers they have. They pour in lots of effort and money and actually increase their customer base by 60%. Their yearly profit would therefore be:

1600 X 100 X 2 = $320,000

Which is a 60% increase in profit. ( DUH!)

Here is where the beauty of the Profit Pyramid lies. Instead of focusing all efforts to increase only 1 particular area that contributes to profits. It advocates the total emphasis on all 3 areas. A mere 20% increase in each area would result in explosive results. Let us take a look

1200 X 120 X 2.4 = $345,600 (73% increase in profits)

The gains here are exponential! And it shows that you merely have to tweak and improve each particular area slightly to gain massive results. Theres no need for any marketing whiz idea to jack up any particular 1 area by 60%.

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