Can You make a 40% return on investment ……….
on every transaction your company does?
YES YOU CAN!!
Wal-Mart and other big box stores have used a formula for decades to achieve pre-determined profits.
And the power of this approach is that it can be deployed in:
- Parts & service companies,
- Retail, and…
- Virtually every type of company in every type of industry.
The key to the approach is the observation that if you invest $1000 then you need a return on your investment. If you stick the money in a bank account it will generate some interest return.
If you gamble it on the stock market, you expect a decent return for Microsoft shares and a higher rate for risky penny stocks.
In your own business, the money you and the family and the bank have invested needs a return. Moreover, every time you buy goods for resale, you should expect a return on that investment.
Let us consider that you are a contractor buying lumber. You paid $1000 for a truckload of boards and you built a fence with them. What should the price of re-selling the lumber be? If you are getting 5% in a bank account with zero risk, then that lumber sale must logically generate a higher return that covers all the costs.
In those big box stores, the costs include all the costs of a transaction like delivery, cost of money, heat and light in the store and even labour to stock the shelves. These are captured along with an expectation of return on investment to generate the funny prices that you see at Wal-Mart. Haven’t you ever wondered why prices at Wal-Mart end in 26 cents and 73 cents and 14 cents and not in 99cents like everywhere else? It is all a function of a rigorous approach to using ROI and pre-determined profit strategy.
Certainly, business is easier if every transaction contributes to the bottom line regardless of the selling price.
And there is a further plus!!
You can give the sales people price flexibility without punishing your profits. Even if clinching the deal meant dropping the price, it does not hurt when you have pre-determined profits built into every transaction.
Does it work?
At a service company in Vancouver, this method generated a 44% gross margin EVERY MONTH for 13 years.
Every month with profit.
Wal-Mart is a huge exponent of this approach. We have used the same methods on a trucking company in Terrace, a kitchen design company in Kelowna, and an alarm company in BC’s Interior.
Call us today at 1-888-768-9415 and we will share the calculation with you for free.
At Floodlight we help you Build Your Business using great, time-tested business tools.
This article is contributed By Andrew Gregson