How to create an infallible profit roadmap

Throughout history, the crystal ball has a long, rich accounting of being used, both in mythology and in scientific efforts, to ordain the future. For example, there was widespread use of crystal balls to peer into the future during the Roman Empire.

Later, Dr. John Dee, a noted British mathematician, astronomer, astrologer, geographer, and consultant to Queen Elizabeth I, devoted a large portion of his life to alchemy and divination, much of which was done through the use of crystal balls.

More importantly, when it comes to business building, most of us wish we had a crystal ball. A way to peer into the future and know with certainty what will work to grow our business and what won’t work.

Well, the good news is that there’s a tool that’s actually better than a crystal ball. A tool that can be used to create an infallible roadmap to profits for your business.

Plus, it’s available to every business. And available for you to use right now.

So what is this mysterious tool? It’s something called…

The Past

Why traditional sales projections and business plans don’t work

As noted philosopher, former heavyweight champion of the world, Mike Tyson, so astutely stated, “Everyone has a plan ’till they get punched in the mouth.”

And that’s the problem with traditional sales projections and business plans. They’re supposed to act as an accurate roadmap to the future. The problem is, they are based primarily on assumptions – and usually overly-optimistic presumptions at that. And once those assumptions are exposed to the real market (the proverbial “punch in the mouth”), they quickly begin to unravel.

Need proof? Just look at the business section of your newspaper any day of the week. You’ll see dozens of reports of businesses that missed their earnings projections by a wide margin. You’ll also see just a few that outperformed their earnings projections. But you never see reports of companies that hit their earnings projections right on the nose.

That’s because traditional sales projections and business plans are based on hopes supported by statistics. But here’s the key – those statistics are most often derived from industry studies projecting the growth of their own industry. And 99% of the time, those projections prove to be wrong.

Because the minute your business plan enters the real world of selling to your clients or customers, it’s just like being in a prize fight. Your ad gets punched in the mouth and no longer works. Your sales team takes a crushing blow to the ribs and loses interest in exposing themselves to another beating. Your entire sales plan can get knocked to the canvas in the blink of an eye.

All because your plans were based on an incorrect projection of the future.

The only accurate measure of future sales

If you want to create a truly accurate projection of future sales, a business plan that gives you an infallible roadmap to future profits, then you have to replace industry studies with your own study – a study of your recent past.

The future is uncertain. But the past is completely reliable. And it’s easy to access because you have definitive records of what worked and what did not work in the past. So let’s take a look at the five steps you’ll need to examine your past records in order to reliably plan a profitable future.

Step 1: Use the 18-month cycle

So the most obvious question to start with is, “How far back do I go in the past activities of my business to gain accurate information?” And the answer is 18 months. Much more than that and the quality of your information begins to get diluted.

That’s because the best predictor of future activity is the activity of the recent past. For example, if you are interested in finding new customers to buy your diet books or products, the best predictor of a person who is likely to buy is someone who has bought another diet book or product within the past 18 months. Again, much longer than that and the desire for that product (or whatever product or service you offer) is likely to have changed or not exist anymore.

Now, let’s take a look at exactly what you measure for the past 18 months.

Step 2: Understand the principle of “The Unequal Dollar”

Here’s where the vast majority of businesses go wrong in making their marketing plans. Get this simple step right and you’ll be miles ahead of all your competition.

Most people treat every sale as being equal, you know, “A sale is a sale is a sale”. But that simply isn’t true. Because some sales are far more valuable to your business than others. Once you understand which of your sales are substantially more valuable than others, you can then truly create a business plan that will give you an infallible roadmap to increased profits.

The value of each sale is characterized by either the type of product, the marketing piece or the customer segment that’s involved in that sale. And often, it can be characterized by a combination of these factors. But for the sake of simplicity, let’s examine each of these three factors on their own.

Step 3: What were your most profitable products?

Take a look at your sales records for the past 18 months. Which of your products sold substantially better than your other products? For most businesses, if you offer 10 products, 3 or 4 of them will make up the bulk of your sales – anywhere from 70% to 90% of all your sales.

Yet, most businesses devote equal time to the marketing and sales of every product they offer, treating them all as if they are equal. So your first task in increasing your profits is to weed out the bottom 50% of your product that produce the least sales.

If you have the guts for it, you can do radical surgery and eliminate the bottom 50% entirely. If not, try to eliminate at least a couple of them.

Then, focus far greater attention – in both time and money – on promoting those of your products that sell the best. Never forget that your market “votes with its wallet”. And if a high percentage of your market has told you they dramatically prefer a few of your products more than others, those are the products that will do the best job of attracting more new customers and making more repeat sales.

Step 4: What were your most profitable marketing pieces?

Next, do a similar 18-month review of your most successful marketing pieces. Here again, you’ll see that certain marketing pieces dramatically outperform all others. So why do you continue to use marketing pieces that are less profit efficient than others?

What you need to do to improve this area is two things. First, re-use your top 3 performing marketing pieces from the past 18 months. You don’t have to change a thing. Simply re-using them will reliably create a nice uptick in your cash flow.

Second, use your top 3 performing marketing pieces as models for all new marketing that you create. Determine which elements of your best marketing pieces are responsible for the higher response. Then incorporate those elements into every new marketing piece you create.

Step 5: What were your most profitable customer segments?

Here’s an area that few businesses pay enough attention to. But if you do and your competitors don’t, you can easily command a much greater share of your market and your competitors will have no idea why.

Examine your sales records for specific segments of customers who buy more often than other segments. For example, if you sell a specialized high-protein powder, you might think that everyone who is health conscious makes up your market. But that would be a huge mistake.

By examining your sales records, you’ll see that certain customer segments product far more sales than other – again, somewhere between 70% and 90% of all sales. So you might discover that one of your segments is young mothers between the ages of 18 and 30 who have recently had a baby and want to lose the extra pounds they put on. And another segment may be male power lifters who need an extra blast of protein to get that lean, cut look.

By devoting far more of your marketing budget and effort to just these two segment, not only will you increase your profits quickly, but your marketing expense will drop considerably, because you can target your best customers far more effectively, resulting in marketing to fewer people to make more sales.

Now that you have your own marketing crystal ball,

it’s time to put it to use

As you’ve just seen, your past sales are a nearly infallible guide to where most of your future sales will come from. All you need to do is set aside a few hours every six months to examine your past sales records.

Sometimes things change, which is fine. But the only way you’ll know for sure is if you commit to putting in the few hours required to do this profit prognostication.

Am I nuts? Am I right on target?

Feel free to let me know – or share your own experience with this topic – by leaving your comment below.

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3 Responses to How to create an infallible profit roadmap

  1. Harry Wulff says:

    Great piece Bob.
    May I criticise your new crystal ball if I may?
    I am on the same planet with you but have a bottoms up perspective and I don’t wish you to simply rubbish it because it is full of my own practical experience.

    The critique is on risk. Experts sometimes give advice to entrepreneurs like myself which sink a blackhole in their finances then standoffishly say that company failed. I don’t see such risks in your advice but I just would have liked you to throw a bit more light on risk especially affecting growth decisions made by the owners and experts of small global companies like mine.

    I give you an example. A company may spend a lot of its liquidity chasing after a contract in the global market place. Once obtained, say a private corporate bond worth Millions of Dollars in one Country; do you see any infrastructure out there or Framework out there that would enhance that SME having obtained a big contract overseas, how to raise its kickstart capital without facing nightmares? This point alone is ok for now. Thanks
    Harry Wulff
    Economic Operastor,UK,EU,GH

  2. PJ says:

    Bob –

    I like the thoughts you have outlined and agree with the essence of your argument. In my experience, where clients fall down – that is are unable to perform the analysis you suggest – is they simply don’t effectively track their sales and marketing activities in a meaningful way. All too often my clients are able to produce a list of customers – they may even have the list delineated by spend or product(s) purchased. But they have not done any work to understand frequency of purchase, demographic of the customer, what products are being purchased by which customers, etc.

    Where I find I can add significant value to my clients is in helping them to set up a system to get meaningful sales and marketing feedback to help them drive future campaigns and appropriately prune their product offering – or better target their products to what the marketing and sales feedback is telling them. Once we put in place meaningful metrics and a means to obtain timely feedback, many clients report its like someone ‘turned on a light’. They can now clearly see where they have been wasting time, where their customers are spending and how frequently, as well as which products add the most to the bottom line.

    Your thoughts are right on target. However, many clients would benefit from a better understanding of how to set up systems that provide the type data you describe so well in your article. I always enjoy reading your articles and find myself spending a lot of time rethinking my approach having read your thoughts.

    Thanks and please keep sending along your thoughts – there is a lot of value in youer thinking.

    Regards,

    PJ

    • Bob Serling says:

      Hi PJ,

      It’s actually quite easy to track all 3 components. You can do it with a rudimentary manual system simply by sorting the results in your shopping cart. Now, the component of customer segments may be a bit more difficult, but even that can usually be tracked, although not with as high a degree of accuracy, by noticing the email addresses customers use. Many indicate the company the person works for, and can often be used to determine a business segment. Plus, simple surveys can provide a lot of information.

      In my experience, it isn’t that clients lack the tools or knowledge to conduct the measurements, it’s that they’ve never been taught how important and profitable these measurements are.

      Regards,

      Bob Serling

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