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
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