If you want a realistic target profit margin, you should stop comparing your business to your competitors.
You should evaluate everything about your business, sales, marketing, product, and more without looking at the outside. This can help you set a realistic target profit margin. It will also help your business team to become more aligned as they will focus on what is needed to reach a certain in profit threshold.
What Is the Target Profit Calculation?
The target profit calculation in sales units uses this formula: (target profit + fixed costs)/contribution margin per unit.
For example, if you want to reach $250,000 in a specific time frame, and your fixed costs are $150,000, with a unit price of $100 and the variable costs at $60 per unit, the contribution margin is $40 per unit, you would need to sell 10,000 units.
Total sales would be $1 million, and the net sales would be $400,000.
Since you must sell 10,000 units to achieve the target profit you need to figure out how make all those sales. This means your teams need to come together to analyze your sales and marketing strategy.
Sales strategies are critical because you have to convert leads into customers and make sales. The right strategies will help propel to your business to new profits.
Here are some strategies to consider if you want to reach your sales goal.
Think About the Future of Your Sales
Start with forecasting your sales for the next year. Ask yourself: How will you determine what the price will be next year? Is there a seasonality to purchases? Are there any competitors likely to enter your market? Will you be able to increase prices? Are there economic impacts that need to be factored into your projections?
A good forecast will give you an idea of what your profit will be every quarter which will affect your marketing plan.
Create a Marketing Plan
Your marketing plan needs to be a clear document that details everyone you are selling to, where they are, how they are reached, what are they looking for, and what strategies need to be used to reach enough prospects who will buy.
Start With “Who's Your Ideal Customer?”
When it comes to creating a better profit margin, you must know who your ideal customer is. Without a clear understanding of your ideal customer, you can’t target them or talk persuasively to them. Most businesses have multiple buyer segments, each with different people in them buying different things for different reasons.
One of the ways to better understand your ideal customers is to create the buyer's persona for each. This tells you everything you need to know about your ideal customer in each market segment.
For example, you should know their age range, where they generally are located, if they are female or male, and what problems they have. You especially need to know what problems they have and how your product is helping them solve a problem.
One of the ways to learn more about your ideal customer is to ask questions. You can send surveys to consumers and ask them about their frustrations. The more you learn about their frustration, the more you can create a business that is designed to help your ideal customer. Don’t forget to talk to your customer service people and sales team as all of them are in contact with customers.
What Avenues Are You Using to Communicate with Them?
After you identify your ideal customer, you need to figure out how you are going to communicate with them.
This is critical to producing a higher ROI or a higher profit margin. For example, if you have subscribers on your email list and you send them promotional or sales emails, this can help you create a higher profit margin. It could also be the preferred way that your consumers like to communicate with your business.
Some of the avenues you can use to communicate with your ideal market are email and social media. And, don’t forget YouTube; the use of video marketing is becoming increasingly popular. (See The Increasing Success of Video Marketing and Why You Must Consider it for Your Company.)
Email is one way to communicate with your consumers without overly selling them. You can send them stories about your business and how you've helped consumers. You connect with your consumers without being intrusive.
Another way to communicate with your ideal customer is through social media. You can use channels like Instagram, Facebook, LinkedIn, Twitter, and Tik Tok to communicate about your product.
These channels provide your business with an opportunity to boost brand awareness. This means you can showcase your business and the products you are developing. You can show how your product or service has helped consumers.
Do Consumers Understand Your Brand?
Another way to increase your profit margin is to make sure consumers understand what your brand stands for. What you do and why do you do it are good questions to answer here. This helps people connect with you and gives them a feeling you are on their side.
Although already mentioned, brand awareness is a great way to introduce a story to your consumers. It should be a story about the consumers that connects to them emotionally as you relate how you helped consumers overcome a problem.
Is Your Sales Team Talking Selling Like Pros?
The only measure of success of your entire marketing plan is one simple thing: customers making a purchase.
Are your sales team members selling as well as they should? Are they well trained in selling professionally and motivated? Most owners feel their sales force isn’t performing up to par.
People don't buy something that they think is going to be useless to them, they buy to fulfill a need or desire. They buy something that is going to make their life easier, less stressful, more fun and fulfilling.
Can your sales force turn that insight into closed deals regularly?
When your sales team is dealing with prospects or return consumers, each sales person must be adept at determining what the customer is really looking for. Good advice is to remember (with a thanks to Roy H. Williams, Wizard of Ads):
- We buy things with which we identify.
- Cold logic fails to warm the heart.
- Talk about what the buyer will feel, enjoy, avoid etc., the benefits, when they buy.
- The customer will create their own logic to justify what their heart has already decided.
Consumers are less concerned about the price than they are about the end result.
Evaluate and Adjust
The final part that can help you realistically achieve your target profit margin is to evaluate and adjust.
You must evaluate everything about your business. This means evaluating your product, who the product is for, what the price of the product is, and how many you need to sell each month to reach your target profit margin.
If your marketing strategy is not working, you have to adjust. You need to see how many website visitors you are getting each month, how many people are clicking on your product, and ultimately what is preventing your prospects from purchasing your product.
You need to evaluate the entire customer journey from initial interest to ultimate sale or disengagement to begin to understand what is preventing prospects from buying your product. Take a look at the first time they see your business to the final stage, which is the buying stage. Take a look at your sales team and evaluate what message you are sending to your consumer.
When you can evaluate and adjust your business, it can help you achieve a realistic profit margin.
Now You Know Everything About a Target Profit Margin
While it's important to know how to set a target profit margin, it's equally as important to have a strategy that can help you realistically achieve that goal. You have to know the information to collect and use in your business that can help you profit more.
You have to know everything about your consumers and how you can help them with your product. That means figuring out where your consumers hangout so you know where to communicate your brand.
If you have a question about the target profit formula or something else business related, you can always ask me for help – after all, helping business owners just like you is what I do. Let's set up a time to talk. Brian Tracy USA: 877.433.6225 Email Me