Understanding the basic components of a business can help entrepreneurs diagnose and solve problems and create new opportunities for growth.
While a business can seem like a complex engine that is difficult to comprehend and master, there are really just a a few simple components that make up the business. Understanding these components and mastering them individually will help you to master your business as a whole.
The formula that Entrepreneur Magazine columnist Brad Sugars writes about is an elegant, well-stated formula that perfectly expresses the simplicity of a business in just a few numbers. (You can read his article here). This formula IS your business. This formula is every business. The formula goes like this:
Leads x Conversion Rate = Customers
Customers x Average Dollar Sale x Number of Transactions = Revenue
Revenue x Profit Margins = Profit
Each of these components can be used by entrepreneurs to understand their businesses further and to make them more successful. In the coming weeks I will be talking about each one of those components in greater detail, showing you how to diagnose problems and increase the performance of your business.
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March 9, 2010
Business Insight, Strategy Tools