Sometimes referred to as the 1% rule, the Marginal Gains theory seeks to make tiny improvements to every single part of a business. From a slight increase in sales to a tiny decrease in overheads, the cumulative impact of these refinements and tweaks can really add up!
A small business turning over £120,000 p/a might be surprised to find how much an exercise in marginal gains can return…
- NUMBER OF SALES: This refers to the actual number of transactions that take place in a given period, e.g. adding 1% to 100 sales in a month. Additional sales are best achieved through strategic marketing, e.g. Search Engine Optimisation, user friendly Website Design, Email Marketing etc.
- SALES REVENUE: The actual monetary value of sales activity. If your average order value (AOV) increased by 1%, from say £100 to £101, coupled with the extra sale (referred to in #1 above), the monthly sales figures would be £201 rosier. An increased AOV can be achieved through Cross Selling.
- COST OF SALE: Everything from courier fees to packaging chips away at the margin of that hard-earned sale. If cost of sale came to £5 and was reduced by 1% it would actually cost 5 pence less to fulfil 101 orders than it did previously to package and dispatch 100. Begin by informing suppliers of your intention to carry out a Supplier Audit. Invite them to tender for future business. Agreeing to payment terms that a supplier will find more appealing (i.e. 7 days or pro forma) may elicit a further discount.
- TRADE PRICE: If the wholesale price of a unit is £30, a 1% discount would make it £29.70. This would mean 101 units would cost £2,999.70 (as opposed to £3,000 for 100). More units for less money! As with cost of sale, the most effective strategy is to invite the wholesaler to ‘stay in the game’ by sharpening the pencil.
- FIXED COSTS: If total fixed costs, such as rent, utility charges, consumables, business services etc. were reduced by 1% from, say, £2,000 per month to £1,980 it would, in isolation, seem like a tiny impact. Combined with increased sales, increased AOV and decreased costs it makes a difference. Start with utility comparison websites. Chances are your local broadband firm is overcharging for calls and line rental. The larger firms tend to offer better packages (and usually employ the most competent engineers). Power suppliers are fighting for business, so there is always a better rate to be had.
The figures above show an improvement to the bottom line of £221.35 per month which amounts to an impressive 5% increase – or to put it another way, a very useful £2,656.20 by the end of the year! If the fixed costs and trade prices were higher, the savings would be greater still. Just imagine what a 2% rule would return!