SPECIAL ACTION REPORT

The Famous Five Percent Model What Is It?

Put simply, it revolves around these three points 1. To make small improvements in the business in the area of sales, cost of sales, overheads and taxation 2. To recognise and account for the benefits of these improvements 3. To quarantine these benefits and to invest them separately for the future. Its purpose is to make the business more profitable for today and to provide the business owner/manager for the necessary funds for the future. In doing this, we are hopeful of redressing two tragedies in the area of small/medium business today. (A) To give owner/managers a decent return for their labour inputs. (Many take home less pay than their staff!) (B) To provide owner/managers with a decent return on their investment in the business. And so to the model. What if we could make a number of small changes around the key areas of your business namely: ! Increasing sales ! Reducing our costs of sale ! Reducing our overhead costs Specifically what if we can ! Increase sales by 5% ! Reduce our costs of sale by 5% ! Reduce our overhead costs by 5% Then, the average business in Australia can

A complimentary report provided by an independent BBG

Business Development Specialist

Our purpose:
To provide practical business information that works

Guaranteed!
In particular how to:
! Increase Sales ! Reduce Costs ! Improve Productivity
Better Business Group Ltd

Serving Australian and New Zealand Business. BBG Australia

U5, 51 Perry Street Bundaberg, Qld 4670 Phone: 1300 711 743 Phone: +61 412 667 559 Fax : +617 3036 6174
Email: bbgau@betterbusinessgroup.biz

BBG New Zealand

1329 Akatarawa Road Upper Hutt 5372. New Zealand Phone: +64 4 5266880 Fax: +64 4 5264024
Email: bbgnz@betterbusinessgroup.biz

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! improve its profits by 61.75%

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Copyright Fred Steensma

The Famous Five Percent Model What Is It?

Of course, your specific industry might not be able to achieve this result because your margins might be different. Then again, you might be able to make these figures look sick. A group of whitegoods retailers with whom I worked with in the early 90s managed profit increases well in excess of 100% by simply using the 5% model. For those who are mathematically minded, heres proof: Objective; ! Increase sales by 5% ! Reduce product costs by 5% ! Reduce overheads by 5%

Before $ Sales Cost of Sales 1,000,000 700,000

After $ 1,050,000 698,250 Sales increased by 5% Product costs reduced by 5% (Refer explanation below) Overheads reduced by 5%

Gross Profit Overheads Net Profit

300,000 200,000 100,000

351,750 190,000 161,750

A profit improvement of $61,750 or 61.75%. When we say reduce product costs by 5% we mean this: If it currently costs you $1 to buy an item, then shrewder buying or negotiating means that you can cut this by 5%. In other words, you can now buy for 95 cents. In our example, we have sales as follows:

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Better Business Group Ltd

Copyright Fred Steensma

Australia- U5, Perry St, Bundaberg, Qld 4670 - " +61 412-667 559 or " 1300 711 743 Email: bbgau@betterbusinessgroup.biz New Zealand- 1329 Akatarawa Rd, Upper Hutt 5372, NZ - " +64 4 5266 880 - Email: bbgnz@betterbusinessgroup.biz

The Famous Five Percent Model What Is It?

Cost of goods

Cost of goods after 5% reduction 665,000 33,250

Explanation

Old sales New sales

1,000,000 50,000

700,000 (or 70%)

($700,000 less 5% or 66.5% of sales) (being 66.5% of new sales. Remember, you cant sell goods unless you buy them)

Total sales Total Cost of Goods Sold

1,050,000 698,250

Ok, Im prepared to admit that some people might find it a little difficult to grasp, but we bean counters know that its right. Just keep in mind that it does work. The results are in the bank to prove it. Even small improvements produce dramatic results. That same business we have used as an example, can improve its net profit by 12% just by increasing sales by 1% and reducing product costs and overheads by 1%.

Small changes = Massive RESULTS!!

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Better Business Group Ltd

Copyright Fred Steensma

Australia- U5, Perry St, Bundaberg, Qld 4670 - " +61 412-667 559 or " 1300 711 743 Email: bbgau@betterbusinessgroup.biz New Zealand- 1329 Akatarawa Rd, Upper Hutt 5372, NZ - " +64 4 5266 880 - Email: bbgnz@betterbusinessgroup.biz