How to 3X Profit to Drive Growth

Aug 01, 2020

The Momentum Law of Multipliers

Faithful leaders are looking for ways to survive, even thrive, and create more margin in time and money with their business models. A key to defining which business models will give the best results is to identify the variables in the business model that yield nonlinear growth in profit - in revenue, in culture, and impact in the world.

I've done this work for all kinds of businesses. Within three months, a booking company sold 75% more revenue for the entire year and invested time and money in the causes they care about. You can see, in my example before you, a professional services firm before and after.

In working with me for six months, this company improved revenues by 10% and profit by almost three times. Then they were able to invest in growth and create and change the culture to adopt family-friendly values and to define the meaning of their work, increasing the value to the customer and to the staff.

Again, the key is to look at the assumptions of the business. The variables that result in nonlinear growth are called multipliers. So how does this work? Well, a multiplier is a relationship between two variables that measure how much one variable changes in response to a change in another variable.

Let's take an example from mathematics first. If we double the length of a two-foot square, it also doubles the width of the square to four feet. However, the area of the square quadruples from four to 16 feet squared; the length of the square is a multiplier. Moving the length of the square impacts the width, and the area of the square grows. It's the same way in business.

Further, when we combine several multipliers, they give you even better results. This is how I've achieved these results for my clients and in the example above. Let's take a look at how we stack multipliers together.

Many multipliers applied to an organization's model result in nonlinear growth. For example, consider an organization that has sales of $1 million per month, averaging 40% gross profit with 10% net profit. If the messaging is refocused on the top-selling market, then let's say that revenues go up 10%. Rather than focusing on just a general market, the customer message is clear, accelerating sales for the top market, and revenues go up 10% overall for the company, yielding $1.1 million per month. Margin goes up 1% because the employees have fewer errors to make in delivering the goods and services.

So focusing is a multiplier that results in higher revenue and profit, but my clients haven't achieved those results on just one multiplier. We stack them to create massive results. A focus multiplier affects what employees can deliver, makes it easier to communicate the value that customers receive. And it exposes more opportunities to make a better product.

In the client example above, we were able to increase the value to the customer while dropping service costs by applying the same work to a bigger value problem. The work is worth more to some markets.

If the value to the customer in the example is improved without any increase in cost to deliver, and the price and the value to the market increased 10% amazing results happen. This is called a value multiplier. The revenue swells from $1.1 million from just the focus multiplier to $1.18 million per month. But the real impact, the true impact, is to profitability because this revenue drops right through because there's no additional cost to deliver it. So, in addition to focusing its messaging, this example evaluated the value provided, creating many multipliers. By evaluating the whole business model, changing the market focus, and the value, profit explodes by over three times to a profit multiplier, that is massive.

Evaluating changes to the base assumptions of a model as volume increases can result in a significant return on investment. This profit is the fuel for faithful leaders to create time and money for creating culture and investing for lasting impact and meaning in their work.

The Momentum Law of Multipliers states that identifying and improving a small set of variables will have a disproportionate effect on the results of the model.

Evaluate your assumptions as you make your model, move with purpose to test it, then measure your outcomes so you can improve and identify more multipliers.

If you want help with this for your business, click to schedule a free strategy session with me.

Go. Make Meaningful Momentum.


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