There are five levers in a business that produce profit: leads, conversion rate, number of transactions, average sale value and margin. Every campaign, every hire, every price change works through one of them. Owners often spend most of their energy on the first, which is the hardest and most expensive of the five.
The arithmetic shows that small movements in all five levers multiply rather than add.
What is the model?
The model is a chain that turns activity into profit. Leads multiplied by conversion rate gives you customers. Customers multiplied by number of transactions and by average sale value gives you revenue. Revenue multiplied by margin gives you profit.
Written as a line: leads × conversion × transactions × average sale × margin = profit.
Revenue and profit are the outputs of the five levers. Owners often watch the outputs monthly without writing down the five numbers that produce them.
Why do the levers multiply?
Take round numbers, chosen to show the arithmetic rather than to describe any particular business. A firm generates 1,000 enquiries a year and converts a quarter of them, so 250 customers. Each buys 2.4 times a year at an average of £800, which is £480,000 of revenue. At a 12 per cent net margin that is £57,600 of profit.
Now add ten per cent to each of the five. Leads become 1,100. Conversion becomes 27.5 per cent, so 302 customers. Transactions become 2.64 a year. Average sale becomes £880. Margin becomes 13.2 per cent. Revenue is 302 × 2.64 × £880, or roughly £702,000, and profit at 13.2 per cent is roughly £92,700, a 61 per cent increase in profit.
What do those ten per cents mean on the ground? A hundred more enquiries is about two a week. Conversion from 25 to 27.5 per cent means winning one more quote in forty. Average sale from £800 to £880 is one extra item, or a price review. Margin from 12 to 13.2 per cent is one supplier renegotiated and one loss-making job declined.
What moves each lever?
Leads
Build a referral request into the end of every job, run one channel properly rather than four occasionally, and reactivate customers who have not bought for eighteen months.
Conversion
Follow up quotes, quote faster, and qualify harder so you stop writing proposals for people who were never going to buy.
Transactions
Give customers a reason to come back with a date attached, such as service plans, annual reviews or seasonal reminders, and ask what else they need while you are already there.
Average sale
Offer a better option alongside the standard one, use bundles, remove the cheapest tier, and make sure the person quoting is not discounting to avoid an awkward moment.
Margin
Work on price, supplier terms, and job costing good enough to identify the work that loses money so you can stop doing it. Of the five this is often the fastest to move.
The levers affect each other
The levers are not fully independent. Push price hard and conversion often falls. Push lead volume and lead quality tends to fall with it, so conversion drops. Push transactions with heavy promotion and margin drops.
Move one lever at a time, with a measure attached, and watch what happens to its neighbours. If a five per cent price rise costs you two per cent of conversion you are comfortably ahead. If it costs you fifteen, you have learned something important about your market.
How to use it this month
- Write down your five numbers for last year. Estimate where you must, then go and find the real figure.
- Multiply them and check the answer against your accounts. If the chain does not reproduce your actual revenue, one of your numbers is wrong.
- Model ten per cent on each lever individually. Which single one produces the most profit for the least effort? It is often one of the two on the right.
- Pick the cheapest lever and run it for ninety days. One lever, one measure, one owner, everything else held still so you can read the result.
- Start tracking the numbers monthly — especially conversion, which is often the fastest to move.
- Review the chain quarterly, then choose the next lever.
The mistakes to watch for
The first mistake is only ever pulling the first lever. More enquiries get the same conversion rate applied to them. It is the most expensive route to the same profit.
The second is not knowing the five numbers at all. If you do not know your conversion rate you cannot tell whether the marketing was wasted or the quoting was, so you keep spending on the wrong one.
The third is moving all five at once. In ninety days you have no idea which change produced the result, so you cannot repeat it or defend it when it stops working.
Questions to ask yourself
- Out of 10, how confident are you in your conversion rate — and where would the number come from if you had to produce it today?
- Which of the five levers have you not touched in two years, and why that one?
- What would a ten per cent price rise cost you in lost work, and do you know that or are you assuming it?
- If you could move only one lever this year, which would you choose, and what does that choice say about where you are comfortable?
This model underpins the profit work in Business Coaching. Read it with the Value Ladder, which is how you lift transactions and average sale without finding a single new customer, and State Your Price and Shut Up, which covers holding your price in the conversation. The full set is in the Mindsets library.
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Frequently asked questions
Which of the five levers should I move first?
Often one of the two on the right, average sale or margin, because they apply to customers you already have and cost nothing but a decision and a conversation. Leads is the leftmost lever and the one everybody reaches for first, and it is also the slowest and most expensive to move, because you are paying to find strangers and then converting them at whatever rate you already convert at. The better sequence is to fix what happens to the enquiries you get before you buy more of them. Model ten per cent on each lever separately, and pick the one with the largest profit effect for the least disruption.
What if I do not know my conversion rate?
Then that is the first job, because without it you cannot tell whether a bad month came from the marketing or from the quoting, and you will keep spending on the wrong one. Start crudely: count the enquiries that arrived last month and the ones that became customers. A rough figure you review monthly beats a precise figure you never produce. Then check the whole chain against your accounts by multiplying your five numbers together. If the answer does not reproduce your actual revenue, one of the five is wrong.
Does raising prices always reduce conversion?
Often, to some degree. The levers are not independent, so a price increase does tend to cost some conversion, and the only way to find out how much in your market is to make the change with a measure attached and watch what happens over a quarter. What protects you is holding the number once you have set it: much of the damage owners attribute to a price rise comes from discounting it away in the meeting. Move one lever at a time so you can read the result rather than guess at it.