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Tips and stories to add value to you and your organisation

Sensitivity Analysis Is Fun!

14 January 2018

Little things add up. If we park our car away from the supermarket doors every time we shop we will walk an extra few miles each year. If we stop putting sugar in our tea we will lose weight. 

Making small simple changes can add up to a big benefit to our health.

We are sensitive beings and it’s easier to keep nudging things in the right direction than to make a commitment to buy lycra shorts and run 10 miles a day. Maybe we can start by wearing lycra to the supermarket and get used to feeling more healthy? Perhaps I will get some daygo running trousers and report back at a later date!

For now though we can look at our business and see where we can nudge it.

Sensitivity analysis means modelling the dynamics of income and expenditure and seeing what effect changing the numbers has on our profit.

For example, if we want to earn more and work less we can play with the numbers and see what happens. If we have 100 clients a year and charge each one £50 then our income is £5,000. What happens if we had 80 clients and charged them £60? Well our income drops to £4,800 but we have freed up 20% of our time. We only need to see 2 clients at £100 and we have the same income as before, but with less effort. 

People often price to what they perceive the market rate to be. Charging £50 is a  happy sort of round number, but our clients might be willing to pay £60 as they perceive that’s still great value.

Once we start to play with the numbers and model the 2018 version of our business we create new opportunities for ourselves.

Sensitivity analysis allows us to find the sweet spot that maximises income and opportunity and we can decide what is important. Less income and more time might allow us to do some training, or to give us thinking space to develop new products. 

When I looked at my own business I realised that using Skype meant I could reduce my rates, save on travel costs and be left with a higher net income, for some specific clients.

All we need to do is compile a spreadsheet and change the numbers around to create different scenarios for us. It’s productive, thought provoking and fun!

So, this week we can all take time to model our business and see what we can do differently for 2018.

Happy analysing!

Next week: The Banana Of Progress!