I have always been amazed by the Power of Compounding, so I did the math on an analogy for you this week, that I just had to share with you! I was reminded of it in a book I read recently called THE COMPOUND EFFECT by Darren Hardy. Darren is a very successful entrepreneur who was the publisher of Success Magazine, and in his book he gave the analogy of the penny. To illustrate, let me ask you a question:
Well, if you’re like me, you’ve heard that analogy before and you know which one to pick? But logic and gut feeling probably tells you to go for the sure thing: $3.1 Million dollars! The power of compounding, though, makes such an impact on it, that on Day 31…that penny compounds to over $10 Million…and your gut feeling would have been wrong.
That’s an old analogy and you may have heard it before? So, I thought I would apply it to something that you and I could probably relate to more, especially if you’re in sales, like an Insurance Agent or Financial Advisor.
To demonstrate I’ll tell you a story: Let’s take, for example, a producer named Sam who is going along earning $60,000.00/year. He’s pretty happy about that, but he wants to figure out a way of increasing his sales income.
We’ve always said that if a sales person wants to increase their income, he or she must increase one or more of three things: the number of Closing (or Conversion) Interviews, the Closing Ratio, or the Average Commission (or Case Size). The bottom line is, “You have to ask more people to buy, get more of them to buy, or sell more expensive products.”
After doing some analysis, Sam was able to figure out that he had an average of 10 Closing Interviews per month, a 50% Closing Ratio, and his Average Commission was $1,000.00, which totals $60,000.00 per year. Then, he did some projections if he increased each of these numbers by just 10% and here’s what happens:
That’s a pretty big number, but you may not think it’s very impressive if you were to go from $60,000 to $78,000? But that’s an increase of 33% and here’s what happens if he continues that pace:
What amazes me is what happens on Year Five! By just making small increases of 10% on those three vital signs – year after every year for a period of five years – his annual income could…
Go from $60,000.00 to $249,882!
That to me is shocking, but it’s the Power of Compounding!
A big part of Activity Management is measurement and a big part of measurement is compounding. I hope that you get a lot out of this idea and you are keeping score of those 3 Vital Signs: Closing Interviews, Closing Ratio, and Average Commission or Case Size. Hope you have a great week…and I’ll see you again next week!