Free tool
What is one per cent actually worth?
Seven things move a business: what you charge, how much you sell, what it costs you, what it costs to keep the doors open, and the three day counts that decide where the money sits. Move any of them one per cent and this shows what it does to profit, to cash, and to what a lender would lend you against the result.
Profit and cash levers
Worked from figures entered by the reader. Indicative only, and not advice of any kind.
| Lever | Profit | Cash | Capacity |
|---|---|---|---|
| Price+1% | $42,000 | $36,000 | $145,000 |
| Volume+1% | $17,000 | $11,000 | $60,000 |
| Cost of sales1% better | $24,000 | $24,000 | $84,000 |
| Overheads1% lower | $13,000 | $13,000 | $45,000 |
| Debtor days1 day faster | – | $11,000 | – |
| Stock days1 day less | – | $6,000 | – |
| Creditor days1 day longer | – | $6,000 | – |
The days levers release cash once and move borrowing capacity by nothing, because a one-off release is not earnings. Capacity moves when profit moves.
Profit
$97,000
Added across every lever.
Cash
$109,000
Including the one-off working capital release.
Borrowing capacity
$335,000
At 1.50x, 9.0% and 7 years.
Operating profit becomes
$541,000
From $444,000.
Profit uplift
21.9%
On the profit you make today.
Price rise could shed
2.3%
Of your volume, and still leave you level.
- The same percentage on price and on volume, and price is worth more. It always is: a price rise costs nothing to produce, while extra volume carries the cost of the goods and drags working capital along behind it. That gap is the single most useful thing on this page.
- A price rise of 1% could lose you up to 2.3% of your volume and leave you no worse off. Whether your customers would actually walk is a question this arithmetic cannot answer, but it tells you how much room you are working with.
Indicative only, on the figures you entered. Each lever is shown on its own, so the total assumes they do not work against each other, and in a real business some of them will. The capacity column is arithmetic on your own numbers at the settings above, not a lending decision and not an offer of finance.
The one idea
Price beats volume, and it is not close.
Put your prices up one per cent and, if nobody leaves, every cent of it is profit. You did not buy more, make more, deliver more or employ anyone else. Sell one per cent more instead and you had to produce it first, so only the margin survives.
On a forty per cent margin that makes price two and a half times the lever volume is. On a fifteen per cent margin it is nearly seven times. The thinner the margin, the more lopsided it gets, and the businesses with the thinnest margins are usually the ones working hardest on volume.
None of which says a price rise is easy. It says that if you are going to spend effort somewhere, it is worth knowing what each option pays before you pick one.
The method
Each lever, and why it lands where it does.
| Lever | How it is worked out | Why it behaves this way |
|---|---|---|
| Price | Revenue multiplied by the rise. Nothing else moves. | Every cent reaches the bottom line, because producing the goods did not get more expensive. This is why it beats everything else at the same percentage. |
| Volume | The extra revenue, multiplied by the gross margin. | You had to buy or make the extra first, so only the margin survives. The extra trade also drags stock and debtors along with it, which is why its cash is worse than its profit. |
| Cost of sales | The cost base multiplied by the improvement. | A cost not incurred is profit and cash in the same period. Two points of buying is often available where two points of price is not. |
| Overheads | Overheads multiplied by the improvement. | The same arithmetic, on a smaller base in most businesses. Worth knowing which of the two bases is larger before deciding where to spend the effort. |
| Debtor days | A day of revenue, for each day faster. | Cash only. The sale was already made and already counted; you are being paid for it sooner. |
| Stock and creditor days | A day of cost of sales, for each day. | Cash only, and both are one-off releases. Holding less stock frees money once; so does paying suppliers a week later. |
Price
- How it is worked out
- Revenue multiplied by the rise. Nothing else moves.
- Why it behaves this way
- Every cent reaches the bottom line, because producing the goods did not get more expensive. This is why it beats everything else at the same percentage.
Volume
- How it is worked out
- The extra revenue, multiplied by the gross margin.
- Why it behaves this way
- You had to buy or make the extra first, so only the margin survives. The extra trade also drags stock and debtors along with it, which is why its cash is worse than its profit.
Cost of sales
- How it is worked out
- The cost base multiplied by the improvement.
- Why it behaves this way
- A cost not incurred is profit and cash in the same period. Two points of buying is often available where two points of price is not.
Overheads
- How it is worked out
- Overheads multiplied by the improvement.
- Why it behaves this way
- The same arithmetic, on a smaller base in most businesses. Worth knowing which of the two bases is larger before deciding where to spend the effort.
Debtor days
- How it is worked out
- A day of revenue, for each day faster.
- Why it behaves this way
- Cash only. The sale was already made and already counted; you are being paid for it sooner.
Stock and creditor days
- How it is worked out
- A day of cost of sales, for each day.
- Why it behaves this way
- Cash only, and both are one-off releases. Holding less stock frees money once; so does paying suppliers a week later.
A worked example
One per cent on everything, on a $4,200,000 business.
Cost of sales at 58.0% of revenue, $1,320,000 of overheads, and 52 debtor days. Seven improvements nobody in the business would argue with, applied at once.
| Lever | Profit | Cash | Capacity |
|---|---|---|---|
| Price+1% | $42,000 | $36,000 | $145,000 |
| Volume+1% | $17,000 | $11,000 | $60,000 |
| Cost of sales1% better | $24,000 | $24,000 | $84,000 |
| Overheads1% lower | $13,000 | $13,000 | $45,000 |
| Debtor days1 day faster | – | $11,000 | – |
| Stock days1 day less | – | $6,000 | – |
| Creditor days1 day longer | – | $6,000 | – |
The days levers release cash once and move borrowing capacity by nothing, because a one-off release is not earnings. Capacity moves when profit moves.
Profit
$97,000
Across every lever.
Cash
$109,000
Including the one-off release.
Borrowing capacity
$335,000
At 1.50x, 9.0% and 7 years.
Look at the price row against the volume row. Same one per cent, and price is worth more than twice as much. Then look at the three days rows: real cash, and not a dollar of extra borrowing capacity, because a one-off release is not earnings.
What this does not cover
- Whether your market would actually accept the price rise, which is the assumption the whole page rests on
- Interaction between the levers, since each is shown on its own and the total assumes they do not fight each other
- Tax, capital spending and loan repayments, all of which take cash from the same account
- Seasonality, which can swing a working capital position hard inside a single year
- Anything about your security, your existing commitments or your trading history, which is most of what a credit team actually looks at
Want the capacity worked properly?
This is a sensitivity on figures you typed. The Debt Capacity Assessment models a real facility into your actual financials, with every existing commitment consolidated and the covenants tested. $1,850 · 5 business days.
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Common questions
Because a price rise costs nothing to produce. Put prices up one per cent and every cent of it reaches the bottom line. Sell one per cent more and you have to buy, make or do one per cent more first, so only the margin survives. On a forty per cent margin that makes price two and a half times the lever volume is, and the thinner your margin the wider the gap gets.
That is the one question the arithmetic cannot answer. What it can tell you is how much room you have: at a forty per cent margin, a five per cent rise could shed about eleven per cent of your volume before you were worse off. Whether your customers would actually walk depends on your market, and you know that better than any calculator.
Because collecting faster or holding less stock releases cash once. It is a one-off, not earnings, and a lender lends against earnings. The money is real and worth having, and it will not increase what anyone will lend you. That distinction catches people out, which is why the table shows it rather than hiding it in a footnote.
The extra profit divided by the cover ratio you chose, converted into a facility at the assessment rate and term you chose. It is the same arithmetic as our serviceability calculator, run in reverse. Change any of those three settings and the answer moves a long way, which is exactly why they sit on the page rather than being assumed for you.
No. It is arithmetic on the figures you typed, at settings you picked, and it takes no account of your security, your existing commitments, your trading history or anything else a credit team looks at. It is not a credit assessment and not an offer of finance. Lending decisions rest with the lender.
You can, and the totals add up as though the levers do not interfere with each other. In a real business some of them will: cutting cost of sales one per cent while raising volume one per cent may be two different conversations with the same supplier. Treat the combined total as the ceiling rather than the forecast.
The levers still work and the dollars are still right. What disappears is the uplift percentage, because there is no positive profit to express it against. The tool says so rather than showing a meaningless figure.
General information only. Indicative, not a credit assessment, and not an offer of finance. Lending decisions rest with the lender and depend on your circumstances and their criteria. The capacity column is a sensitivity on figures you entered at settings you chose, not a lending decision.