One of my favorite programs is called, “The Profit” which airs on CNBC. In this show the CEO and multimillionaire Marcus Lemonis helps struggling entrepreneurs by injecting his expertise and own money to invest in these businesses and make them profitable.
One thing I hear in the show over and over is, “this business generated $4.2 Million last year but had a loss of $30,000”.
And that tells me that many, many entrepreneurs do not know the difference between generating revenue and cash and making a real profit in their business.
It isn’t the money you make, it’s the money you keep
How can a multi-million-dollar business post losses? Because having sales doesn’t mean you will have anything left after all of your liabilities. Just because they sold millions doesn’t mean there will be anything left over after they pay salaries and expenses and service any debt the business may hold. This is why I am so passionate about making sure your pricing, expenses, and offers are right to make and keep money. More profit means more growth, more impact, and more service.
Business revenue and cash
Sales generated for your products and services are revenue and the money you collect is business cash. If you receive ongoing payments for services or reorders, those are revenue that we can project for the month they are due. Basically, every dollar that comes into the business is business cash. The more you bring in every month, the more sales you are making. That is the first half of the equation.
The key is to have profit, that amount of money left over every month.
“Gross Profit” and “Net Profit”
Gross profit is the difference between your cost to create your offer, product or service and your retail price you sold it for. For example, your widget costs $7.00 to make for materials and labor, and you sell it for $15.00. Your gross profit is $8.00 per widget. This is the number many entrepreneurs rely on for pricing and for expenses. But it’s the wrong one.
What’s missing in this number is the amount of the “hidden” expenses, such as all of your operating expenses of rent and utilities, plus taxes.
Let’s say your operating expenses add an additional $2.00 to the cost of each widget, your net profit is really $6.00 each. That $6.00 is the one we want to know, and it is the one to work with when we look at growing the business.
Start by ensuring every product or service is profitable
Do the quick math and make sure that everything you sell is generating a profit, an amount left over after everything. Remember that your profits don’t have to be equal, one offer can be 10% profitable and another offer $25%, but each one must be profitable on their own.
You will be well on your way to a profitable and thriving business!