How Profitable are You?
P = S-E
Profit is the secret of business success.
Work the formula and you’ll have amazing profits. Ignore it and your business can go under quicker than you ever imagined.
It’s a simple formula – one I can’t take credit for. But I’ve seen it in action over and over and it’s never wrong.
P= S-E stands for profits equals sales minus expenses. Sound simple enough? It is, but there are tons of business out there who are failing because they ignore the equation. Others struggle along unsure why they are having so much trouble.
Let’s look at it.
P for Profits isn’t the amount of money you bring in. It’s the amount you have left over after you’ve paid out all your expenses.
S = Sales or revenues. It’s all the ways you bring money into your business. Product sales, services, training – whatever you offer. You can make more money by generating more sales.
E = Expenses. This is the magic area that makes or breaks you. If you can control or reduce expenses you increase your profit margin. Many businesses do things in an expensive way – or a non-profitable way. You want to maximize sales and minimize expenses. If your expenses are greater than your sales – you may have lots of money coming in, but you’re not making any money. You may actually be bleeding it out.
So how do you control expenses? Starting at the beginning is the easiest. When you build your business right with a profitable strategy plan, it will flourish.
If you already have a business but see a low-profit-margin it will be harder… but it’s not impossible to fix.
Here are some considerations:
- Location – Is your rent/lease going to eat all your profits? Is there a way to control or reduce it?
- Pricing – Price products and services based on your location and the kind of client you want to appeal to. If you’re looking at a high-end location but a budget or modest client base that’s a giant red flag. Either raise your prices or change your location.
- Labor – staff is your most expensive overhead. Don’t add more staff members until the existing staff cannot keep up with the demand. Book farther out instead of adding more staff. Make sure your pay scale is within your budget. You may need to nudge prices up to make labor costs fit into your cost-of-goods-sold formula.
- Consider virtual assistants or freelancers for bookkeeping, web related work, or legal services. They have their own office space, supplies and equipment. And you only pay them for services rendered.
- Be very aware of marketing costs. Marketers are always happy to help you. You need to know where/how clients find you and focus on those. People get duped into adding every paid form of web support out there: Yelp, Google, Facebook, etc… It gets expensive fast.
- Focus on evergreen content. This is marketing information you can use, cross-post and re-use.
- Consider investing in a Key Message Copy Platform. This document provides you with a diversity of customized messages. It may include articles, emails, etc that you can implement into your marketing. You buy it once and can use and re-use.
- What will it do for me? Ask yourself this for any upgrade or purchase. How will it enhance your profit margin? A fancy new home office isn’t going to do a thing to bring more clients in your door.
Focus on building sales and controlling the expenses. The enhanced profits will surprise and delight you.