Wednesday, November 2, 2011

Profit Margin

On my last note, I discussed the importance of knowing your break even. Let's say you got that number; let's say you have a clear understanding of what you need to make, sale and accomplish on a daily, weekly and monthly basis to cover expenses, payroll and some variables.

The next step is to plan objectives and work on your Profit Margin.

What is Profit margin: it is the ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. Now the fun begins, set your baseline of profitability and set goals to achieve, watch your profit margin grow. Use the SMART concept: S specific, M measurable, A attainable, R reasonable and T for Time.

Set your goals with an specific outcome in your industry, not too high or too low, set a reasonable space and time to accomplish it and ensure is trackable and measurable to analyze results. Lots of people have a hard time setting goals; why, because you do not have a break even established and do not know the profit margin of the company.

Dedicate some time to analyze these numbers and the AHA moment will come. Being in business will be fun again.

Many people hear the profitability word, many are selling; "we can get you to be more profitable" if you buy X or Y or use social media; they do not even know what your numbers and goals (if any)are... you are the only one who can determine these facts. Making a profit is one thing; knowing the basics is another. Be aware of quick fixes, fad and trends, just because everyone is doing it. Remember how everyone was refinancing their mortages and buying more than they could afford a few years ago, yes everyone was doing it. Do not fall into that same trap. Instead, learn, read about what is working. Dedicate resources on knowing your business from the basics and up. Ask for help if necessary.

Remember Profit is the one thing you can't get more of.

Knowledge is power.