13 min
What Is Profit, Really? Power of Profitability
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- Entrepreneurship
The simple definition of profit that I find the most useful is this: the income statement calculation of revenue, minus expenses. It can certainly be more complicated than that, but the important thing is that it’s not the same thing as cash flow. Now, how do we apply this to the different kinds of businesses you’re working with?
100% Service based businesses like accountants, attorneys, and graphic designers are largely selling time. Their primary expense is payroll or contractor payments, and the amount of service they’re provided doesn’t change from month to month. Their profit will be measured at the net profit level, which is revenue minus all expenses.
100% Product based businesses like retail have some sort of storefront, brick and mortar or online. They often have inventory, they may or may not have employees, and they may ship to customers. Their profit will be measured at the gross profit level, which is sales minus the cost of buying or manufacturing the item then shipping it. It’s important here to separate direct costs from indirect costs.
What about companies that do both? First, track the product revenue separate from the service revenue. Be patient with the process - none of this is a quick fix!
Go to powerofprofitability.com and get your free copy of the Profit Leaks Checklist and start plugging the leaks!
Music credit: Orange Sunset by One Wave
A Podcast Launch Bestie production
The simple definition of profit that I find the most useful is this: the income statement calculation of revenue, minus expenses. It can certainly be more complicated than that, but the important thing is that it’s not the same thing as cash flow. Now, how do we apply this to the different kinds of businesses you’re working with?
100% Service based businesses like accountants, attorneys, and graphic designers are largely selling time. Their primary expense is payroll or contractor payments, and the amount of service they’re provided doesn’t change from month to month. Their profit will be measured at the net profit level, which is revenue minus all expenses.
100% Product based businesses like retail have some sort of storefront, brick and mortar or online. They often have inventory, they may or may not have employees, and they may ship to customers. Their profit will be measured at the gross profit level, which is sales minus the cost of buying or manufacturing the item then shipping it. It’s important here to separate direct costs from indirect costs.
What about companies that do both? First, track the product revenue separate from the service revenue. Be patient with the process - none of this is a quick fix!
Go to powerofprofitability.com and get your free copy of the Profit Leaks Checklist and start plugging the leaks!
Music credit: Orange Sunset by One Wave
A Podcast Launch Bestie production
13 min