3 Reasons Why You Are Not Making A Profit
There are certain milestones every business owner hopes to experience and then never forgets. The first sale you make, your first hire, and the first time you turn a profit. It is a big moment that we hope to celebrate, feeling optimistic for the future.
A big moment, yes but not every business owner experiences these moments consistently. Maybe one month you did turn a profit but you had trouble maintaining the profit. This can be discouraging to business owners as they struggle to optimize their organization.
If this resonates with you, then it is time we talked about the reasons why you are not making a profit.
In this article, we will discuss the 3 big reasons and how you can craft a plan to turn things around. Consider the following…
Your Expenses Are Too High
A common reason business owners struggle to turn a profit is their expenses are too high. This can be difficult to determine depending on the type of business you run. So a good place to start is to do a few calculations to confirm you are profitable with every sale you make.
If not, then you may need to consider the reasons why you are losing money with every sale. Is it because your workers frequently go over their budgeted hours? Do you use premium material but charge discount prices? (discussed in point 2) Once you rework your expenses so that you are profitable with every sale, you can confidently move forward.
If you are profitable with every sale, then you should consider your administrative costs. These will be things that may not go directly into your sales but support the overall operations of your business. This could be things like contracted accountants, telephone plans, travel fees, or marketing expenses.
Consider where the bulk of your charges are coming from and how much you would need to cut back in order to generate your goal profit margin.
Your Prices Are Too Low
Let’s say you have cut your expenses as much as possible but you still are not squeezing out a profit. This may be a sign your prices are too low. While low prices can help you increase your sales, that does not necessarily mean they will increase your profits.
Consider why you are charging your stated prices. Are you trying to compete or have you calculated these amounts? It is important to calculate your prices based on your operations, not what someone else is charging. This can work in your favor but it can also lead to bigger issues when trying to become profitable.
When calculating your prices, consider the following:
- The costs it takes to generate one sale
- Administrative costs that do not go directly into the product or service
- Additional considerations like profit, taxes, and miscellaneous expenses
Yes, when calculating the prices for your business, profit should be part of that calculation. Which leads us to the 3rd reason you are not making a profit.
You’re Not Implementing The Truly Profit Plan
The truly profit plan is designed to make profits as much of a priority, if not more so, as expenses. When we are calculating our profit, we subtract our expenses from our revenue then whatever is left over is profit.
The Truly Profit Plan flips this and subtracts profit from your revenue – profit is set aside – then whatever is left over is the budgeted expenses you have to work with.
With every dollar you earn, there is a predetermined percentage that moves each dollar into a separate bucket. There are multiple ways to organize this, so let’s say:
- Profit: 20%
- Owner’s Pay: 20%
- Tax: 10%
- OPEX: 50%
Let’s say you receive $100,000 in revenue, based on the percentages listed above you should have the following buckets:
- Profit: $20,000
- Owner’s Pay: $20,000
- Tax: $10,000
- OPEX: $50,000
This means you have a profit of $20,000, congratulations! Now, the tricky part is to organize your expenses. You have a budget of $50,000. If this seems improbable then you either need to decrease your expenses or increase your prices.
With The Truly Profit Plan, you are guaranteeing yourself profitable months plus a guided budget that can scale as your business does. If you were to have a slow month of sales, the Truly Profit Plan will accommodate this change to provide you with a new budget – but consistent profit.
It is important we celebrate milestones in business. It is far too easy for us to get caught up in the day to day operations and forget why we started this work in the first place. So celebrate the wins and take note of that first month you generated a profit. Then let’s keep it up!
Let’s continue to generate profit every month so you can build closer to your business goals.
Grab The Truly Profit Plan Guide below. This guide will walk you through the steps of implementing the plan into your business.