One of the first things we help business owners understand when we start working together is the number of sales they need to make the profit they want.
This is important because it gives you something to aim for rather than taking whatever comes your way or ‘as much I can’.
So what is that magic number for you?
When you know the number to aim for, you can focus your efforts on hitting that number.
You can set targets, communicate the number with your team, and craft strategies to hit your profit goals.
The key here is all about knowing your numbers.
So what are the numbers you need to know? Let’s break it down:
1) Gross Margin
This is the percentage profit you make on each of the products or services you sell. It’s important to determine the average for your business. (I suggest over the last 6 months). Your gross margin is an important foundation upon which your profit calculations rest.
2) Monthly Expenses
What are the average monthly expenses it takes to keep your business up and running? These are the overheads that must be covered. They include everything from rent and utilities to salaries and marketing costs. Again, take an average for the last 6 months.
3) Desired Profit
The final piece of the puzzle is how much profit you want to make. It’s vital to consider both what you, as the business owner, want to see as a return, and what profit the business needs to fund its growth. These two components add up to your total profit target.
Now that we’ve identified the important numbers, let’s work on the calculation. You’ll be taking your expenses and adding to them the profit you aspire to achieve. This total is then divided by your gross margin. The result is the sales figure that your business needs to hit to make the profit you desire. The formula looks like this:
Sales Target = (Expenses + Desired Profit) / Gross Margin
Once you have this target in your sights, focus on it, communicate it with your team, and work out the strategies that will help you reach your sales target.
Start crunching those figures today and watch your profit goals turn to reality.
