A lot of small business owners don’t fuss over their profit & loss statement (P&L) because they think there are just numbers, and there is nothing that they can really do about it. But I am going to show you that there are 3 numbers that you CAN control and what you can do about them.
In a quick overview of the P&L, you’ll find 6 key numbers
2. Cost of goods sold (COGS)
3. Gross Profit
4. Gross Profit %
5. Overhead Costs
6. Net Profit
The only 3 numbers that you can control are the REVENUE, COGS, & OVERHEAD.
Building more revenue through more sales is obvious but there are several ways that you can do that. Finding more customers is the hardest and most expensive because you have marketing expenses and commissions to pay. More revenue can also come from increasing prices, more transactions, upsells, down sells, cross sells, referral commissions, and bundling. Finding more ways to build revenue can grow your profit.
The cost of goods sold is everything involved in delivering your product or service. Cost of materials, vendor pricing, shipping cost, and production labor. But the biggest problem lies with discounting. If you sell 100 widgets for $30 profit each, you would generate a net profit of $3 thousand dollars. But if you discount your profit to $20, now you would need to sell 150 widgets to generate $3 thousand dollars in net profit. For a measly 10% discount, you now have to sell 50% MORE… just to break even. When was the last time you saw someone offer ONLY a 10% discount??? Most businesses offer 25% - 50% discounts!
However, the good news is this works in reverse as well. If you let me help you INCREASE the price of your widget by 10% and then help you sell it for $110, your COGS is still $70… now you’re making $40 in profit instead of $30. That’s a 33% INCREASE in your profit on an easy-to-implement, 10% price increase.
Overhead costs are all the other expenses you have coming out of your business accounts. Rent, utilities, non-COGS payroll, supplies, and other items you run through your business. Don’t get me wrong, I’m all about reducing the earnings to lower your taxes but it affects your profit. Your ‘Lifestyle Expenses’ like your car, cell, dry cleaning, memberships, etc. can kill your profit. Take time to audit what you are actually spending through your company and see if you can reduce the costs. Credit cards and loans are a great place to reduce interest rates. And there are many expenses that are unnecessary that can be renegotiated, reduced, or removed.
Controlling your P&L is an important place for you to focus on increasing your profit. These incremental changes can lead to exponentially more profit. Auditing your revenue streams, COGS, and overhead is a great place to start. If you want some help with your business, I’m happy to show you more ideas.
Marcia Riner is a business growth strategist and the CEO of Trajectory Consulting. She helps small business owners to increase profits, drive growth, and to be in a great position to sell it someday. Together, she helps you create your roadmap to improve, scale, and maximize the value of your company. Check out her website @ www.TrajectoryBiz.com
In her book The Profit Accelerator, she provides 12 Ways To Dramatically Increase
Your Revenue, Profit, And Value. Download her book for FREE at https://trajectoryprofits.com/book-download/