understanding profitability

This is Christian business owners simple guide to understanding profitability.  As a Christian business owner, you want to go into business knowing when you will make money.

Let me warn you, there are a few maths included in this article, but I won’t bog you down with formulas.  As a Christian business owner, you must understand the basic figures in your business before understanding how to better run your business and bring it to profitability.

For this article, we are going to stick to three basic numbers and cover them as succinctly as possible.  This is not a lesson in math, but a lesson on understanding business numbers.  No matter what kind of business you are in, if you understand the numbers, you understand your business.

 

Break-Even Point

Many business owners have heard of the break-even point.  It is the point where you sell one more item and you have paid off the cost of starting your business.  Basically, you add up the cost of developing your product or service, add in any costs for employees, sales, customers, etc. Then, you figure up how many of your product or service you need to sale in order to make that money back.

For some companies, this number keeps moving.  Each month, you have new bills, new inventory, new marketing, so it seems that the number keeps moving away from you.  It is frustrating and many business owners find themselves in a loop of never getting a check the first few years of their business.  Don’t do that!

Pick a specific number and stick to it.  Set goals and keep your costs down.  There is no need to buy a huge building at the start.  Start small and stick to your guns.  Once you have reached profitability, then, you can scale larger and grow according to your new profitable status.

 

Customer Acquisition Cost

Customers are the life blood of your business.  These are the people you are trying to help.  The way you serve them makes your business grow.  The key number here is how much money does it take to get one new customer?

When you run ads, buy business cards, attend network meetings, etc. you are putting in time and money towards getting customers.  Once you understand how much it takes to get a new customer, you can use that money to offset the cost of doing business.  You identify what is working and scale up your efforts to get more customers and better profitability follows.

Knowing your customer acquisition cost helps you manage the price of your products as well as identify a good return on your marketing dollars.  Do your best to identify the perfect customer and then find out where they hang out.  That is where you want to put your time and money.

 

Cost of Goods/Production

Every business owner knows these numbers.  These are the numbers that go into creating your product or service.  I want you to keep in mind that time is a number that needs to be included for you as a business owner.  I have seen too many business owners not account for their time and their numbers look good on paper, but the business owner was living in his car!  Don’t do that!

I know business takes sacrifice sometimes, but setting proper goals and sticking to a plan can help you keep your life in check while you grow your business. Sure, you may have to stay at your job a little while longer while you build your business, but that is OK, it is all in God’s timing!

Understand your numbers and do a little research.  You want to lower your costs without lowering the quality of what you are offering.  Sometimes you can make an exclusive deal with a distributor, you can order slightly larger quantities, or you can creatively use what you have.  Identify these numbers and stay on top of them if you want to keep profitability up.

 

Conclusion

Christian business owners need to be profitable if they are going to succeed in business.  If we are not succeeding in business, we can’t help people.  Our goal should be to shoot for profitability by knowing our numbers.  You should know all the numbers in your business as you are starting out and keep an eye on them.

You probably have seen a balance sheet and income statement.  Take time to understand those reports.  If you don’t have them, you can look at your bank account and put them in categories like employee, customer acquisition, cost of goods, overhead, etc.  Just make sure you have the numbers you need to understand for your business presented in a way that makes sense to you.

If these numbers are new to you, get some education.  You can attend college courses, buy a book, or read some good articles online.  Until you understand your numbers, you won’t be able to keep your business moving towards success.

Follow the numbers in your business and you will follow profitability. Click To Tweet