About This Episode
Let’s talk about the P word… Profit! That elusive thing we are all striving to increase in our businesses. I want to help you gain a better understanding of what profit is, how to make your business more profitable, and how to manage and reduce expenses.
Let’s start increasing your business profits!
What we’re talking about
- What is Profit?
- How Do I Make My Business Profitable?
- Tips to Reduce Expenses
What is Profit?
In order to have a good understanding of profit, you have to understand it’s three elements: revenue, costs, and expenses.
Profit is the amount of money left over after you deduct your costs and expenses from your revenue.
Revenue is just a fancy way of saying your income from your business. It’s what you earn from selling your products and services.
Costs are things that are absolutely necessary for you to create your product or service, such as raw materials, outsourced labor, and inventory you purchase to resell.
Expenses is short for operational expenses. This is everything else you spend money on to operate your business.
How Do I Make My Business Profitable?
Now that you know what profit is, you can define strategies that will work for your business.
Increasing revenue might include adding income streams or increasing pricing or the number of customers you have. Or you can reduce costs or operating expenses in order to increase profit. The best strategy is to take a diversified approach and address all three areas related to profit.
Tips to Reduce Expenses
In order to save money, you’ve got to know how much you’re spending. I highly recommend completing a spending audit at least once per year, but ideally every quarter.
In a spending audit, you go through every single expense and categorize it into one of three categories: essentials, conveniences, and everything else. Through this technique, you can create a hierarchy of expenses and figure out what can be cut.
It can be hard to know the difference between essential expenses and convenience expenses. To help you clarify, ask yourself two questions: “Can I live without this?” and “Is there a cheaper alternative?”. If you answered yes to either of these questions, then it’s not an essential expense.
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