In order to really keep growing my business, what should my profit margin be?
If you really want your business to be successful, then you are going to want a high profit margin.
If you don’t care so much about a successful and profitable business (which should be no one!), then it really doesn’t matter what your profit margin is. Right?
What is a profit margin?
Before we talk about what it should be, let’s actually talk about what a profit margin really is.
It’s the percentage of revenue left over after your business expenses are paid.
For example, you have $10,000 in revenue and you have $4300 in expenses for the month of September.
Profit Margin = 5700/10000 = 57%
In this example, the profit margin is 57%. That is a really nice, healthy profit margin.
The profit margin is what you use to pay yourself and your taxes and anything else you want to buy after the business expenses are paid.
What is a healthy profit margin?
A healthy profit margin is one where you have more than enough money left over to pay your salary, pay your taxes and still have money in the bank for your business.
Using the example above, can you pay yourself, your taxes and still have money left over from that?
Or do you need to make more money?
Remember, it’s always easier to make more money than it is to lower your expenses.
A healthy profit margin is going to be different for every business though.
Yes I can give you a template to follow, but this is a part of your business that really depends on you. The factors that I put into a template aren’t always going to be the same for every business.
How can I figure out a healthy profit margin for my business?
One of the easiest ways to figure out what would be a healthy profit margin for your business is to start with the numbers of what you need to pay each month.
What are your total operating expenses for your business? How much money do you need to put out to keep the doors of your business open?
Then, how much money do you want to pay yourself? How much money do you want to receive as a salary for your business? Make sure you always include enough to pay your personal bills and give yourself some extra for savings and anything else you want to buy for yourself.
Next, take your salary and multiply that by 20%, that is about how much you will owe in taxes for your salary.
Finally, how much money do you want to have left over in the bank at the end of the month?
Add those 4 numbers together and that’s how much money you need to bring in for the month in your business.
Operating expenses for a month: $2300
Monthly Salary: $5000
Salary Taxes: $1000 ($5000 x 20%)
Money left in the bank: $2500
In this example, the business would need to generate at least $10,800 to meet the goals that were set.
There isn’t a cookie cutter formula
For a profit margin, there isn’t a cookie cutter formula that is going to work for every business.
You have to use the prompts and example above to work backwards to get your profit margin for your business that works for you.
Then any money you make above and beyond your goal just keeps adding to your profit margin.
What do you want your profit margin to be?