A Breakdown of Profit Percentages: Why Is It Important and What Should Your Profit Be?Jul 26, 2021
In this episode of Profits + Prosecco Podcast, we're going to be talking all about profit percentages and what yours should be. This is a question I get asked all the time, especially by my bookkeeping clients so let's break this down and get into it. Stay tuned!
But before we dive right in, welcome to the Profits + Prosecco Podcast! I’m your host, Katie Ferro, CPA, reformed rule follower, creator of Booked Out Bookkeeper, mom to 3 little ones, and Kajabi enthusiast.
This podcast is for entrepreneurs who desire to change their life through their profitable business, and for bookkeepers and accountants who want to escape the 9-5 and start a simple scalable bookkeeping business like I did.
Bookkeeping increases profits and profits change lives. So pop some bubbles and let me show you how!
In this episode, you'll learn everything you need to know about profit percentages and why it's important. For even more juicy details, listen to ALL of episode 34 of the Profits + Prosecco Podcast on your fave streaming platform.
What even is profit?
Long story short, profit is sales - expenses.
It’s basically what you're left with after you’re done paying the costs of doing your business. You can bring in $20,000 in sales buuuut have $18,000 worth of expenses by the time you're done.
All of the costs of owning a business really add up between software, subscriptions, office supply, materials, a team, bank fees, coaching, and the list goes on and on.
Because of this, you really want to be paying attention to profit because that's the reason you're even in business. If you're not making a profit, you don't really have a business in the long term, right?
Profit should be at the forefront of your mind and should be something you're constantly calculating.
The importance of profit percentages.
What's SO important to understand about profit percentages is what they are and what they mean. A profit percentage is your profit divided by your sales. You take your sales minus your expenses to get your profit and then you take your profit divided by your sales to get your profit percentage (don’t get the two confused).
This will tell you for each dollar of sales that you had, how many cents per dollar you got to keep as profit. It's really important to look at the dollars of profit and how much effort you individually put in to make that happen.
Getting your profit percentage is where you'll be able to see if things are working or not.
The more you grow, the more things cost.
If you’re running a bookkeeping business and you leverage a team, as you go from doing everything yourself to actually getting the help, you're going to have more costs but your team is going to grow.
This isn't necessarily a bad thing because yes you might keep less per dollar of sale, but you also might be able to take on 3 or 4 new clients.
You might see a drop in your profit percentage, but you'll also see a spike in your income.
A Breakdown of Profit Percentages: Why Is It Important and What Should Your Profit Be?: The Bottomline
I hope this episode helps you understand the importance of profit percentages. If the way you're doing your business isn't changing then it's great to watch your profit percentage increase. If you're changing your business model and following new strategies, then it's okay to watch your profit percentage go down as you scale. Keep that in mind!
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