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Are you under the impression that the more you sell, the more profit you'll make? That's not quite how it works. The truth is that total sales in business doesn't mean anything when it comes to calculating profit. You could have a million dollars in sales, but if your expenses are high, your profit could be minimal, virtually negating the million dollars in sales.
Sales - Expenses = Profit
When measuring profit, total sales aren't always the end-all-be-all. Reducing expenses can be just as important, if not more so. Unfortunately, it's not uncommon to think that boosting sales will automatically improve your bottom line, but that's not the case.
A similar example of this is when one desires to lose weight. Elaborate plans are made to commit to a new workout routine and get new workout attire, but more effort is needed toward improving healthy eating habits. (Okay, maybe this is just me). The gym may not even need to be as big of an emphasis if I just took the time to meal prep, make more green choices than red, and reach for a bottle of water instead of my third Iced Coffee 🙃
Think about the effort that goes into your sales funnel to increase revenue versus the effort that goes into refraining from buying a $30 bag of yellow crinkle paper because you only have red, and that's not a Spring color. If you skip that purchase, you have $30 more in your business bank account. If you change how you view profit, you will treat that near-miss expense as making $30.
Imagine if you did that five more times during the month. Thinking twice about the necessity and legitmacy of a purchase before swiping the card could save you from needing to brainstorm another quick money grab on Friday night.
So, what's the solution? It's simple - focus on reducing expenses rather than necessarily increasing sales. By streamlining your operations and cutting costs wherever you can, you'll be able to improve your profit margins, even if your sales numbers don't skyrocket. So, don't get caught up in the numbers game.
Focus on what really matters - the bottom line.
Generating more sales is not the only way to make more money. By managing your business's incoming and outgoing expenses, you can create profit that will help you achieve financial freedom! Investing some time into tracking cash flow is worth it - think about what kind of reward awaits at the end: buying yourself something nice, taking care of family needs, paying off debt or ticking an item off your bucket list!
Balance your business books at the end of every month to review your sales, expenses, net profit and metrics. I utilize Paper + Spark spreadsheets to assist me in organizing my business numbers.