As a business owner you must quantify how you make money.
1. To make money we must define our profit points.
The Business Dictionary defines profit point as – A Point in time (or in the number of units sold) when forecast revenue exactly equals the estimated total costs; where loss ends and profit begins to accumulate. This is the point at which a business, product, or project becomes financially viable.
Turning a profit, positive cash flow, financial gain, and in the black are all terms for making money. And the best motivator for keeping your business open. However, wading through data to determine profitability can be tricky. Yet understanding what makes us money and by how much means we must find the profit points of our various endeavors (sometimes called rate of return). If you need more information read, Increasing Profitability 1: Define Your Profit Points.
2. What makes you the most money.
To begin, let’s look at a few industries making the most money or have the highest profit margins. Here are some interesting articles to help you understand how companies make money.
- 16 Most Profitable Small Businesses Entrepreneurs Can Consider Launching.
- The 21 Most Profitable Small Businesses in 2020.
- 6 Low Overhead Businesses You Can Start Before the End of the Year.
- 15 of the Most Profitable Small Businesses Worth Investing In.
Here are the 7 Most Profitable Small Businesses according to National Biz.
- Mobile Businesses.
- Business-To-Business (B2B) Services.
- “Sharing” Businesses.
- Child-Oriented Businesses.
- Real Estate Services.
- Virtual Reality (VR) Businesses.
- Personal Services.
3. What makes you the lest money.
You can call it downsizing, reducing waste, or focusing on core competencies. But whatever the term, sometimes you just gotta let things go. The simplest thing is to make a list of everything your company does that brings in money. Then decide which ones make you the most money and which the least. Then weigh them in regards to the importance of where they stand in everything you do.
In one of my companies, we used to provide damage assessments for insurance companies after natural disasters (of which there were many in Hawaii). They were profitable, but opened us up to heavy litigation. I eventually cut this service after weighing the potential of future lawsuits these opened us up to. To be honest, the little these brought in as potential revenue far outweighed the losses derived in litigation.
4. Weighing income versus expenses.
In the end, the only real way to quantify what will make us money will be discovered over time. We can run revenue estimates, cost analysis, operational expenses, taxes, payroll, business models and insurance costs before we start. But the value of these can only be discovered as we run the company over time. However, having a good business plan helps, but its only over time that we discover what will truly makes us money and what doesn’t.
After starting numerous business ventures, I believe sometimes its really up to trial and error. We start out providing a useful product and service to see how customers respond. Then as we go along we find out how much it costs us to continue operating (as there are always hidden costs and overhead). Over time it will become obvious what actually makes you money and which costs us more than it makes!
As long as we stay focused on the bottom line. Providing a service or product that helps people and makes us money along the way.