While revenues are important, they are NOT the most important number to know.
Your profit is the #1 piece of financial information you need to know and be able to project.
There are two types of profit you need to know.
Let’s clear it up a little:
Gross Profit: (how much money your business earned after paying the costs that are related to manufacturing and selling its products or services… synonyms with gross income)
Net Profit (the money left after you received money from your clients and paid ALL your business costs and people… synonymous with net income)
Cost of Sales: All the costs related to manufacturing products or providing services. For example, team members providing your service, inventory/products you use to deliver your products, fees you paid to collect sales, employee salaries that perform the actual service you are selling. This does not include administrative or marketing, just getting done what you have sold.
Revenues - Cost of Sales = Gross Profit
Gross Profit - All Business Costs = Net Profit (Net Income)
Gross Profit tells us a lot of different things, but let’s cover the top two:
First, it tells us how much you ACTUALLY made on your sales. If you sell a $100 handbag, but it takes $90 to make it - your gross profit of $10 is too low and you’re in an unhealthy situation. For starters, you don’t have money to market the handbags, much less pay yourself. You would need to review your pricing and review your production costs/efficiency. Same is true for service providers.
Second, Gross Profit tells us how much money you have to work with to run your business (admin, marketing, operations) and how much you can invest in coaching/education.
And we are just scratching the surface for the importance of profit focused KPIs!
