How much profit is ‘enough’ for your business, and why this is key to planning
WHAT’S YOUR ‘ENOUGH’?
There’s been a lot of talk about finding your why for your business, but not a lot about the ‘what’. What is your business FOR, what role does it play in your life, and what is ‘enough’ to you when it comes to profit, time and effort that you’re ready to put in and get out.
Everyone has a different perspective and approach to what ‘enough’ means for them. Being clear on your mindset towards your business and what ‘enough’ looks like for you is a big part of the upfront thinking of what you’re willing and able to get from the business in the future. It will help with your financial planning, approach to pricing and how you will adjust your activity to give you the ‘enough’ you’re after. If you started the business with passion rather than a detailed plan, then it may be time to step back and do some reflecting - and a bit of spreadsheeting too.
Some of the different mindsets around your business could be:
Its a hobby and way to do something to bring a little interest to your life - profit is nice and buys treats, or enables you to keep at your hobby with no extra cost
Its a passion, and profit is a byproduct but not mandatory - if you cover your costs, its all fine
You have limited time to invest in growth so its about getting what you can for the time you have to put into the business - maximum profit for time is vital
It’s your future, and needs to contribute in a meaningful financial way to your life - so your effort and expectations are significant & you need regular profit forecasts
It’s your investment, you’ve put in a lot of capital and time, and you want to build and eventually sell or exit in a big way - so you’re willing to play the long game and reinvest profit to grow for a considerable period of time.
WHY IS THIS SO IMPORTANT FOR PRICING AND PROFIT PLANNING?
Profit is a function and output of expectations, effort and executing a well-thought through plan. Sure there will be some adjustments made to the plan along the way but if you’ve not got a plan then expectations and effort can result in heading off in too many different directions - or no direction at all - with an empty bank account to show for it.
Your pricing strategy is part of your bigger business plan and the goals and ambitions you have for your business. There is no right or wrong way to price your products - there are just better and worse options for different scenarios, mindsets and the literal types of products that you sell. High demand artists don’t link price with effort - its about the value and meaning that they bring to their work. Drop-shippers selling mass produced items sourced from Alibaba don’t think about the long term - it’s all about maximum rate of sales to sell through and pricing the lowest to cover costs before moving on to the next hot item. No capital and just time investment. Just profit.
There’s no such thing as ‘passive’ income when it comes to product based business. You’ve got stock, packaging, ingredients that are all AGING and have taken CAPITAL and TIME. Unlike a service based business where you can ‘turn on and off’ without significant expense, products are like rabbits…they hang around, have babies (stocktakes are ALWAYS off somehow) and need lot of TLC or they won’t survive. Then there’s the time and effort to drive sales and awareness for your brand and business. Sure there are the dream scenarios you read about where someone launched a product and sold 10,000 in an hour for seemingly no effort… but remember, just because you can’t SEE the effort, doesn’t mean there wasn’t a clear plan and a lot of work behind it.
SO WHAT SHOULD YOU DO IF YOUR PROFIT ISN’T ‘ENOUGH’
If there was a simple answer to this we’d all be millionaires… or I’d be trying to selling you the latest social media package/ digital offer/ how to guide. But its not simple, because your enough isn’t mine, and isn’t the same as the person selling the same products at the same marketplace.
Different stages require different approaches to how you can tackle the question of profitability. No matter where you are on this journey, having a clear plan and understanding your WHAT and WHY will help with determining your profit goals and pricing approach.
LAUNCH
Do as much pre-work and learning as you can. Talk to your customers about why they bought from you, keep a close eye on what’s selling - and more importantly what’s NOT
If you can talk to those people who chose NOT to buy you and understand what part of the product or offer turned them off, you’ll be able to refine not only your product but also your value proposition as you grow.
Have a clear Go To Market launch plan and be clear on what you want from this first stage.
LEARN
Be clear on actively learning from your business - its like a baby - always changing and growing in ways you ‘d never expect. One day its all tears and crying, the next its the excitement of achieving new wins.
Write a clear structured learning plan and focus on one thing at a time. Being an early stage business is exciting but can also lead to going off in a hundred different directions without a clear plan or reason why.
Set up frequent review sessions with your accountant so you can get a handle on the numbers and know what you need to keep, stop and start doing.
Talk to people who are 1 - 2 steps ahead of you in the business journey. They’ve just been through your stage so learnings are all fresh, and they can give you the tiny tips that make a big difference.
PIVOT
Delete the poor performing products - whether thats because they’re not selling, too expensive or just don’t fit the direction you want your business to go in. Consider whether you could sell off any product IP to other business, and how to get back the capital and costs you’ve put into products. Don’t write them off - just because they’re not right for your business, doesn’t mean they’re not right for someone else and have a value to them.
Adjust your costs based on what your customers value MOST, and what they value LEAST
LEAN IN to the top sellers and look for ways to sell more - whether that’s offering new varieties, finding new retail channels or new customers. Its about doing more of what delivers for you.
LEARN
Always be learning…. this is where you’re more established in business and should still be doing regular reviews.
The market conditions and consumers can go through periods of relative stability and then massive upheaval (hello Covid! hello record high inflation!) and you need to be ready to adjust your business based on your best knowledge and insights built over time.
STAY, GROW or LEAVE
If your profit still isn’t enough - and you’ve reached the end of your resources - then it might be time to leave. This doesn’t need to be painful but should be part of your regular review process. If you’ve been structured along the way then this will feel like the next logical step.
If you’re feeling stuck then maybe it’s time to look for additional support and advice - especially if you’ve got to this stage without a clear plan and now feeling a bit lost. Consider this a 'LEARN’ stage and look at what you could do RIGHT NOW to get as much insight as you can on the market and what it needs - and whether you’re able to fulfil that in a meaningful way.
If you’ve succeeded and now want to exit, then talk to your accountant or a business advisor about the best ways to exit could be.
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One of the best pieces of advice I was ever given is “HOPE IS NOT A STRATEGY”. When it comes to profit, its a recipe for stress, anxiety and uncertainty. By having a clear plan, knowing what stage you’re at in your business journey and being honest to yourself (and your accountant) about what ‘enough’ looks like - you can get into action today.
If you want to get going, but not sure where to start - then check out our DIY pricing and breakeven models & ebooks to understand costing in retail. We also offer 1:1 sessions to dig into your margin models in more detail and help you discover where the risks and opportunities are. Get in touch via email today to find out more
