Reasons Why You’re Not Making Enough Profits

December 11th 2011 at 1:11pm Published by firstdownadmin

Businesses thrive and live off the profits they make in their business. Before we delve deep into why the profits you’re making aren’t satisfactory, we will first try to look at the different metrics involved in the calculation of profits.

The goods you sell to your clients make up your sales and the revenue you earn through these sales makes up your revenue. The revenue for your business comes at the top of your income statement and is used as your primary earning. From the figure of revenue you subtract the cost of goods sold for that specific period to get your gross profit. You then further subtract all the operating expenses for that period from the figure of gross profit to reach your final net profit. Your net profit is the amount you can further invest in the business or take home.

Now, you could be earning significant revenues, but there is a good enough chance that your profits could still be hovering somewhere around the bare minimum. And, as you would know, your profits are necessary for tracking the success of your business. Even private lenders take a look at your profits before handing over small business funding to you.

So, if you haven’t been meeting your profits, you would fail to make a decent rapport for yourself. Here we mention some of the reasons why you could have below par profits, although your revenues are good.

High Costs

The number one advice we have been giving to customers when they first start their business is to remain frugal. Being clever with your expenses can save you in the long run, which is why it is necessary that you try to save as much as you possibly can here. Your expenses should be organized.

Creating a budget is one tip that you can follow here. Creating a budget will help you organize your expenses and will let you know which expenses should be treated as high priority and which you can live without during the early days of your business.

Tips for reducing and monitoring costs include:

  • Reduce your costs by automating processes that require admin work
  • If you are selling perishable items try to limit waste
  • Outsource some of the processes if you believe that will save you money.

Your Prices are Low

You could be earning low profits despite selling well, because your prices are low. Your prices define the kind of revenue you are going to make. If you are selling 100 items at a price of $30 then you have around $3000 in revenue, but if you increase that price to $50, you could be earning around $5,000 for the same number of sales. That is the kind of impact you can have by raising prices.