A journalist calls to ask how long it takes to make a profit when starting out in business. ‘It depends on the business’ replies Emma Jones ‘but I’d say it’s perfectly possible to turn a profit within the week.’ Here’s the feature to discover if Emma got her facts right.
Let’s take a business
This feature will not apply to all businesses but let’s take the example of someone providing goods and services to consumers (a craft business) and someone offering professional services (a book-keeper.) This is how they each become profitable by week end.
Example 1: The craft business
Make item with cost of raw materials being £5.50.
Photograph item with family camera, ensuring professional/high quality presentation.
Upload profile and photo to 3 craft sites which levy a small charge (or free) for listing and exercise a sales commission. Sites such as:
Promote product via Twitter and Facebook. Include a link to the shop so people can click and buy.
Send an email to friends and family (personal, as opposed to group email) to announce the product and, again, with a link.
Upload pictures of your product to Flickr so the large audience there can see it too.
If you have a webcam, make a short recording of you making products and upload to YouTube.
Call local stores and boutiques to ask if they would consider selling your stock.
You’ve attracted interest and made a sale! Sales price is £25.99.
Cost of making sale:
Raw materials: £5.50
Listing fee: 20p
Sales commission: 78p
Marketing & promotion: zero cost but your time
Profit for the week: £19.51
Example 2: The book keeper
Start a blog using free blogging platforms such as blogger.com or wordpress.com – with helpful posts on book-keeping technique, this will help you be seen as an expert in your field.
Promote blog via Twitter.
Produce business cards. A pack of 50 cards can be bought for £12.99 from Moo.com.
Attend local networking event.
Post in online business forums with helpful book-keeping advice.
Approach small business sites with an article for them to upload that will interest & assist readers (include a link back to your blog so people can make contact).
Call local accountancy practice to ask if they require outsourced book-keeping.
Secure first client! Contract to carry out book-keeping for local home business at rate of £50 per month.
Cost of making sale:
Business cards: £12.99
Promotion and networking: zero cost but your time
Profit in first month: £37.01
Doing the sums
The beauty of both of these examples is that all this promotion and sales generating activity can be done by ‘Working 5 to 9’ ie it’s possible to keep hold of the day job and build your business (and profit) by working nights and weekends.
The secret is in keeping costs low (by being home based and making the mot of free social media tools) and focusing on making that first sale. In which case, it’s perfectly possible to realise profit in just five days. What’s stopping you? Get that business started!
NB. This feature assumes access to a home PC/laptop therefore costs of IT equipment not included.
Emma Jones is Founder of Emma Jones is Founder of Enterprise Nation and author of ‘Spare Room Start Up – how to start a business from home’ Her next book ‘Working 5 to 9 – how to start a business in your spare time’ will be published in May 2010
Margin is probably the most crucial figure in any business. Tell me your turnover, your margin and your running costs and within seconds I can tell broadly whether your business is a triumph or a disaster.
In the past, I was obsessed with mark up. It sounds great saying product X is marked up 1,000 per cent and this one 500 per cent, but it doesn’t provide the immediate overview that margin does.
Margin is basically your gross profit as a percentage. This means you can quickly work out your gross profit on any amount of sales – which you should do every day.
How do you calculate margin? First work out your gross profit, which is selling price minus costs. Then simply divide this figure by your selling price and you’re left with your margin.
I run Karacha.com, an online shop that sells musical instruments. So, as an example, if I sell a violin for £200 that costs me £110 to buy from the manufacturer, my gross profit is £90. If you divide this by my sales price (£200), my margin is 45 per cent.
So what makes this margin number so important? Well let’s assume your margin is the same across all products and the business costs £200 to run per day, that includes a wage for yourself, rent, electricity, etc. Secondly, let’s assume your business sells £300 on Monday and £650 on Tuesday. This is where the margin comes in.
Whatever your margin figure is, stick a zero and a decimal point in front of it, so for 45 per cent it would be 0.45. Now grab your calculator and hammer in 0.45 x £300 and you should get £135.
This is your profit for the day before daily costs. Previously, I said the business costs £200 a day to run, so unfortunately you have a loss. But do the same for Tuesday 0.45 x 650 = £292.50. On Tuesday you can pay your £200 bills and have £92.50 profit left over.
By knowing what you make on a daily basis you can make the necessary adjustments to ensure you make a good profit every day.
Turnover is vanity, profit is sanity
Too many people are scared off by the calculator – and businesses suffer because of it. As long as you know your margins, you’re always just 30 seconds away from a quick and accurate assessment of your business.
You could be selling £10k a day, think you’re the absolute dogs you-know-whats, but be making no profit. Every day, multiply that sales figure by your margin and see what you’ve actually made (don’t forget to take away your costs). It’s absolutely crazy, the amount of people who do not know their margin and therefore their daily profit, but can quote their turnover for the past 12 months.
Final thoughts. High costs and low margins lead to disaster: high margins and low costs could lead to a lovely yacht in the Caribbean. Good Luck.