Questions

What is the average amount of profit that a business should aim for?

4answers

One thing I like about your question is the fact that you're ASKING it. Trying to quantify profit.

Most people never even get that far.

They treat profit--especially if it is that of their own business--as some ethereal thing they will "get later" if possible.

"To manage we must measure" is a business maxim and a fundamental one for me. If we don't build Profit into our revenue equation, we're unlikely to get any. And so asking this question and building profit right into your revenue target is a powerful idea nearly all small business owners totally miss.

As for an answer...that amount is really up to you. What do you need to survive? There are so many variables we don't know about: what kind of business, what scale, what paths to market are you using, etc. etc. that affect costs, together with the price tolerance of your marketplace, that it's not possible to give an "average" answer.

When I train business owners on how to set their operation up for success, I recommend 20-30% of revenue be built in as a monthly amount for profit. However, this is usually for consultants, and may not be possible for other business models. Sometimes 5% profit is what's achievable, say for a commodity provider, and if they make money with that, OK.

Have you done any studies of comparative firms in your niche?


Answered 6 years ago

This is a very open question. It totally depends on the entrepreneur. How many customers you want to have? Do you want to provide a solution locally or globally? How many employees do you plan on having? Do you want to just use this business to support yourself? What are your goals?

Thanks and all the best!

Laura


Answered 6 years ago

Hi there... It does depend on what you do but... A good business with a medium to high gross profit % should aim to make over 20% of sales as profit. I see it that 0% to 10% profit (as % of sales) is like a C grade at best (obviously not near the 0% mark), 10% to 15% is a B grade, 15% to 20% is like a B+ to A-, 20% to 25% is A grade and 25% + would be like A+. If you operate with a low GP, then it is often better to look at your profit % over GP instead of over sales. And the above #s would be similar re what you want to aim for, albeit probably slightly higher %. Of course there are extremes and some companies can make 30% to 50% + profit, but that does not happen overnight. A "normal" business would want to be aiming along what I note above and of course aim for world-class too and blow them away. The above would be pre tax profit % aims. Enjoy and good luck in getting great profitability %.


Answered 6 years ago

You can tell vendors, investors, and loan officers that you want to make a difference in the world, but they will be more interested in financial metrics, especially your profit margin. You kept good records and, after doing the math, came up with a net profit margin of 21%. Your friend owns an IT company that installs complicated computer networks for businesses and has a net profit margin of 16%. It does not work that way because the profit margin is industry specific. Business owners make a higher margin in some sectors compared to others because of the economic factors of each industry. If you are in the foodservice business, you might only see net margins of 3.8%. Profit margin does not measure how much money you will make or could make, only how much is made on each dollar of sales. Many new business owners believe you should expect to have a lower profit margin in the beginning. In the service and manufacturing industries, profit margins decrease as sales increase. That is about the time where the business must start hiring more people. Each employee in a small business drives the margins lower. As your sales increase and your business grow, more money comes in. Simply bringing in more cash does not mean you are making a bigger profit. And as your business expands, continue to tend to its margins. Profit margin gauges the degree to which a company or a business activity makes money.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath


Answered 3 months ago

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