What makes a tiny business profitable?
In solopreneurship or microbusiness, it’s easy to imagine that every dollar that comes in is “profit.”
Take out the meager fees we pay to web hosts, PayPal, and the odd tech service, there’s still plenty left over to play with. And play we do.
But what does it mean to truly become profitable as a microbusiness owner or solo service provider?
In my own business and those of my clients, this is one place where traditional business teaching falls short of our unique circumstances. What follows below is not something you’re going to find in business books but it’s of utmost importance for understanding the way your business functions:
Being profitable means earning enough money to cover all of your obligations, both personal & business, with some left over to invest as you please.
Becoming profitable should be the goal of every business but the numbers and percentages are always different.
The key to knowing when you are profitable is to understand your obligations.
Megan and I often join forces to talk about actually making money in a passion-driven business. I talk about the psychological and philosophical side of earning more. Then she swoops in with cold hard facts and a proven formula. I’ll let you guess which side of the presentation garners a bigger response.
Hint: numbers & formulas win. every. time.
Megan’s pricing formula is for a product based business, natch. She’s a jewelry designer. She has certain costs for materials & upkeep, much easier to quantify.
Megan’s formula also contains two pieces that often trip people up: labor & profit.
Yes, two different figures. One for labor. One for profit. Separate. Different. Got it?
The time she puts into each piece is not profit. That time is an obligation that must be accounted for with an hourly rate. The hourly rate she figures is often 8-12 times the hourly rate most people figure for themselves.
Hint: if you’re accounting for an hourly wage that is lower or equal to the minimum wage in your state, you’re doing it wrong.
Intellectually, you know this makes sense for Megan and the type of business she runs. But what about your business? If you create or design physical products, this model works for you as well (but keep reading – there’s more!). If you are a service provider, content marketer, or digital product creator, it is much more difficult use this type of pricing strategy to generate a known quantity of profit.
So then what is profit?
Profit comes after accounting for all of your obligations, both personal and business, and having money left over to invest as you please.
Oh crap, she said it again. It must be important! Click to tweet it, yo!
When you don’t have to use part of every sale to reinvest in materials to make new products to sell, it is easy to see every dollar as profit. To see every dollar as flexible.
Your dollars are not flexible. They are accounted for the moment they enter your PayPal account. But do you know where they’re going?
Those dollars might end up paying your web host, your email service provider, your teleconferencing service, your PayPal fees, or your assistant. Those dollars also pay your mortgage, your grocery bill, your taxes, and your electric utility – that’s your labor, essentially.
You also have obligations to your own charitable giving, education, self-care, and – yes – fun.
When considering your own financial obligations, I think it’s important to look at the big picture not just the bare bones. That’s when you really start to get an idea of abundance.
And when you can really start to develop a profit strategy.
How can you earn enough to cover your obligations and have money left over to invest as you please?
There are no easy answers to this question. But you can’t create a strategy until you know your obligations. You can’t understand or plan for profit until you know where the rest of the money is going.
Why consider profit only after meeting personal & business obligations?
Because it’s important that you have that surplus. It’s important that you have the freedom to decide what the very best use of extra money is outside of the obligations (no matter how pleasurable) you face on a daily basis.
Being a profitable business owner means having the freedom, control, and vision to use your surplus money as a tool for growth, be it personal, business, or societal.
Understanding profit and your ability to use it for good is all apart of making money beautifully, making earning an art. I’m hosting an intensive, intentional, and intimate workshop on creating a business that serves you. Click here to find out more & sign up for FREE exclusive pre-event training.