One of THE fundamental rules of business and becoming successful, whether in products or services, is to know the difference between gross and net profit. Many people do not know or understand this difference and thus they fail in their entrepreneurial endeavours.
In its basic form, gross profit is your total sales minus your cost of goods. So if you have a product and it cost you £4 and you sell it for £10, your gross profit is £6.
If you have a service, such as a personal trainer and your cost is £0 and you charge £100, then you have made £100.
Pretty profitable right?
Wrong! This is where REAL business principles come in and this is why you need to always go on your Net profit and not Gross profit.
Net profit is gross profit minus all other costs incurred to make that profit like rent, staff costs, electricity, gas, shipping, telephone, other incidentals, interest and anything and everything else that costs you in your business Including tax. THIS is the real profit you have made.
IF you are profitable or ideally very profitable at Net profit, then you have a good business. It is very important to calculate ALL costs when you do net profit calculations. Personally, I over-inflate my costs when I do calculations AND I bring in future inflations too. THEN, if I am still profitable, that is a go for me to get into that particular business. It is better to be pessimistic and take extra costs into account than optimistic.
Costs always go up. They hardly ever come down.
If you want to learn more about this subject then please read my book How to Start a Profitable Business available from Amazon or listen to my podcasts on my App “F17ONE MENTOR” available from App/Play stores or iTunes podcasts, Spotify etc. The latest episode talks about this subject in more detail.
If you have the budget, you can also apply for mentorship by me via my website: www.parhamdonyai.com
Wishing you the best of luck! .