Apparently in the world of business there is no hard and fast answer to the profit question or definition. I know what it means both literally and figuratively, do you?
Figuratively, when I think of profit I look at it as the quality of experiences in life. Profit to me means prosperity. Prosperity is the abundance of all the experiences you want in life. For me that is always enough time to spend and connect with my kids, the ability to do what I want when I want to do it, going on vacations, traveling, meeting and enjoying new people, being part of a community of like- minded people, a home I love, a car that’s fun to drive, listening to the waves crash on the beach, the whispering of aspen leaves in the wind, watching the sun set from my deck while sipping a nice glass of cabernet, delicious food, friends, witnessing my kids experiencing their lives…I think you get the idea.
Figuratively, PROFIT is whatever you decide it is.
Literally speaking, in business, you have two definitions of profit, gross profit and net profit. Do you ever get tricked when some advertisement on Facebook or some other social channel promises more profit? You think to yourself, “Yes, I want more profit”! So, you click the link to learn more only to find what they are really talking about is SALES. A program for you to learn how to sell high-ticket or premium service types of packages, build your $100K business, build an online program and whole host of many other things. The common denominator is what they are really talking about is SALES. The most important thing for you to know is….
- Sales ≠ Profit
- Sales do not equal Profit
- Sales are not Profit
I hope you’re getting the idea. There’s nothing that drives me more crazy than misinformation about the financial side of business. It’s hard enough being an entrepreneur and running a business. Who has time to sort out and figure out what people really mean when they are throwing words around hoping to attract you to buy something?
So, if PROFIT is not SALES what is it?
prof·it /ˈpräfət/ noun, a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
Profit is what is left over after paying costs and expenses. Costs are associated with gross profit and expenses relate to net profit. So, in a sense you really have two profit numbers. Here’s what it looks like:
- Cost of Service (Goods Sold)
= Gross Profit
- Operating Expenses
= Net Profit (Loss)
If you noticed, Sales is at the very top while both profit numbers are a bit lower down in the Profit & Loss Statement also known as the Income Statement. This of course is a very simplified version and I’m all about making it simple.
So what does more profit in this sense mean? How do you make more profit without more sales? Optimizing your gross profit, seeing what your numbers are telling you, and making changes in order to maximize each and every sale, service or product, you offer. I can help you do just that.
If you're ready to find the gaps in your financial foundation take my quiz.