So, making money from your business is easy, isn’t it? The equation is simple. You make an item for £1 and sell it for £3. Yaaaay! That’s £2 in your pocket.
Except… when you go to the bank at the end of the month, you’ve got a debit of -£4. How can this be? The equation is simple. You’ve made for £1, and sold for £3. You should have £2 in the bank. Somewhere, £6 has disappeared into the ether.
You take a look at the figures again. Then you realise that £.75 of the cost was for packaging and £1 was for postage. Ok. That’s £1.75. Where has the rest gone? Well, you sold through a third party seller and they took their cut and you also took payment via a well know online payment service, you needed new scissors and a roll of tape.
So, in fact in order to be making £2 profit, you actually need to be selling your item for £8, not £3… Hmmm.
But how can you sell it for £8, when everyone else is selling theirs for £3??? Well quite possibly they, much like you, have fallen into, what my husband lovingly calls “The sellotape syndrome”.
Many businesses when looking at their incomings and outgoings, especially when starting a new business, will take into account the major costs; £xxxx to manufacture a product, but then forget the small incidentals. My husband totted his sellotape and parcel tape expenditure in one year and it came to over £120, but he hadn’t included that in his projections.
This can equally be applied to a business of any size. You may have purchased a van in full for your business, but you have to remember that it is wearing out as you use it. So, for every job, you have to put a little bit extra on, to purchase the NEXT van.
This can be incredibly frustrating, because when you compare the prices of your competitors, they are going out at a significantly cheaper price than you. Quite simply, this is probably because they’ve not completed a cost analysis. There is every possibility they are actually losing money on each and every job.
If it is costing you money to go to work, you know you’re doing something wrong!
The act of studying where all of your costs occur is called a ‘Cost analysis’ and we can help work out where you’re going wrong, if you find that at the end of the month you have less money than you thought. Together we can make sure that you have +£2 in the bank instead of -£4! (Metaphorically speaking!)