What are you really earning?
I ran a workshop the other week, all about profit in your business. And I covered something that actually seemed pretty groundbreaking to a lot of the business owners who joined us!
Let me explain…
Most people know about standard profit, that sales – costs = profit.
Lots of people are familiar with Profit First too, which I’ve talked about before in other blogs. It’s a great system you can use to organise your finances – to make sure your tax gets paid, that you’ve got enough money in your salary account every month to pay your personal bills, and that sort of thing.
But the thing that I talked about in my workshop was another type of profit… something that I like to call ‘theoretical profit’.
Let’s take a couple of examples, so you can see what I mean!
Let’s say you run an online workshop and charge £10 a head. If you sell 30 spaces, you make £300.
That’s quite straightforward. Your expenses are minimal. If you’re running it online, you’ve probably already got Zoom or Teams or something you can run it on and you don’t need to pay out for anything else. Simple.
Now let’s say you decided to run an in-person workshop instead, because somebody’s mentioned that you can charge more.
You decide to charge £50 a head. If you sell all 30 spaces, you’ll make £1500 – way more than the £300 you’d make online. Which sounds like a really good idea, right?
Well, yes. But in-person events take much longer to deliver.
Even if your workshop is still 2 hours long, it takes time to find the right venue; to arrange all the details with them; to organise refreshments; to confirm everything and sort signing a contract or paying their invoice, if there’s a charge for the space.
You’ll need to arrive early at the venue to set up and stay later to pack up. People will likely want to hang around and chat afterwards, too.
There’s the time to get everything ready for the day, to print out the workbooks and load the flipchart into the car and everything else you need.
If you’re anything like me, it takes longer to get yourself ready for an in-person event as well, figuring out what you’re going to wear and making your hair look half decent, compared to just jumping on Zoom!
Then there’s the extra costs which might involve room fees, tea and coffee, bottles of water, goodie bags for your participants, printed materials and so on.
And of course your petrol / mileage costs to get to where you need to be!
These extra costs can, of course, mean that the profit on your £1500 of sales isn’t quite as high as it first appeared.
But it’s when we factor in TIME and look at theoretical profit, that everything changes.
The first thing to do is a full and honest calculation of how much time you’ll spend doing those things, because it’s super easy to underestimate.
In our first example, the online workshop, you only really spend the two hours that you’re delivering the workshop. You jump on Zoom just before 11am or whenever and you’re back in your kitchen making a cup of tea by 1:05pm. No travel time; no set up time; no venue involved, no logistics needed.
The time to prepare the workshop content itself is most likely about the same, however you deliver it. The time to market both events and fill the spaces is probably about the same too.
But to run a 2 hour event in person, it’s entirely possible it’ll take 4 or 5 hours of your time on the day (or even more).
And by the time you factor in travel costs and set up costs and everything else – when you divide the amount of profit you’ve made by the amount of hours you’ve actually spent, it suddenly doesn’t look quite as profitable.
Does this mean it’s a bad idea or that you shouldn’t do it?
Not necessarily! But the point here is being fully aware of your true bottom line and all the factors at play, so you can make properly informed decisions.
When I’m with clients looking at how we build a profitable business, we need to have a mix of income streams.
Part of the reason we do this is because some things might be lower profit on paper, but they require little or no time or effort from you. It’s what people often call a passive income product and can be a great way to boost your sales.
In my business, this mix of income streams mean I do have some 1:1 and in-person ways for clients to work with me, which I really enjoy. And while they might earn me more money, they also mean I have to give up more diary time to do them.
Then I have some offerings that are hybrid type products like Pathway, my new programme focused on retirement and sorting out your pension stuff. There is some 1:1 time but it’s mainly a combination of group sessions and some self-study materials, which doesn’t take up as much of my time as taking on 1:1 clients.
And then I have pre-recorded things like workshops and step-by-step trainings which are all in a portal, for people to buy and access whenever they want.
These pre-recorded things might be a lower price point, but actually the profit margin is much higher. In terms of theoretical profit, I don’t have to invest any of my time whatsoever.
People buy them and with all the automations already set up behind the scenes, they receive the links they need and can just crack on with it!
Looking at profit within your business is one of the things that we do in my new Pathway programme – because although it’s designed for people who want to be mapping out their retirement, for most people the money that they are going to pay into their pensions or investments needs to come from their business.
And if they’re not making the right amount of profit, they won’t actually ever have the spare money to put into something for their future!
If you want to find out more about Pathway, just click this link or you can send me a message here and we can chat a bit more.
Or if you want the replay of ‘The Profit Master’ workshop, you can get immediate access to it here, to work out what the profit in your business really is and start taking real control!
Until next time,
Claire