The Profit Formula

This week, we will explore the concept of profit first.

The traditional approach to profit rarely works for business owners because it goes against our natural instincts. There are millions of businesses around the world, and there’s one thing their owners all want: to make a profit. Luckily, there’s a formula for doing that: Sell as much as possible, subtract your expenses, and the rest is yours. Sales - Expenses = Profit. A straightforward route to success, right? Not quite.?

This traditional approach to profit rarely works because it goes against our natural instincts. The formula sets businesses up to fail in several ways. First, it triggers our natural tendency to use up whatever is available.? This is known as Parkinson’s Law, which states that the amount of work required to complete a task increases proportionately to the amount of time available. For example, giving someone two days to complete a report will take them two days. Give them a week for the same report, and that’s how long it will take. Swap time for money, and the same thing happens in business. Business owners will find ways to spend whatever money is available and eat into our profits.

Another factor that hampers the traditional profit formula is The Primacy Effect. This phenomenon dictates that we focus on what we see first and disregard the rest. For instance, when presented with a list of words, we’re more likely to remember the ones at the top. The profit formula, starting with sales and ending with profit, inadvertently encourages business owners to prioritize sales over everything else. We pour our efforts and resources into boosting sales as if this will automatically translate into profits. But as we’ve just discovered, profits are not easy to come by.

So, how can business owners ensure profit?? The answer lies in a simple yet powerful shift in the formula. Instead of deducting expenses from sales, start by determining your desired profits and subtract them from your sales. Sales – Profit = Expenses. So, if you aim for a 5 percent profit, subtract this amount before considering spending it. Regardless of the remaining funds, your innate ability to work with what you have will become operative.? This reimagined formula is fundamental to making your business profitable, but it’s just the beginning. In the coming weeks, we’ll explore the real-life practical strategy for making this work.

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Thriving! isn't just about surviving the financial ebbs and flows but mastering them. Join me to uncover the secrets to safeguard your firm's financial health and lay the foundations for growth and freedom. Let's make your business a testament to what it means to be truly profitable, cash-positive, and autonomously successful.