I Don’t Care What Your Profit Margin Is - And Neither Should You
Over Black Friday I bought one of those "info-crack" type things. A $37 spreadsheet download that helps track your income and expenses. (I'm always curious how other people handle their finances!)
Part of the spreadsheet was a prominent spot for tracking one's profit margin. And it got me thinking.
I have NO idea what my profit margin is. Like, zero.
And I have NO interest in figuring it out or tracking it.
In turn, I don't care what your profit margin is. In fact, I hope it's as close to zero as you can make it!
Okay, to be fair, that's a bit hyperbolic. Let me 'splain.
Technically, one's profit margin is calculated as such:
So, if my revenue for the year was, say, $80,000, and my business expenses were $30,000, my profit margin would be 62.5%. Traditionally (read: in American-style Capitalism), the idea is to get your profit margin as high as possible. To make as many sales as you possibly can, keep your costs as low as you possibly can, and keep the difference for yourself.
To this I say: NEIN! NO! NOT ON MY WATCH! 🙅🏻♀️🙅🏻♀️🙅🏻♀️
The idea of keeping your profit margin as high as possible feeds into the idea that the entire purpose of business is to make a profit and for the business owner to extract as much wealth as possible from the business. (While leaving the employees, their families, and the general community to fend for themselves.)
And to THAT I say: down with the patriarchal douchery!
INSTEAD, Let's aim to keep your profit margin as LOW as possible.
Because low profit margins mean you're re-investing your profit back into the business, your employees, and your community.
First: Land on a number you want to pay yourself that's "enough".
(I have thoughts and feelings about what "enough" is, which I'll expound upon in a later post, don't you worry! In a nutshell, though, "enough" means "a thriving wage that lets me and mine live a full and exquisitely enjoyable life.")
Second: Run your business.
Do your thing. Pay yourself your thriving wage. Pay your team generously.
Third: When your revenue growth starts consistently outpacing your expense growth,
Third: don't just automatically extract the money from the business in order to pay yourself more.
Instead, invest in your business and your community.
👉🏻Pay your team even MORE generously. Pay for them to get additional training, so they're even better at their jobs. Invest in your own training so you get even better at what you do.
👉🏻 Sponsor scholarship spots for potential clients who would love to work with you but aren't in a financial position to do so. (Meaning, take on a few less paying clients and instead give their spots to those who aren't able to pay your rates.)
👉🏻 Make sure you have a hefty emergency fund for your business, so in case everything goes sideways (a global pandemic, perhaps?) and your income plummets, you can still pay your team until you have a chance to rebuild.
Sometimes the things you invest in won't officially lower your business's profit margin but is still investing in your community (as opposed to you lining your own pockets).
👉🏻 Hire help for your home-life, and pay them generously. (Cleaners, lawn care crew, cooks, etc).
👉🏻 Donate to causes that align with your values.
And so, my invitation to you: calculate your profit margin. Keep tabs on it. As it grows, be mindful of what you do with that growth.
Because to be sure:
