Are you making a profit or going down the drain

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“We’re going down the drain!!”

That’s what the desperate voice quavered. I could only imagine the fears that clutched at this woman’s heart.

This couple has a small business that they work together. And they knew that something was wrong because it was becoming increasingly difficult to make ends meet. They were both working hard but the apparent bottom line just wasn’t what it should be.

I say ‘apparent bottom line’ because they did not really know what the bottom line was.

It is an unfortunate fact that many new Avon respresentatives and small business owners do not know how much money — gross or net — that they are actually bringing in. They assume if there’s money in the bank, they’re doing well. On the other hand, if they’re not able to pay their bills, they must not be making enough (which is likely true).

The solution is pretty simple: If you are not making ends meet then either decrease spending or increase income.

Of course, there are more parts to consider, but the key is to…

Get a handle on your cash flow

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Before you can figure out how to make ends meet, you have to figure out how far apart the ends are to begin with. If you aren’t clear on this point, you will never know if you are making “enough” money. Be thorough and realistic. List all expense items and the assumed dollar figure for each.

Start with your living expenses and calculate how much take home money you need to make. This would include:

$        Rent or mortgage

$        Utilities

$        Car payment

$        Car maintenance

$        Groceries

$        Clothing

$        Entertainment

$        Emergency fund

$        Insurance

$        Education

$        ???

Next, calculate how much money your business needs to make to cover operating expenses such as:

$        Rent

$        Utilities

$        Office supplies

$        Business registration and licensing

$        Website hosting/domain name

$        Computer hardware and software

$        Industry memberships

$        Work clothes/uniforms

$        Insurance

$        Education/training

$        Accountant/bookkeeper

$        Advertising/promotion

$        ???

Once you add up these costs, you know how much money your business needs to bring in each month.

Questions to ask about your pricing

With a product-based business, you will want to determine if your product price is realistic:

  • Are you charging enough per widget to cover the manufacturing costs of the widget, including all parts (even those miscellaneous small parts like glue, screws and staples)?
  • Do you include the shipping cost of the parts in the price of the widget?
  • Do you include your labor? Too many entrepreneurs forget to pay themselves for the time they spend making each widget. Your labor is NOT free and you will never make a decent profit if you don’t include labor in your pricing.
  • Once you know your pricing, how many widgets per month do you need to sell to meet your expenses?
  • Are you charging your customers to ship the goods to them? There are a surprising number of solopreneurs who do not – because they feel “guilty” about the added cost to the customer!
  • What are your payment terms (payment on delivery? Deposit with balance due? 30-days?)

As an Avon representative, you’re a re-seller of the product, so some of the guesswork is removed. If you sell the items at the current catalog pricing, include sales tax and add the service charge to cover your cost for brochures, you will make 20-40%, depending on where you are in sales for that campaign. Your biggest concern is knowing the amount of sales you need to make in order to earn the larger commission.

If you are a service-based business/consultant:

  • Do you offer hourly rates or package pricing?
  • Does your fee include overhead expenses (see point #2 above)? Using your phone, computer, printer and paper can all be client expenses to consider.
  • Are you realistic about how much work you do for clients outside appointment times?
  • What are your payment terms?

If you aren’t meeting your expenses then you need to increase your income. You can do that by:

  • Getting more clients and customers
  • Increasing your pricing or fees
  • Reducing overhead
  • Getting another part time job

Another factor

Surprisingly — or maybe not so surprising — another reason Avon representatives fail to see a profit is lack of organization. Brochures aren’t prepped for distribution, there is no follow up with contacts, money is not collected prior to or after delivery, orders aren’t placed on time – all because there is no system in place. But that’s another post…

Are you struggling to make ends meet? What do you think is the cause? Let us know in the comments below!

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