January 2024 Managing the Money with Ciara StockelandJan 04, 2024
Stop setting sales goals! Well, stop setting goals that are based on top line revenue only, that is. “My revenue was down by 4% but overall profit was up by 22%.” An email I received a few weeks back from a client grabbed my attention and reminded me that the work we had been doing to increase the bottom line was working and as a matter of fact, would be crucial in 2024. That is why I am counseling my clients to take their attention off of top line revenue in the coming year, and instead, to focus their attention on bottom line results.
Don’t get me wrong, setting goals is still a very important activity for each and every small business owner. However, our habit of taking last year’s sales, adding 10%, and calling it good must change in the coming year. Why? Because I believe 2024 will look (sales wise) very similar to 2023, and if we concentrate on top line revenue only, we will quickly find ourselves in more debt, under more stress and fighting a battle we cannot win.
Instead, your focus needs to be on setting a bottom line goal. What percent of profit can you live with? From there, back into that bottom line goal and create a top line goal we can go after.
So what are the simple steps you can take to start creating goals based on profit and not vanity metrics?
- Take an honest look at your business costs. What does it truly cost (fixed and non-fixed expenses) to open the doors and turn on the lights every day? What is your daily operating spend? Where can you be more conservative with your spend, and where should you double down and go all in? Once you have clearly outlined the cost to running your business, you can move up and focus on margin to determine your break even.
- Take an honest look at your business margin. If you have inventory, you must focus on margin. A relentless pursuit of more gross margin should be your daily focus. First, make sure that all inventory is being consistently and accurately recording in your POS system with both the selling price and the cost. Second, make sure that you are pricing your product in total with an overall expected margin of at least 60-65%. Last, look at reports from 2023 and see where you can find more margin by decreasing overall discounts or inventory waste.
- Take an honest look at your monthly debt. Add up your fixed and non fixed monthly debt payments so that you can then determine what your break even (with debt) you need in the business. Add a buffer to this number, and this then becomes your overall sales goal!
Using the steps above you will be building your sales goals for profit in 2024!