This is an article from P1M3 How Profit is Created in the Pillar 1 Your Key Numbers.
Beware Of The Busy Fool’s Syndrome: Learn To Focus On Contribution, Your Real Income
There is a huge danger in business…of focusing on growing the top line of sales or revenue in ways that don’t increase profit.
It’s sometimes called the busy fools syndrome!
You do more and make less money.
You need to move your attention from the top line sales number to your real income – your contribution.
What is Contribution?
In total Contribution equals Sales minus Variable Costs
This is From Pillar 1 Your Key Numbers and Module 3
Let’s try to de-construct your accounts and take your numbers down to the basic drivers of performance. Sales (revenue) and costs are like the two blades in a pair of scissors and the profit is the gap between them. In effect, profit is the small difference between two much bigger numbers.
You can’t work directly on profit because you have to influence sales (revenue) and costs.
Sales or Revenue
Your sales or revenue equals the volume sold multiplied by the average selling price.
A consultant may sell 100 days per year at £1,000 per day and have total sales of £100,000.
A steel stockholder may sell 2,000 tonnes of steel in a year at £400 per tonne and have total sales of £800,000.
In a multi-product business, total sales equals the cumulative of the quantity sold of every item multiplied by the price. [continue reading…]
After the last module What Is Profit, I hope you are clearer about what profit is and that you are determined to make more profit…much more profit from your business.
This module will get into the nuts and bolts of how profit is created.
Why Understanding How Profit Is Created Is So Important
When you understand how profit is made at a fundamental level you will gain an intuitive feel for ideas and whether they will increase your profit or prove to be time-wasting or money-wasting distractions. [continue reading…]
Let’s move from the accountants definition of profit (link)to the economists’ definition.
For an economist, profit is the difference between revenue and opportunity costs, not actual costs. [continue reading…]
Ask an accountant to define profit and he or she will say something like:
“Profit is the difference between revenue and costs in a defined period of time.” [continue reading…]
The full title of this second module in Pillar 1 Your Key Numbers is:
What Is Profit? And How Much Should You Make?
In this important module I am going to challenge your thinking with the aim of getting you to step out of your comfort zone.
I believe many small business owners hold themselves and their businesses back because they don’t challenge themselves. [continue reading…]
The Profit & Loss Account (or P&L Account) is one of three primary financial statements (together with the Balance Sheet and Cash Flow).
It is a summary of the revenue received by a business in a period together with costs and charges for the same period, deducted to show the profit earned. [continue reading…]