Profitability

Profitability is a fundamental KPI of any business. Profit equals a company’s revenues minus expenses. Earning a profit is important to a small business because profitability impacts whether a company can secure financing from a bank, attract investors to fund its operations and grow its business. Companies cannot remain in business without turning a profit. Profitability determines whether a business stays in business.

Profitability Definition

A measure of the proportion of revenue that is left after all expenses have been paid. If the business makes $5.21 of net profit for every $100 it generates in revenue, this is the equivalent of 5.21% Net Profit.

The Target

Greater than 15.00%
Although it’s important to note that this will vary across industries so it’s important to know what your industry target should be.
As a general rule of thumb:
0 to 5% Net Profit – means the business is struggling/on life support
5% to 10% Net Profit – the business is travelling towards the healthy range
10% Net Profit – the business results are good – aka the new break even
10% to 15% Net Profit – the business is showing a great trading result
15% + Net Profit – the business is rising towards an excellent result

The Formula

Net Profit = Net Profit or Operating Profit / Revenue * 100

How to keep your Profitability above the target

Making your business more profitable involves looking at ways to increase sales revenue as well as decreasing your costs:
Remove unprofitable products or services
Find new Customers
Reduce your overall direct costs
Improve Efficiency, etc

In summary

It goes without saying you need to be profitable.  It’s never that easy but maintaining long term profitability if you are to survive the test of time.
Keeping an eye on all this KPIs and making sure it stays in the healthy zone is a sure fire way to thrive, not just survive, in any environment.
I encourage you to create a report or a dashboard that gives you your figures whenever you need them.  If you don’t have the time or resources to make that happen then sign up for Blue Bean today and you’ll see your metrics within a few minutes.

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