Small Business Academy

30 Nov

11/29/2011

 

 

Q: How much above the monthly overhead does a small retail business need to make a month to be considered worth staying in business? In other words, what should the ratio of overhead to profits be to be considered a healthy retail business?

This is a very important question with a fairly strait forward answer. What you are talking about here is your profit margin. Any viable business should have a 35-50% profit margin. That means that your “net” receipts after all your expenses should be 35-50% of your total “gross” income. What that comes out to in dollars and cents is something you will have to figure out for yourself or with the help of your accountant. Then I would encourage you to break that down even further into weekly and daily amounts. This should give you an idea of what you need to bring in each day and week to be profitable.

You can then break it down even further to what each employee should be bringing in each shift. This is a good way to judge which employees are profitable for you (although this should only be one of several criteria’s when it comes to employee reviews).

I hope this has given you a little guidance. If you need more in depth help please go to me website AlexzandraD.com/AskAlexzandra and send me your questions. I also have tones of free videos and resources that you may find helpful. I would also recommend that you read chapter 10 of The Princeton Principle. It provides more detailed information than what I can go into here. Good luck!

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