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Creator Chronicles

He was losing money and didn't even know it!

Published 3 months ago • 2 min read

When I worked in construction sales, my jobs had to profit 30% or higher otherwise I wouldn’t be paid commission.

It put me in a position where I needed to make sure my laborers weren’t wasting time or materials.

The most efficient way to ensure I'd hit 30% or higher was to use subcontractors who I paid a flat rate for labor… rather than using our in-house guys whose time on a job was clocked down to the minute.

Even though I always beat up subs on their pricing, I made some great relationships with them, some of whom I still talk to even though I don’t use them for jobs anymore (I've changed industries).

I preferred to use subs rather than in-house guys because the subs' pricing was predictable, for the most part.

Recently I was consulting with the owner of a martial arts school and I called on my background as a sales guy/project manager to help identify a margin issue.

Since sales guys are usually profit-oriented, I was the right person for this.

The school owner asked me to proofread an email for him, and in the email, he was informing some black belt candidates about upcoming costs and fees for testing, new uniforms, embroidered belts, and certificates.

When I saw his pricing for uniforms, I was flabbergasted at how cheap they were.

"Are you making any money on the uniforms?" I asked.

It was at that point he told me he had no idea how much money he was making... or losing.

In my mind, that was a huge problem.

You MUST know how much money you're making on retail.

It cannot be unknown.

I get it, though... profit on physical goods is tough.

In the digital realm, people talk about making 75%+ profit (in some instances, 90%+ profit) like it's nothing.

But with physical goods, when you're dealing with a wholesaler and markup and all that, it can get a little bit tricky.

Especially if suppliers raise their prices... because then you have no choice but to raise your prices.

Okay, so this guy I was consulting, he was selling custom black belt uniforms for $95 apiece, and it was a major red flag to me.

Knowing the rough costs of martial arts equipment, I knew right away he was losing money.

He ran the numbers and turned out he was losing about $22 per uniform.

He wasn't even breaking even!

What's even more tragic... over the past couple years, he had been selling these uniforms for $95 apiece, taking a $22 loss on each sale.

He's probably sold 50 of these uniforms, which means he's lost $1,100 just on uniforms.

That's not a ton of money, but it's a ton of money!

And here's the thing: Where there's one leak in a boat, there are several others.

You don't know where they are until you start plugging 'em.

This business owner asked me what he should be charging for the uniforms.

"You need to make 30% profit minimum on these uniforms," I said.

Now, peoples' opinions may differ on how much profit is enough, whether or not 30% is price gouging, and so on.

Those discussions are moot. No business owner should take losses on regular sales. It's poor stewardship.

When was the last time you checked your margins? Are you making money? Losing money? Breaking even?

Don't be like this business owner who had been taking losses for years.

Frequently review your margins to make sure you're making money.

Because if you're losing money, you have no business being in business...

And in due time, you won't be in business.

Peace,
Neil

Creator Chronicles

by Neil Kollipara

Weekly emails about writing, habits, productivity, Creator Economy, and storytelling.

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