Do you know what it costs, what it really costs, to run your business?
Let’s back up. Do you have monthly sales goals for your business?
If not, you should. You should have a target number for how much money you need to bring in each month.
That number should be your benchmark. When you look ahead to the coming months, you should always be asking yourself, what do I need to be doing to hit my income target?
But how do you come up with that number? How do you know what your monthly sales goal should be?
You could start with a guess. Maybe a number that just feels right. Maybe something that just seems bigger than what you’re currently bringing in. Maybe you took your dream annual salary and divided by twelve.
If you’re using one of these methods, there’s a more concrete way. I base my monthly sales targets on two factors:
1. What it costs to run my business each month.
2. What it costs to live my life each month.
What it costs to run my business + what it costs to run my life = the minimum amount of money that I need to bring in each month.
It’s a simple equation that helps guide many of my business decisions.
So how do I determine those two numbers?
By keeping meticulous records. (Ok, that’s a little bit of a lie. I let outright.com keep meticulous records for me.) But I use the data that I get from outright plus my spreadsheet of income, expenses, and living expenses to determine that magic number.
How often do you look at your income and expenses for an entire year?
I keep a master spreadsheet where I chart income by category, expenses, and income from my teaching job, all by month. It’s essentially my version of a profit and loss sheet. At a glance, I know if I’ve made a profit or not each month, and how much. And I have one of these for every year I’ve run my business.
By making this sheet, I can easily get the full picture and spot trends. I start to see what my average expenses are each month. I get a feel for how much I’ve brought in each month. And I compare that to my money situation each month – did I have enough to cover everything? Was I stressed about money? Did I have to dip into savings or ask my husband to contribute more than normal?
All those factors led me to come up with a target monthly sales goal. And when I wanted to hire an employee, I simply added her wage (plus taxes) into that number to come up with a new monthly sales target.
Because of all this, I have a really good idea of what it costs to run my business each month. And I know how much I need to bring in to cover those costs. I know what I need to keep my business (and my life) running. I can set bare minimum sales goals, comfortable sales goals, and, wouldn’t this be great sales goals.
How about you? Do you know what it costs to run your business each month?
If you don’t, how can you expect to run your business successfully?
Yes! So well written Megan!
I do keep a spreadsheet of everything and use the same formula to work out my sales goals. I have found that having that spreadsheet and updating it often is encouragement to see how far I’ve come and also lets me know how far I’ve got to go.
It’s been great for my business to have that.
Great Subject.
I have been in business for about 8 years and I find that I tend to look at my numbers on a quarterly basis. This is due to the fact that I do about 22-25 craft, antique and retail shows from Maine to Texas and it coordinates well with paying all the different state quarterly taxes. I have a website but the majority of what I earn come form sales from my shows.
I tend to think about sales goals in terms what I would like to make for each individual show. This is based on what it costs me to do a show. I take the cost of rent, gas, hotel etc and multiply it by 4. So if a show coasts me 1000 to do I need to make at least 4,000 for it to be considered ok. I really hope for a much lower percentage but that is my bottom line. When I price an item I add the 25% to what it costs me to make an item.
My over all goal for the year to earn a living. What I would earn if I had a 9-5 job. A question I have is what is a realistic profit to make when compared to overall sales. I am curious to see what others think. If you have 150,000 in sales per year how much of this should you expect to be profit before taxes. Also, I am a bit tired of being on the road so much. The grass is always greener I guess. I look at etsy and think maybe, but is it possible to make 50,000 per year profit selling on etsy?
Also I have enjoyed Megan’s articles on her wholesale shows. I just wonder how much higher your wholesale numbers need to be to make the same amount of money that you do at the retail shows. Has anyone made the switch from retail to wholesale?
All the best–Donna
Pingback:Link Hype 10-14-2011 | Create Hype
Oh, spreadsheets… a topic near and dear to my heart. 😉
I’m really good about doing this for my personal finances. Since my husband and I have income coming from about 6 different sources between us (my day job, my part-time job, my business, his day job, his freelance writing, and his comedy jobs), our total income varies from month to month. My spreadsheet is great at helping us find patterns and adjust our budget accordingly.
My spreadsheets for my business are pretty good at tracking my income and expenses from month to month, but I’m not very good about setting sales goals since I really don’t have that much at stake. I’m pretty sure I’d be better about this if my business was my primary source of income, but for the most part it just provides me with extra spending money. This year my goal is for most of our holiday shopping budget to come out of my earnings at craft shows this fall. I really need to figure out how much money I want to start out with in 2011 (to reinvest in my business) and add my holiday shopping budget to that so I can come up with a concrete number to work towards!
Megan – Thanks for the great post. This is Laura from Outright.com. This is an important topic this year because of the Paypal 1099. Paypal (and others like Paypal) are going to be required to send 1099k forms to anyone who sells more than $20k and 200 items on Etsy or eBay. This means that the IRS is going to know exactly how much each crafter is making and the onus will be on the crafter to show their related expenses for write offs.
Hey Megan, This is Art from Tasha apparel. We sell women’s wholesale clothing for over 8 years. Not until 4 years ago did we open an online store. Best decision. Our monthly bills are reduced so much now that we mainly operate from online instead of having multiple warehouses and stores. We ship worldwide, which makes things easier for us to sell wholesale clothing to small and medium size businesses so they can have clothing for their customers. We use to spend about 30k every month just in space and locations. Now prices are cut to more than half and our sales at Tasha apparel, have more than doubled with a website for wholesale clothing.
Your articles are great and we agree with knowing a monthly income is a good tool to use that will allow you to check how good things are.
Thankfulness to my father who informed me about this weblog,
this weblog is actually remarkable.
– cliquez ici
– cliquez ici
– cliquez ici
– cliquez ici
– cliquez ici
– cliquez ici
Howdy outstanding website! Does running a blog like
this require a great deal of work? I’ve absolutely no expertise in computer programming
but I had been hoping to start my own blog in the near future.
Anyhow, should you have any suggestions or tips for
new blog owners please share. I understand this is off subject nevertheless I simply wanted
to ask. Cheers!
I think the admin of this site is genuinely working hard for his
site, as here every material is quality based stuff.