December 17, 2011

5th Day of Christmas

The 5th Day of Christmas = Five ... Golden ... Rings


Or more specifically, in our world, profit.


Having just come off of Cyber Monday, it's obvious that we have no clue how to calculate profit.  Or take a look at an income/expense statement for any Federal, State, or Local government, and you'll be reminded that we have no clue how to calculate profit.


In 2012, we should make a commitment to calculate the profitability of all of our activities.


Think about e-commerce for a moment.  On a typical day, you run a profit and loss statement, one that looks something like this:


Now, the rest of the world is going to cheerlead this event into the stratosphere.  They're going to tell you that your business increased by 150% by offering 30% off plus free shipping.  They're going to tell you that this "changes everything".


Yup, it sure does change everything.  It means that you lost money, and if you keep this up, you'll make the pundits happy, but you'll be out of business.


It's not hard to calculate profit.  Sit down with somebody in Finance, and have that person set up a "quick-and-dirty" profit and loss statement for you, preferably in Excel.  Have the individual teach you how to calculate profit.


Then start calculating profit.

2 comments:

  1. Kevin

    Once again, a perfect small insight. In all of my years, I have been astounded by the number of owners and CEOs of direct marketing businesses who are unable to understand that simple analysis and/or who simply do not calculate profit.

    There are only three maxims that matter in business:

    1. Nothing happens without margin;

    2. Even less happens without profit;

    3. Cash now is better than cash later in every instance.

    Regards

    Don Libey

    ReplyDelete