How do you earn a profit?

January 7, 2010 by Taylor Studios in Professional & Industry Tips

I think the word “profit” has gotten a bad rap. In some circles it is a dirty word. I think this comes from a misconception on how a profit is earned and how much profit is earned on average. Profit is similar to an employee’s wage. A wage is their profit for work well done. Generally employees want to earn more.

The obvious way to increase profit is to increase revenue and decrease costs. But in the long run how does a company do that? I recently heard that our Art Director, Jason Cox, often told new employees a swordfish story. Over ten years ago we were contracted to fabricate a swordfish as an outdoor photo op for The World Fishing Center. At the time, one of my inexperienced sculptors really wanted a shot at producing this piece. We gave him the chance. Unfortunately, when The World Fishing Center received the Swordfish they noticed that the eye was put in backwards. When I was asked what we were going to do by the client, I did not hesitate and I said we will replace it. Ten years ago we were small and struggling. This was a $10,000 hit and a very, very big deal to our bottom line (profit) and more. Ten thousand is big in general, but for a small growing company, it is huge. I made this decision because I knew our reputation and future ability to keep our doors open was at stake. We stand behind our product because we love what we do and we need to make a profit to do this.

Profit is not about gouging your clients. It is the absolute opposite of that. To make a profit and to stay in business you must provide value to your clients. You will need to provide more value than your competitors. Profit allows businesses to invest in new technology, which in turn provides better products to customers. Profit allows a business to expand, to offer higher wages and to be there for their clients to offer warranty services. I hesitate to say this, but it also rewards the owners. Without it there would be very few that would take the risk and make the sacrifices needed to create a growing business. If there is no profit, you go out of business and employees lose jobs. This in turn hurts vendors and the community that the business is located in.

I have asked others, what profit percentage do you think this company makes. The answers range from 5% to 80%. In general, most of the answers are much higher than is reality. For example the average construction company earns 5%, restaurants average 4 – 7%, Nike had a net of 10% in 2009 and oil companies average 8%. This means for every dollar of sales for these companies about five cents is net profit.

What profit percent does your company make and are you ok with that? How do you earn higher wages or higher profit?

Posted by: Betty