Do you run a profitable business? Have you ever thought to yourself, “I think my business is doing well. I mean, I bring in $200K a year in sales, so I think so…”?

First off: Kudos to you for bringing in $200K a year in sales! That is really amazing and something to be proud of.  But my question to you is this: If you say “I think my business is doing well,” do you actually know? (Here comes a mindset shift — are you ready?)

The 3-Step Trick to Determine How Profitable Your Small Business Is

1. Stop Focusing Only on Sales

You don’t want to look at your business and decide whether you’re doing well or not solely based on services sales. 

Don’t get me wrong. Earning $200K as a business owner and solopreneur is kickass. But I want you to make a profit. 

I hate to break the news to you, but if you’re bringing in $200K in sales and you’re only making $20K in profit, your business isn’t doing well.

We are so conditioned to only focus on sales. But the magic happens when you understand your benchmarks and when you stay within budget each month. And then, of course, you also have to look at your profit margin.

2. Calculate Your “Above Average” Profit

For booth renters or suite owners, the average profit is 25%–35%.

If you are a commission-based salon owner, then a 10% profit would be just above average. Which is awesome. But you don’t want to be average. You want to be great!

3. Calculate Your “Very Healthy” Profit

 >50% for Independent Contractors and Booth Renters

To put it simply: A healthy business has a healthy profit margin. So I want to switch your mindset a bit from only focusing on sales, to paying more attention to the middle (expenses) — which then dictates your net profit. That’s the money shot.

Net profit is what you are left with after expenses and, of course, what you pay taxes on. Target net profit for my salon suite owners and renters is at least a 50% profit. So if you are bringing in $200k per year in sales, and after all your expenses, your net profit is $100k — that’s a very healthy business, right? 

~20% for Salon Owners

Right now, the average commission salon owner is profiting about 8-8.5% in profit.  I coach and teach commission-based service providers to aim for 20%. I was able to do it in my salon business, and you totally can, too!

Check Your Numbers Regularly (Monthly) 

To hit the 20% goal, there really has to be equal focus on top line sales (aka total gross revenue) and what your expenses are each month. This is why profit and loss statements are so important to pull each month. 

You can do this on your own through a platform like Quickbooks. This will allow you to see your sales versus your expenses and where you have to cut back to make more of a profit. 

One area most stylists and owners overspend in is back bar supplies such as color, brushes, and lightener. This is an area to definitely cut back on, especially if you find you have seven tubes of one color that you use once every three months. 

Getting on a consistent ordering cycle and cutting out your trips to your local beauty supply is key. The whole “kid in a candy store” kicks in when you go into the beauty supply store, which allows you to overspend on things you don’t need. I would also highly recommend getting into a routine of pulling this every month. 

Better yet, hire out. I believe in hiring experts to manage your books if your budget allows.