Lovely To Make A Profit

Written By:  Andrew Eide

Which is better to accomplish in your business? A profit? A loss? Break even? Anyone with any sense will, of course, state that making a profit if what being in business is about.

I’m going to use an example of selling book sets to families where you, the business owner, purchase the set of books for $200 per set and then you sell the set of books for $400. On paper you make back your $200 and make a $200 profit on each full sale of $400. However there are various ways of calculating things.

Say you sell 10 sets of books per month. You must purchase the 10 sets of books at a cost of $200 each for a monthly expense of $2,000. If you sell all 10 sets of books for $400 each you will make $4,000 which is a profit of $2,000. If you sell all 10 sets of books for $250 each you will make a profit of $500.

In most cases a smart business owner would ask for a minimum down payment from the customer that is what they paid for the books for sale. In our example today the business owner purchases a set of books for $200 from the book publisher and then they ask for $200 deposit from the person purchasing the books. This way the business owner will break even and not lose money and since the person purchasing the books made an investment of $200, which is 50 percent of the purchase price, they are likely to pay the business owner until the account is paid off rather than default on payments and have the books taken away.

In the example above if I am a business owner and I purchase 10 sets of books from the publisher at $200 each I spent $2,000 for inventory. If I only get from customers $200 each as a down payment I have made back my investment of $2,000 and I break even. Some would argue if that’s all I end up getting from the customers then I lost $2,000 but I say no that is not the case. Breaking even doesn’t mean you lost money. You broke even and didn’t make a profit. There’s a huge difference.

If you purchase the book sets for $2,000 and get full payment of $400 for each set sold you made $4,000 which means you recovered your $2,000 outlay for inventory and you made $2,000 profits.

There are some in business who, when confronted with this scenario, don’t want to accept that they broke even of made only 25 percent to 50 percent of what they expected to make after covering costs. You simply do not LOSE money when you reach the break-even point and for sure you do not LOSE money if you make even One Dollar over what you spent for inventory.

The concept is so simple that’s what makes it hard for some people to understand.