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Net Profits, what is acceptable?

Discussion in 'eCommerce News' started by Ken Lee, Feb 15, 2016.

  1. Ken Lee

    Ken Lee Founding Member

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    Hi Guys,

    This is just a query on the cost to make money, IE the total outgoings V the total money in.

    What is an acceptable net profit for a business each month.

    Lets have a very simple example, If I was to spend $9000 to make $10000 that would be a 10% net profit. Now that to me seems unacceptable but when you read up on this it seems many industries have a low net profit!

    Whilst many think this is ok I see it as profitless prosperity.

    On the other hand if you are building a business would the business as it's revenue increases increase in value even though the margin stays the same, is this what makes people continue operating in this margin or is it best to ditch and find a more profitable product or line?
     
  2. paulwarren

    paulwarren Administrator Staff Member

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    For me, net profits don't really come into it.

    For the first few years when I am building a business, I just want to be constantly growing the assets in the business, whilst keeping the cash burn rate at a manageable level.So as an example, in an eCommerce business if I'm spending 10k a month and each month I'm bringing in $100k a month (with 10% gp), then that is a good result, but if I'm also bringing in customers to my newsletter lists, then that is a very positive result.

    To be clear: If I spend 10k and make 100k, but get 5000 customers as a result of that in the process, that = amazing.

    I am even prepared to lose money for the first 12~ months, because I consider a customer database to be very valuable. On the back of that, you're also building up all the other 'trust' & 'relationship' related components to your business, such as search rankings, customer testimonials, supplier relationships, etc... There are heaps of positives.

    If you look at companies like Theiconic here in Australia, and all the other businesses they run, they literally always burn way more cash, than they make, but they do so because their plan is to sell those companies to bigger players, for massive profits. They can do this because they have the funds to so. If I had the same funding in my back pocket, I'd do the same thing.

    I would only do it in certain industries though, like mass-merchant retail stuff. I couldn't see it working well in your industry as I don't believe there would be enough volume there for you and the margins would not be big enough.
     
  3. Ken Lee

    Ken Lee Founding Member

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    Thanks Paul, appreciate the response. I was thinking the same, just needing confirmation! Your 10K to 100K profit would be nice :)

    Numbers are like bikini's, they show nearly everything but leave some of the important things covered.

    For instance, if you have had a fitout, this goes into the equation, booking stuff and spending on returns in the future etc. We can also look toward tax time hopefully there should be a reward then that enables further growth and capital.
     
  4. Adam Weise

    Adam Weise Founding Member

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    It's hard to judge in the initial start up phase, especially because it seems like one way traffic - IE: out the door quicker than you can make it. I know I'm in the building phase still - getting new studio equipment/accessories/lenses etc so most of the money coming in from bookings funds something else.

    I suppose the old need to spend money to make money is always true - profit is profit at the end of the day, percentages will grow as the business grows.
     

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