How much do you want to make this year?
Specifically, what do you want your business’s gross profit to be? This is all the money that you bring into your business minus the cost of goods sold (COGS).
Quick basic accounting lesson: When you purchase a sofa for $5000 (COGS) and sell it to the client for $7500, the gross profit is $2500 (not taking into account any additional shipping or installation costs). So your business’s gross revenue (all the money you bring into the business) minus COGS (the purchase cost of sofa or other goods) is the gross profit. Mainly, I don’t want you to have to think about the COGS because they basically pass through your business, while the markup and/or design fees are what are provide profit and income.
Alright, so how much do you want to make this year?
It can be $25,000 or $2.5mil, any number is valid.
The View from the Top
This is where many business owners flounder, they look at their income from a bottom — up view. They don’t want to limit themselves, so they just don’t call out a number. But when you create an income goal, you are starting from the top, this is how much I need to make this year. When you do that you can actively work toward that goal, rather than wishing and hoping you make money.
This gives you power in your decisions. It clarifies in your mind (or to the universe if you’re into that) what you need to do to make that income goal a reality by the end of the year.
Your income goal should meet or exceed the amount you need to make this year to make running a business worthwhile. Otherwise it’s a hobby. Again, this is something that is personal. Maybe it’s $25,000 this year to supplement your household income. Maybe it’s $250,000 to run your business, pay your mortgage, and put money away for retirement. You need to determine what your living wage is and if you’re willing to exchange your time in service to clients for anything less than that. (Are you willing to exchange your time for minimum wage? What if you’re actually spending more on childcare than you’re bringing in?)
Knowing your numbers is powerful. It gives you something concrete and specific. This means that you can create steps to get there, not crossing your fingers that you make a profit or worse, just break even. (Another good number to know: how much it costs to run your business.)
What To Do With Your Income Goal
So now you have an income goal. You know what you want to make this year.
Using your current offerings, you can figure out what you need to do to reach that number.
How many hours? How much time billing? How many clients? Packages? What size budgets?
For example, let’s say Anne wants to make $25,000 in her business this year. She could work 250 hours at $100 per hour. That’s about 5 hours of billable time a week. She could work 200 hours at $125 per hour. She could sell 5 packages at $5000 apiece. She could choose to take on one project with a $75,000 budget and charge a $6500 flat design fee plus 25% markup. Or she could do a combination of the above.
Reaching your income goal seems a lot more doable when you can break it down into project chunks like this. You know how much you want to make and you determine the components to get you there.
So now I ask you, how are you going to break down your income goal? What offerings or services are you going to focus on to make that goal a reality?
Take Action: Get out a sheet of paper and write your income goal at the top. Now break it down.