I’m trying to get my mind around my finances and want to put this in terms I, someone who isn’t bad at math but isn’t super, can understand. Something like the title says - for every dollar I spend in X service area of my business, I get $Y back."
So for an area of my business, let’s say that I sold $100,000. With COGS and salary, it cost me $40,000. My gross is $60k, or 60%.
So back to my question, in this case is it “for every $1 I spend in this area, I get $1.40 back”? I just can’t get me head around this, so thanks for the help.
** and yes, I know there are more things to consider like other overhead and operating costs, but I’m trying to keep the example simple.
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I like to break things like this down into a dollar figure. Typically i shoot for a 100% return on every dollar spent, but it can 70-80% depending on circumstances. Rarely does a project go so bad that i make less than 50%.
This is incredibly narrow and potentially misleading advice.
Margins vary wildly between industries.
also sounds sketchy. dont know what his business is but it sounds like he is ripping people off.
That is rude.
Eh, you get into thing like Saas, where your expense is ad spend and lifetime income of a subscription is far greater.
But apply this 100% number to physical goods/retail… you’re going to have a bad time.
yeah i mean i could be legit. I mean you can make bank with an atm business without ‘spending’ anything but gas. whether or not you consider that ripping people off is debatable… Ho hum, ill just sit here quietly making my 6 cents on the dollar whilst getting told I charge too much…
50% net margins are ripping people off now?? what happened to this being a business subreddit?
It’s perfectly normal to make 50% net margins if you have good suppliers and a high-demand product.
hes saying 100% tho…like i said…not sure if its sketchy, might not be.
We’re a med spa, so i think in terms of service areas, but I do get what you’re saying . Ty
does this help
with every four dollars I spend(40,000), I get ten back (100,000)
(can you extrapolate that?)
Yes, this makes sense to me. I appreciate it
Note that COGS is not your only cost. You have indirect costs which may be fixed or recurring, but do not scale the same with sales revenue.
So, at $40k of COGS, you might bring in $100k, but that doesn’t mean that 250% ratio will be necessary, scalable, possible, or competitive at $200k, $500k, $1MM of revenue.
Total Revenue: This is the total amount you sold, which in your case is $100,000.
Total Costs: These are your expenses, including COGS (Cost of Goods Sold) and salaries, which total $40,000 in your scenario.
Gross Profit: This is what you earn after subtracting the costs from the revenue. In your case, $100,000 (revenue) - $40,000 (costs) = $60,000 gross profit.
Now, to find out how much you earn back for every dollar you spend, you divide the gross profit by the total costs:
Return per Dollar Spent = Gross Profit / Total Costs
In your case:
Return per Dollar Spent =$60,000 / $40,000 = 1.5
So, for every dollar you spend in this area of your business, you actually get $1.50 back. This means you are making a 50% return on each dollar spent.It might help to use basic financial statement.
Volume 100,000
Price $10
Gross sales $1.0 million
Cost of goods (truly variable cost)
Credit cards $30,000
Supplies $150,000
Utilities $50,000
Maintenance $25,000
Returns $10,000
Total COGS $265,000 (26.5% of sales)
Margin $735,000 (sales – COGS) 73.5% of sales
Operating expenses
Advertising $24,000
Insurance $12,000
Labor $200,000
Management $52,000
Total OP $288,000
NOI $447,000 (margin – OP) 44.7% of sales
NOI less debt and depreciation = net profit before taxes
COGS ($265K) / volume (100,000) = $2.65 unit variable cost
Fixed cost is total OP. Since price $10 (or average sales) is known, you can calculate breakeven.
Breakeven = fixed cost ($288K) / price ($10) – UVC ($2.65)
Breakeven = 39,344 units