One of the main goals you have to set when you start a small business is maximizing your profits. This has become an easier task in the computer age with the emergence of sales and inventory software for small business and other powerful business tools. Applications like DataQlick save you precious time and money and streamline your management process.
But the sales and inventory software for small business is just one aspect of the business equation. In order to increase your profit and understand costs, you must be able to tell the difference between profit and profit margin.
You are already familiar with what profit is: in mathematical terms, it’s the total revenue minus total expenses. For example, if a bookstore sells $400,000 worth of books a year and the total expenses to operate the store (rent, advertising, staff, heating, cleaning fees and so on) amounts to $300,000, then the annual profit of the book store is the $400,000 revenue minus the $300,000 expenses which equals $100,000.
Calculating the Profit Margin
If the profit is measured in dollars, the profit margin is measured as a percentage and represents the store’s profitability, that is, how much it keeps in earnings from the total sales. To find out the profit margin of the bookstore, the profit must be divided by the total sales generated – $100,000 divided by $400,000 equals 0.25 or 25%.
When it comes to inventory supply management, it is of paramount importance to understand that increased revenue does not always lead to increased profitability. Now that you understand this difference, it will be easier for you to control the costs. Although most business owners are looking to increase sales first in order to get a better profit margin, it should be considered that reducing the costs could have a bigger and faster impact on the profit margin.
A sales and inventory software for small business will help you manage the costs successfully and improve your profit and profit margin. A powerful platform such as DataQlick provides you with the right tools for an inventory supply management process that is effective and worth investing in.