Why is profit - the main indicator of business success

Often, entrepreneurs are focused not on. When they talk about the results of their business, then brag about the number of outlets and employees, turnover, traffic to the site. And in words, it looks cool, "I have three outlets," "I have 100 million turnover in the year", "I attendance 5000 users per day."

But to evaluate the business on these indicators properly. They show a distorted picture. And seemingly successful business can exist on the brink of survival.

Illusions that hinder to evaluate the success of business

1. It is imperative to get bigger

Entrepreneurs are attracted to the scale of their business. They believe that the bigger it is, the greater the earnings, which brings the company. But this is not true.

At Vladimir was a furniture shop in the district center. Entrepreneur consistently took away from the cash register 150 000 rubles a month. But it was not enough. He decided to open two more stores in the regional center. The population of more income, too, people are more active - so the sale will go, the profit increase. But something went wrong.

Before you open new points Vladimir counted only increase sales. About the new spending he did not think, and they were many. Transportation of goods, new warehouses, costs of opening stores, rent, salaries - on all the money goes. In addition, competition in the city anymore.

For the year of the maximum monthly profit of the shops in the regional center was 15 000 rubles. Another good thing that a loss does not have to work. But Vladimir is still worth thinking, there are all his works of 15 000 rubles.

business scale is impressive, and profit at the same time a little.

2. The more traffic, the more successful the business

Entrepreneurs like to assess the business in terms of turnover. But that's what these are speed, delicate forget.

Pasha sells office furniture. He turnover of 8.5 million rubles per month. Pasha wanted to take myself out of business 400-500 thousand rubles a month.

Financial reports It showed that such costs will be to the detriment of the business. Yes, there is a profit, but it does not exceed 430 thousand rubles. Due to regular prepayments from customers under the impression that it is more. Clients paid, and the goods received only 12 days, so the cashier accumulated a lot of money. In fact, it was the customers' funds. Most of them relied suppliers.

If Pasha began to take the desired amount not allocated money to develop, over time, the business would be unprofitable. It turns out that a large turnover, and the profit is much smaller.

3. The main thing - to invest in marketing

Market indicators suitable for assessing the work of marketers. To evaluate the effectiveness of business they do not help.

Leonid online gift shop. For the week to March 8, he has decided to allocate 300,000 rubles for advertising. There was a lot of orders, only manage to deliver. On March 7 and 8, he decided to spend more on advertising 400 000 rubles. Marketer reported on the 2000 purchases of the week.

March 9 Leonid calculated results of the festive period. turned lesion 200 000 due to the fact that too much money is spent on advertising. But from a marketing standpoint everything is fine, you can brag about the number of sales.

Entrepreneurs often forget the most important thing - profit

Business efficiency should be evaluated for profit. Other indicators - an intermediate step on the way to the key.

To properly evaluate their performance, the entrepreneur need a tool that connects the intermediate indicators with profit - financial model.

Financial Model - business planning tool.

It receives all key metrics: conversion, the average check, the cost price. Finmodel shows how the growth of these indicators increases profits.

Finmodel not work without intelligence from the business manager. For example, you have calculated how much the business will increase attendance at the 5000 visitors per day, and saw profits increase by 150 000 rubles a month. Inexperienced head immediately run to give the task a marketer. A sensible entrepreneur first learns the price issue. Maybe 5000 visitors will cost 200 000 rubles. Then he will start to look for other options, how to increase profits.

An example of a financial model →
Financial model template →

If Vladimir was the financial model before opening new stores, he would have seen that the costs will grow faster than revenues. Pasha would have learned that from his high turnover he earns little. Leonid would sales funnel that would show the best possible price for his application.

It is important to remember

• When there is a conversation about the business performance, the main thing - profit. Only if it's all right, head really well done. The rest often only creates the illusion of success.
• Other indicators are also needed (the average check, conversion, traffic to the site), but only when they affect the growth of profits.
• The influence of each parameter on income entrepreneurs looking for financial models. On it you can see how much it profits from the growth of an indicator.