Is there enough profit for you to go it alone?
The question many professionals will ask themselves at some point in time, especially after a spat with bosses is; can I leave the company and become an outside agency and work from home, will this get me out of the office away from all the battle of egos? Can I escape the mismanagement and personalities, thus allowing me to concentrate on what I do best, and then hopefully make more money as an agent?
One such spat that inspired this blog was my very own recent meeting with a boss and renegotiating my marketing contract; I was perplexed to be told that after a 20% profit margin left from say 10,000 U.S.D average order value turnover, how could I expect to be paid as a contractual marketing team; no salary but an upfront fee of 20% of the net profit? Meaning I get 400 U.S.D. of just one order, it seemed so greedy to them.
If I was an agent I’d expect at least 10% of the gross order value before I even told them who the ordering company was, meaning 1,000 U.S.D. per/order for me!
Ignoring the obvious fact that without marketing their sales team would be twiddling their thumbs all day and production would be world champions of online Solitaire
I first argued that their forecast of 20% gross profit is very low given what I had already researched about the industries below, secondly when a second order comes in, the staff cannot work any more hours than nature can afford them, and you do not need to spend exactly the same costs again to produce a second order, you have already paid rent, salaries, electricity and other costs from the first order, in fact it is more often much less, so profits should, if managed well, grow with more orders.
In my third and final observation I also contested that a marketing budget is included in Sales, Goods, and Administration which any high school scholar will tell you; is taken out between gross profit and operation profit. like the figure below as an example taken from Investopedia
This approach they discussed with me indicated either the lack of elementary knowledge of basic accounting from the management team, or they knew it was poppycock and it was a test to see if I would accept their argument which would be an insult to my intelligence.
The stories of horrible bosses will resonate to the end of time I am sure.
It still amazes me to this day how some people in very well paid, high level Management positions, know so little about the many aspects of their business, and how little they can value a person’s role in their company.
A good boss is one who has a good grasp about what role everyone in the business plays and could actually be called upon to do any task within the business to a reasonable level at any time, and therefore appreciates you for your contribution and values you highly.
Praise is free, yet one of the most highly valued motivators of employees!
True leaders recognize that from the CEO making pivotal decisions of the livelihood of many they employ every day, right down to the cleaner, everyone’s job is valuable, and it is all needed to make the business work.
Nobody’s work is harder or less valuable to the company, if the cleaner did not clean the floor well and the CEO slipped and broke his neck and was unable to meet the Chinese delegation and their imminent billion dollar order whose job is more important?
Is that a slightly socialist point of view? My Dad would be so proud; maybe I can be the next shop steward.
One bit of good news is that if you are in marketing the future is bright, assuming of course you have a firm grip of online marketing, because the profit margin in this field is huge and the best in any sector I have seen.
For example I run a series of business directories and lead sourcing websites for the major players in UK and the South East Asian region and my running costs are less than $50 a month, we have 24,000 subscribers, 4000 registered companies, 50,000 average monthly visitors, and one sale covers my bills, you work it out.
Fortunately web design and online marketing is the one job you can truly take anywhere and make astounding profits.
Thus leads me to my blog subject; regarding average profitability and how to work out profits to see if you can escape the rat race and work from home.
My research tells me that average net profits vary industry to industry and is a good yard stick for investors and people starting out in business to see the future and longevity of what the industry that they are looking to work in.
One must understand profits: Net profit is the figure after all costs, marketing, administration, and other expenses, the bit that is left in the bank after all said and done.
You should pay yourself a reasonable salary within the first level of costs, if you read my blog on happiness at work you should be spending 10% of your salary frivolously on yourself so you won’t even be spending any of the net, it should be saved and carried forward each month.
Owners of Limited companies will pay themselves a dividend at least once a year from the net profit, which is a tax efficient reward over and above your salary. The bottom line Net profits are the profits you should aspire to.
Here is a simple breakdown to profit levels per a section of industries
The retail clothing industry had an average gross profit margin of 48.46 percent in 2009 according to my research. However, by the time you add up all the expenses involved in operating retail clothing stores, the average net profit margin is only 7.98 percent. If your expenses are typical, then around 7 to 12 percent net profit would be a reasonable goal.
The gross profit margin of the equipment and goods manufacturing industry was 31.98 percent in 2009. The net profit margin only works out to 6.81 percent, largely due to the pivotal costs of shops and staff in this industry. Unless your expenses are much less than your competitors, you want to aim for at least 6 percent and perhaps up to 9 or 10 percent net profit for your manufacturing business.
Gross profit margins averaged 86.51 percent for the telecommunications sector in 2010. While that seems like a healthy profit margin, overhead is very high in the telecommunications industry and the average net profit margin is only 10.99 percent. Assuming industry-average expenses, a palatable profit margin can be anything between 10 and 15 percent.
Retail Electronics Industry
The average gross profit margin in the retail electronics industry come in on the mid to low side at 30.76 percent, but like all retail businesses, employees expenses are relatively high and the average net profit in the industry is only 4.68 percent. A net profit in the range of 5 to 8 percent would be reasonable for a retail electronics store.
Scale of profits
Another important factor in working out a reasonable profit is the economy of scale of the business. A huge business like Walmart, for example, pays out very good dividends to their investors on a net profit of just a few percent on most items because of the volume of sales, but a local grocer with a small sales volume needs to make profit margin several times that just to pay her bills and make a decent profit.
Chief takeaway for me is that 30% gross profit, and around 10% net profit was always a figure that afforded a reasonable standard of living to anyone.
So to be a millionaire you need to be selling around 10 million U.S.D of whatever it is you do each year, now do you think you can tell your boss where to stick his job now?
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