Are you making hand crafted products and wondering why you're working hard but not making enough money? I might have the answer for you.

A Common Mistake

A common mistake entrepreneurs and handcrafters make is thinking that if you're selling your product at double your cost, you're making 100% profit.

Surprise - there is no such thing as 100% profit.

Profit is always figured as a percentage of your selling price, not by comparing it to your costs. Here's a handy formula for you.

Profit % = ((Selling Price – Costs) divided by Selling Price) x 100

For example, if your product costs are $20.00 and you sell your product for $40.00, here's how the formula would work:

$40 (selling price) - $20 (total costs) = $20 (profit dollars)

$20 (profit dollars) divided by $40 (retail price) = .5

0.5 x 100 = 50% profit

So when you double your costs, you're making 50% profit. But what if you're selling that same product for $27?

$27 (selling price) - $20 (total costs) = $7 (profit dollars)

$7.00 (profit dollars) divided by $27 (retail price) = .26

0.26 x 100 = 26% profit

The only businesses that can succeed on 26% profit margins are businesses that rely on extremely high volume turnover. Is that you? Could you work fast enough to handle high volume turnover and not burn out?

Of course, those profit margins only apply if you have actually added up all your costs. Did you factor in overhead, income taxes and labor in case you have to hire help when you grow? If you haven't factored in overhead, income taxes, labor and other "unseen" costs, you are making even less profit.

According to the Small Business Association, the number one reason small businesses struggle is because of financial issues. Just like this one. Business success really is "black and white" - it's determined by the real numbers you calculate on paper.