How To Calculate Your Home Business Profits

As I have started consulting with small business owners, I have noticed that when people don’t treat a business as a business, it can cause mental stress and chaos for the whole family.

A non-thriving business creates financial stress and relationship strains as expectations aren’t met and you are giving too much energy and money to an idea that isn’t bringing home an income. For every idea, investment or change, you should review all the pros and cons (called a cost-benefit analysis) of moving forward or abandoning the proposed changes and then make a decision based on what the analysis shows you.Taking the time to run a cost-benefit analysis will guide you in determining if the home business you are considering (or involved in) will be worth your time, energy and investment.  

COSTS

For any business, there are 3 costs that need to be considered, the start-up costs, the overhead costs and the unexpected costs.

Start-up Costs

Start-up costs can include sign-up fee, supplies, payment processing products, licensing and possible inventory. Direct sales companies tend to have a start up cost between $100-$150, but most companies have a minimum order or inventory requirement that must be made in the first 30 days. This inventory cost should be considered part of the start up costs, if it is mandatory that you order it.

Ovehead Costs

Small leak sinks great shipsOverhead costs are your month to month bills, such as the phone bill, sample products, giveaway costs, gas usage, oil changes, insurance, etc. If your company has a minimum required order every month or quarter, orders would be placed on the overhead costs after the intial order to start-up. If you are a doing a side hustle such as ride-share driving, remember that the wear and tear on your vehicle needs to be included in the overhead costs.

Unexpected Costs

Planning for unexpected costs, such as new tires or a fee you didn’t realize you had to pay, is essential to helping you be successful. Give yourself an emergency fund of at least $200-$500. If your business is using your car or home (such as ride-share gig  or babysitting in your home), you may want to consider building a larger business emergency fund, since these types of emergencies can cost significantly more money. When you are running a cost-benefit analyisis, here are the questions to consider  –

Can you afford to invest in the initial start-up fees without having to borrow money?

Will the business be a burden to your personal budget if you had a no-profit month?

How much must be ordered or sold every month/quarter to ensure you ‘stay active?’

Are you able to sustain the minimum order requirements with just the products you would use?


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TIME

The next category you need to consider is how your business will use your time. Time equals money! Your 9- to-5 corporate job says your time is exchanged for your paycheck, so your business need to be doing the same thing for you.

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As a writer, I say my time is worth AT LEAST $30 an hour, anything less than that really isn’t worth my time. Yes, sometimes we use our time in exchange for something besides money (kindness, goodness of heart, charity), but your time should always be exchanged for SOMETHING you value. You need to decide how much business you need to make an hour, so that what you are doing is worth your time.

Optimize Your Time

You need to make sure your business is using your time efficiently. For instance, my husband knows the best way to optimize his ride-share driving is to drive when people predictably need a ride (early morning on their way to work), so he drives during that time. In direct sales, I learned to combine single appointments (you know, the ones who ‘don’t have friends’) into a larger group appointment, which optimized my time and gave everyone new friends.

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Protect Your Time

When you work for someone else, they don’t want you Facebooking or surfing the web on “company time.” Why? That’s simple, these activities are not bringing the company money. You need the same attitude about YOUR business. You need set times that you are working and times that you are not working. If that friend can only meet during work hours, then she needs to bring 2 more friends and allow you to do a sales presentation. If they don’t want to do that, well, they need to wait until you are ‘off work.’ Work is work time, not socializing or housework time. Set those clear boundaries. Here are some questions to consider about the time analysis of your business –

How much time can you honestly commit to your business a week?

For appointment-based, how many hours will each appointment take?

How can you combine appointments or minimize how much time you use?

What is the farthest you will drive for an appointment/delivery?

EARNINGS POTENTIAL

The last main category of a cost-benefit analysis is wheither there is a true earning potential or not. There are 3 areas of earning potential we need to look at.

Profitability

That sounds like a ‘duh,’ right? However, it is AMAZING to me how only a few people are truely making an income from their side hustle. For instance, if you sell a product that is $15, but your cut is only 30% ($5 each sale), how many do you need to sell to bring home $1500 a month? Yes, you need to sell 350 of those ‘amazing-I-can’t-live-without-them’ products a month to bring home a part time income. Once you add in overhead costs and time used, that $1,500 will probably shrink by a few hundred dollars, so you need to be selling even MORE products. Is that a good company to buy into?

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Sellability

An amazing product sells. Period. A good product needs a great salesperson to make it sell. See, people only buy things because it solves a problem or need for them. That’s it, that is why they will buy your products. For the same reason, if your product doesn’t solve a problem or need, they won’t buy it. Maybe your selling point isn’t connecting with your audience, or maybe you don’t truely believe in your product. But sometimes, the products just don’t make sense, like trying to sell pet shampoo to people without pets. You need to think about whether your product makes sense with your audience and whether you would even buy it.

Passive Income

At some point, you want to start creating a passive income from your business. A passive income menas that you are earning income with less or no work involved. These are return clients who love your products or ads on a blog (Join shareasale.com, Earn Cash!) or by building a sales team under you (click here to join our sales team). A passive income allows you to increase your income and decrease your work load, which is why it is something that should be seriously considered when you are working your home business. Here are some questions to answer to determine the potential income you can recieve from your business – 

How many clients/appointments will you need to make a full-time income?

Did you buy AND use the products prior to selling them?

Do you truly believe that your products are solving a problem or a need?

How does your company create passive income?

 

So, what do you think? Is your business a great or not business? I know some of you have read this and realized that you picked the perfect option or have figured out how to make your business work. That is awesome!!! Or you may have realized you need to find another business option. Good for you! Now you can find something that is worthwhile and can really bring you in a great income! The rest of you are saying, “Well…. I see what you are saying, but I love my products and gig, I can make it work!” Weeeeell… you probably can’t make it work, but if you still love it, then call it a hobby. Take the pressure off of your gig/direct sales by bringing in an income another way and just have fun with your gig instead. 

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Now that you know the difference between oppurtunities that can be a business and the ones that can’t be a real business, leave us comment and let us know the direction you are going with your business now that you have ran your cost-benefit analysis. Whichever direction you go with your business, I hope you find peace, balance and joy in what you are getting to do.

Yes, I include affiliate links in all my blogs, it gives me the chance to stay home with the little one. I get paid a little each time you click and buy from the included links, but I only recommend products that I use myself. Thanks for helping our dream of being a full-time blogger come true! ~ Lydia Y-S.

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In need of more information for your small business or side hustle?

Check out these other blogs –

5 Principles of Money Management For Side Hustlers, Direct Sales and Entrepreneurs

A Breakdown of 15 Tax Deductions For The Normal Guy Running A Home Business or Side Hustle

4 Reasons Our Budget Needed A Makeover… and a guide to help you do the same!

40 Ways to Make Extra Income For the Holidays, part 1 

25 thoughts on “How To Calculate Your Home Business Profits

  1. Good post. Any home business is hard. Being self-employed (at any stage) is very hard and requires focus and a lot of analysis along the way.

  2. You make such good points here! A lot of people don’t realize how much money their small business is costing them in both their precious time and money and end up losing money in the end.

  3. Wow, reading this made me smile! My daughter is having trouble in her civics class and I was just explaining to her the cost-benefit analysis! This was a wonderful post, thanks for sharing.

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