Sales or Profit – Vanity vs Sanity

Sales or Profit – Vanity vs Sanity
I can’t tell you how many times I’ve heard “my business is doing well; my sales have increased 40%.” Big deal! What I prefer to hear is, “my net profits have increased 40%.”
Any businessman knows (or at least, they should) sales don’t paint the complete picture of how a business is doing, and it can often be deceiving no matter the direction. The focus really should be on ‘net profit’ since it reflects if you truly make money.
Business is all about increasing your net profit, not a gross profit and large sales. No matter how much your sales and market share increase, it’s rather pointless if it doesn’t make you money. I often say, “larger sales are pure Vanity; net profits are Sanity.” It’s your choice to decide which road you desire.
A boss who runs a business without considering the net profit will soon be left behind with large bills, which he is unable to pay.
I had an example of this with a client who ran his business on pure Vanity.
I suggested that he reduced his sales by 30%, eliminating the large multinational companies who always paid late and wanted everything at a lower price. These customers were basically bullies and my client had a big ego and wanted to boast that he supplied the big names in industry!
I said if he followed my advice and reduced sales by eliminating these large companies he would turn a small $3000 net profit into a much bigger amount. However, the task at hand was to get through to him that reducing sales didn’t mean reducing profits; in fact, it would result in the complete opposite.
After much deliberation, he finally sided with Sanity. With this move, even though sales were reduced by $750,000, the net profit increased by 33% to $100,000.
As you can see, you should not be driven solely by sales. Yes, you need sales to generate business, but always consider the value of the sales and look carefully at the net return the sales provide.
If you do this, clearly you are not driven by Vanity but by Sanity. Congratulations!