Setting Business Profitability Goals

Jodee Redmond
To have a profitable business, you need to have a plan.

A business profitability goal determines the amount of revenue you need to generate from your business to meet your expenses and turn a profit.

Financial Goal Setting and Your Business

If you plan to run your business successfully, you need clear, specific goals in place. It's not enough to say that you want to make a lot of money. That isn't really a goal, since it's not specific and it doesn't include a series of steps to make it a reality.

Bottom-Line Goals

Instead, you need to decide how much profit you want your business to generate over the year. This could be a set dollar amount or a percentage increase over the previous year's sales. If this figure isn't a specific amount, you won't know whether you have reached your goal or not.

Income Goals

Set a specific goal for income and profit for your business. If you determine that you want to increase your profit by 10 percent over the previous year's figures, then you also need to determine how much more you need to collect in revenue to reach that goal. Part of reaching your business profitability goal is keeping track of your expenses.

Expense Control Goals

When you put forth additional effort to increase revenue, your business expenses might go up. This could include things like adding new products to your line or hiring more sales people to increase sales. The markup you charge customers for your products may need to be adjusted to generate more profit.

Ensure Business Systems Work Together

To reach your business profitability goal, you need to monitor the various parts of your business on a continuous basis. The main portions of a business include:

  • Financial: You won't be in business for long if you don't have a plan in place to manage cash flow, including accounts receivable. Having a business line of credit will help meet financial obligations promptly when customers are tardy in paying.
  • Sales and Marketing: Along with having a plan in place for moving products or selling services, you need a detailed marketing strategy for your business. Tactics need to be reviewed and updated because over time, the market you are trying to attract will change and evolve. The strategies that worked well in the past may not give the same results over the long term. A number of sales techniques will need to be used to keep your approach to customers fresh. Ideally, you will be able to establish long-term relationships with a good percentage of your customers. One of the keys to success is to turn a one-time buyer into a repeat customer.
  • Production: The production part of your business refers to such tasks as product development, manufacturing, and controlling inventory.
  • Personnel: This is the human equation of your business. It includes wages and benefits, along with the cost of recruiting and training staff.

Make a Plan and Track It

A detailed plan must be developed if you hope to reach your profitability goal. Once you have a certain figure in mind, you and your staff need to determine all the steps necessary to reach that goal and act on them. Review your company's progress at regular intervals, so you can continue with the strategies that work well and change or eliminate the ones that don't give the results you are looking for. There is no point in continuing with a strategy or a policy that is not adding to your business revenues after you have given them a good chance to pay off for you. At that point, it's time to try something else.

Your business profitability goal will be as individual as your business. Planning and tracking progress is key to making your business a success.

Setting Business Profitability Goals