Planning 1998 Profits
How much will you need to make this year -- $20,000, $30,000, $40,000, more? To begin, take the amount of money you want to make in 1998 and divide it by 50. Assuming you will take two weeks off for vacation, you have 50 weeks this year to earn your income. Let's say you wish your Desired Income (salary) to be $30,000. Divided by 50, that means you must earn a Weekly Income of $600.
Now, take your 1997 Cost of Doing Business and divide it by 50 weeks. This figure includes your telephone bill, utilities, bank charges, office supplies, car expenses (gasoline and maintenance) and all of the other business expenses not included in the cost of the goods you sold to your clients. Let's say this amount was $20,000 for 1997. Divided by 50, that gives you $400 in Weekly Business Expenses or overhead.
What is your markup on the wholesale cost of goods? In other words, when a client selects a fabric, what percentage do you add to your wholesale price to create the retail price? If you wish to make a 40 percent profit on a fabric that wholesales for $10, take the wholesale price and divide it by .60 (60 percent) to get a retail price of $16.67. This 60 percent becomes the Percentage of Markup. If you wish to make 30 percent profit, divide $10 by .70 (70 percent) to get a retail price of $14.29. In this case, 70 percent is the Percentage of Markup. If you use 50 percent as your Percentage of Profit, a fabric that wholesales for $10 will sell to the client for $20. For the rest of our example, let's assume you will work with 50 percent as your Percentage of Markup.
Next, add your Weekly Income ($600) and Weekly Business Expenses ($400) to determine your Weekly Requirement ($1,000). Dividing this amount by your Percentage of Markup (50 percent) equals $2,000 as your 1998 Weekly Sales Goal to cover your expenses, cost of goods sold and income. That means over the 1998 year, you must average $2,000 per week in sales, or $100,000 in Gross Revenue ($2,000 X 50 weeks) for the year, to generate $30,000 in income for you. This formula will work no matter what Desired Income you choose, just plug in your numbers.
Remember, as a self-employed individual the federal and state governments will take at least 20 percent of your net income for the various taxes you are required to pay. You might want to figure that into your desired income -- otherwise a $30,000 income becomes only about $24,000 after Uncle Sam gets his share. Also, remember that any state sales tax will be charged on the 1998 Gross Revenue figure. If your Gross Revenue is $100,000 and the state sales tax is six percent, you will collect an additional $6,000 in sales tax that will be submitted directly to the state.
Client Goals for '98
You also might want to look at your Desired Income in terms of the number of clients you see. Take your 1997 Gross Revenue and divide it by the Number of Clients you serviced during the entire year. If your 1997 Gross Revenue was $75,000 and you worked with 70 clients, then $1,071.43 is your 1997 Average Sales per Client. If you anticipate the same amount of sales per client in 1998, then divide your 1998 Gross Revenue Goal ($100,000) by your Average Sales per Client ($1,071.43) to determine 94 as the 1998 Required Number of Clients to make your $30,000 income goal.
Of course, you rarely sell to every client you see. Check to see how many appointments you made last year to determine the 1997 Total Number of Client Prospects Seen. If you had appointments with 210 client prospects in 1997 and sold to 70 of them, then your 1997 Number of Appointments per Sale was three -- you sold one out of every three clients. This means your 1998 Total Number of Client Prospects Per Year Goal is 282 to sell to 94 clients (94 X 3 = 282).
There are three options you may wish to consider. Option 1 is to strive to increase your sales average per client to $1,500, an increase of 40 percent over last year's average of $1,071.43. If you maintain the number of clients you had in 1997 (70), not only will you meet your Gross Revenue Goal but surpass it ($105,000)!
The second option is to take your 1998 Gross Revenue Goal ($100,000) and divide it by your increased Average Sale per Client ($1,500). You'll find you must sell to only 67 clients to attain the income you desire for 1998. If you still sell to one out of three client prospects you will need to see only 201 clients to make your $100,000 goal. You would end up working with fewer clients and making more money!
Susan Dudics-Dean is an interior designer and owner of Celestial Designs. She currently works in the greater Washington, DC, area with residential and commercial clients and consults with other designers. She has had a successful business in the San Francisco Bay area for more than 15 years, and is active as a professional speaker in the areas of
interior design, sales and Fung Shui.