Starting a New Business Guide

8. Making your margins Starting a business is about making money and to do that you need to know your margins. How much does it cost for you to do what you do. Your costs could include your time, fuel if you have to get somewhere, materials you use and other expenses. You need to calculate that before deciding on what you will charge your customer. This is important as it will define where you will work, what work you will do and what you won’t do. If you need materials make sure you have researched where, when and the cost to supply them. Getting these as cheap as you can without losing quality will help you maintain your margins and make money. For some services, margins are quite easy to calculate, for others like catering this is harder as there are lot of extra costs. There are some simple rules out there. If you are going to sell food, you need to treble the costs of ingredients to stand a chance of making a decent profit.

Our example • You sell 100 Posters at £10 per poster = £1000 of sales • Cost of selling those goods with printing and shipping = £200 • Gross Profit (1000 – 200) = £800 • Other costs to the business e.g. website, phone, graphic design, storage, advertising = £200 • Net Profit (1000 – 400) = £600 Whilst it is great to make a £1000 sale, you must understand those margins. What is your net profit after all your expenses are accounted for? Keeping your additional expenses low will ensure you’re making a profit and putting money on your table. One way to think about your margins is to consider how much net profit you are making from every £1 you sell. Then consider what that amount is per hour of your time. If after a year of trading your net profit is less than then minimum wage it may be time to think about whether your business is truly viable.