And then there’s the not-so-short answer: business profitability relies on more than a few factors, including the type of business you own, your operating expenditure, and the strategies you use to grow your business.
In other words, the average timeline to profitability hides a lot of variables.
While it may take time to see real profits, there are steps you can take to speed things up. We’ll cover why some businesses see profits sooner than others, how to measure profitability, and strategies to help you get to profitability faster.
Profitability depends on business type
Your small business will only start making a profit once you’ve paid overhead expenses and taxes. So the less you have to pay to run your business, the quicker you’ll reach profitability.
Think about freelance service providers like graphic designers, virtual assistants, or IT consultants. For these types of businesses, profitability can happen quickly since you aren’t dealing with a lot of overhead.
On the other hand, businesses with high manufacturing costs, commercial spaces, and a handful of employees, can take longer to turn a profit. The same goes for companies in competitive markets or start-ups that spend a lot of money on customer acquisition. For these companies, the expectation is long-term profitability.
Measuring business profitability
There’s a big difference between being “ramen profitable,” or netting just enough profit to cover a founder’s basic living expenses, and “corporate profitable,” aka having capital after all expenses, taxes, and salaries are paid.
To estimate when your small business will actually start making money, you can use a simple calculation to find your break-even point (BEP). This is the amount of product (or hours of service) you need to sell to cover your expenses. Every sale after that counts as pure profit.
Calculate your BEP with this formula:
Break-even point = Total fixed costs / (Sales price per unit − Variable cost per unit)
Say you rent an artisan coffee kiosk for $500 a month and pay yourself a monthly salary of $1500 ($2000 total fixed costs). You buy coffee beans and other supplies in bulk for an average of $1 per cup of coffee (variable costs per unit) and price each coffee at $5 (sales price per unit).
Your BEP would be:
500 = $2000 / ($5 − $1)
Using this formula, you’d have to sell 500 coffees every month to break even. After that, you’re turning a profit on each coffee you sell.
4 ways to become more profitable
If you’re looking to speed up the time it takes to become profitable, we’ve outlined some ways you can dig into your business finances and find potential growth opportunities.
1. Find ways to reduce overhead
You don’t need to focus all your attention on sales to become profitable. Sometimes the answer is right in front of you. Look at every part of your business to find opportunities to lower costs and reduce overhead.
Buying a laptop for a new employee? Source gently-used or refurbished goods. Need transportation for your landscaping business? It’s easy to find second-hand vehicles that cost far less than brand-new models.
You could even switch your whole operation to a remote working model, helping you save cash on office space, utility bills, and insurance premiums.
Further reading: For more cost-cutting suggestions, check out 25 Ideas for Cutting Costs (Checklist).
2. Focus on selling smarter
Can’t reduce your costs? It might be time to look at the other side of the equation: growing your revenue. By keeping a close eye on monthly revenue trends, you can tell what is and isn’t working in your business and make profit-boosting adjustments.
If growing revenue were easy, we’d all be billionaires. Still, there are three key ways to move the needle and make more profit for your small business: increasing sales, raising prices, and listening to your customers.
Increase sales volume: Sell smarter by building a pipeline of prospective customers while at the same time incentivizing existing customers to buy more. If you own a retail or ecommerce business, use thoughtful upselling to increase the average size of orders.
Raise your prices: Pricing is an ever-evolving art, and there comes a point in every entrepreneur’s journey when it starts mattering to your bottom line. Sometimes it’s easier to raise your prices by 10% than reduce your costs by the same amount. This is especially relevant for small business service providers. Look at the value you bring your customers and charge accordingly.
Listen to customer feedback: Selling starts with listening. Incorporating customer feedback can help you add more value to your product or service—and more customers will soon follow. Just remember to account for variable costs as your sales grow.
3. Outsource time-consuming tasks
You could spend hours navigating the latest marketing trends, crafting sales emails, or getting in the weeds of financial spreadsheets. And many entrepreneurs do. But paying an expert to handle tasks you don’t like or aren’t knowledgeable about can be a much faster route to profitability than struggling alone.
Take business accounting. If you’re not on top of weekly bookkeeping, monthly bank reconciliations, and other financial reporting tasks, getting your books up to date may take hours or even days when you finally get around to it. That time could be better spent following up with new leads or brainstorming new ideas to increase profits. Outsourcing to a service like Bench (that’s us) gives you a team of bookkeepers paired with easy-to-use software for far less than it would cost to hire a personal accountant.
4. When in doubt, pivot
Before Slack was the fastest-growing Enterprise software, it was a collaborative video game called Glitch. Spoiler alert: it failed.
Once it became clear Glitch wasn’t on a path to profitability, its founder Stewart Butterfield ditched the game idea but kept an internal chat tool their developers built to talk to each other. This crucial pivot led to a wildly profitable SaaS platform, a $27.7 billion Salesforce acquisition, and a total reshaping of how teams communicate at work.
If your product or service isn’t making much headway in the market, it’s always worth trying a different approach or positioning your business in a new market.
Whatever you do, try to stay flexible and open to opportunities you hadn’t considered at the beginning of your small business journey. You never know when profitability is around the corner.
How Bench can help
Not sure when your business will achieve profitability? Without detailed recordkeeping, you’ll never have the full picture. Bench provides easy-to-use accounting software with zero learning curve to help you get the financial insights you need to grow your business—fast.
With Bench, you’ll get an income statement that shows you exactly how much money is going in and out of your accounts and a balance sheet that gives you a big-picture look at the overall financial health of your business. Plus, our intuitive financial dashboard means every business transaction and performance metric is at your fingertips, making it simple to make profit-driving decisions at a glance.