Net Profit - How Much Is Enough Part 2

Continued from Net Profit - Why It Is Important Part 1

So how much net profit is enough? The short answer is 15% or more. Where does that number come from? My personal experience, coaches, and business owners I have interviewed. I found that a monthly, quarterly, and yearly net profit of 15% or more rewards me for my efforts and the cash reserves to build up 3 - 6 months of my run rate (monthly company expenses) quickly. When your net profit is 10% you are basically at break even. Why? The closer your net profit gets to break even, or 0%, the more cash flow problems you can get into when your monthly revenue fluctuates. Have you ever sold two houses in the same month and then did not sell a home for two months or more? Increasing that net profit can provide the cushion you need to ride out the ups and downs.  What does that number look like?

Non Example:

  $210,000 house sold

- $185,000 cogs

= $25,000 GP (11.9%)

- $15,000 expenses (fair salary and company expenses)

= $10,000 Net Income (4.76%)

Example:

  $210,000 house sold

- $160,000 cogs

= $50,000 GP (23.8%)

- $12,000 expenses (fair salary and company expenses)

= $38,000 Net Income (18.1%)

On these two examples what changed? In the example, the house rehabber bought the house at a better price and paid less for the same rehab (labor and materials). They also cut some waste from their monthly expenses and these efforts paid off. Now, this is easier said than done, but it can happen. How? It needs to be in your plan from the beginning. If you agree, disagree, or have a question, please put it in the comments. Thank you.