| Are you at the stage in your life where you are thinking of ways to increase your income? I too am looking for investment ventures that can make me some serious money not only to set me up for retirement, but to also generate enough to allow me to take my children to the best schools and also go on some nice holidays. So it’s not uncommon for me to explore new business ideas. Last week, I came across Moringa leaf farming. A friend had told me about it and so I decided to do some research online to find out more. I came to discover that the Moringa plant has been around for many many years and that it’s leaves are very, VERY nutritious and used to make herbal supplements. The tree is very easy to grow especially in the tropics and it is a super food with a huge demand especially from Europe. So naturally, my eyes started seeing dollar signs and I was very interested to find out more about how one might go about growing Moringa trees on a commercial scale. So I did some more research. However, I found out that it is very labour intensive. You need a team of people to pick the leaves, wash them and dry them etc. You also need special equipment to dry the leaves, grind them into a fine powder and turn them into tablets/capsules in a sanitary environment. So this made me wonder how much it actually costs to run a Moringa tree venture. Yes, it might make you a lot of money in sales, but how much of it is profit? You see, business is not just about how much money you can make in sales. Neither is it about how much volume you can sell. However, many people get distracted by these numbers and end up starting businesses based on the perception that big sales and/or high volume will amount to big profits. Business is a Margins game, not a Volume game. It’s about how much of your sales is left over as profit after you have deducted all your costs. That’s one of the most important things to consider when contemplating a new business venture. What is the Profit Margin? The best way to describe profit margin is through its formula: Profit x 100 = Profit Margin % Sales Therefore 50% Profit Margin means that 50% of your sales will be profit. A 4% Profit Margin means 4% of your sales will be Profit. Typically, the higher the business margin, the harder it is to sell, for example, a Jewellery business. Diamonds will be harder to sell than bread and milk which have a low margin. It is easy to sell food. But as a consequence, more people will try to sell food, which drives the prices down reducing the margins further. It’s not to say that you should not venture into low margin businesses. What I am saying is that you need to know what margins you are working with in your business, because this will inform your business strategy. So I’ll leave you with this question… What is your business’ Profit Margin? Do you know what it is? Is your business strategy aligned to your low or high Profit Margins? Join the ‘Simple Finance for Small Businesses’ community. |
Business is a margins game, not a volume game
