Business profitability and business growth: What is what?

No matter in which business you are, you must know that there are two, key elements here. One if business profitability and another one is growth. Both of them are equally important, but both of them are completely different as well. We will explain the both of them, so you can realize what is your priority and how you should make your business better.

Business profitability

In essence, business profitability is the profit your company makes. It is probably the main reason you have a business and it is the most important one. However, it is also the one that is the most complicated to improve. The next fact to know is that the business profitability is the ultimate goal, and it is a mistake trying to improve it at the beginning.

Don’t think that the profit is a complete amount of money you earn within a month or a year! The actual profit is a difference between the complete earning of a business and costs you had in the same time frame. For example, if you earned $5.000 in one month, but your expenses were $4.000, your actual profit is $1.000. The main thing to know is that profit should be higher than the costs you have. The more the merrier in this case.

Business growth

All business will start small, there is no other way. You will have to pay attention on your business itself, the facilities, services, products, employees and etc. in order to develop a business that has some potential. Now, you have come to the business growth we have mentioned. It is something you should consider after you have developed your business to the point it is profitable, therefore we may say that business growth comes after business profitability.

In simple terms, growth can be explained as an estimate. You are planning to increase profit, therefore, you must grow. This includes the number of potential clients and the number of products/services you have sold. The only way to grow is to extend your business. You can use the internet and you should open branches to other locations. The main goal is to make your business better-known and more successful.

Formula for calculating the gross profit

In order to make your business successful, there are some simple formulas you will have to use. The simplest one is:

(Revenue - cost of your services) / Revenue = gross profit

Simply, we will explain this number as the difference between the revenue and cost of your services (how much money you have spent on maintaining your business) divided by the revenue. The end result is shown in percentage and the more is always better.

We added the formulas so you can use it in combination with the business growth. The business growth is successful if your gross profit shows results. If you invest in the growth, but the gross profit stays the same, you are losing money. The cost of services includes all elements which drain funds from your business.