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How to scale my business and finally profit

Tyler11

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Nov 20, 2019
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Hey guys!
I run a successful clothing line. We are projected to hit our 2019 goal of $2.2M in revenue by end of year. Growth is double from 2018.
I have 2 questions.

#1 How do we increase profits? When we hit $2.2M our expenses will be right up there close to that $2.2M. How do we further separate income from expenses?
Our main expense is inventory. For example, say we order 2000 tshirts. Each shirt is $10 per. That's a $20,000 order. That inventory will sit on the shelf for a few weeks until we sell them. We typically sell them for $25 per. So our profit is eventually there but not realized until they are all sold. In the meantime, we're ordering more shirts, or more hoodies, or more apparel. It seems we can't ever further distance our profit from expenses. It's a continuous cycle.

#2 All of our profit and revenue is immediately put right back into the business for more re-orders, staff salaries, operating expenses etc. At what point in a growing business does the CEO (myself) get paid? How does that payment structure look?

Any advice is greatly appreciated, I look forward to your insight!
-Tyler
 

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OP
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Tyler11

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Nov 20, 2019
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I'm a huge fan of the Profit First structure:

Sales – Expenses = Profit
Sales – Profit = Expenses

Here's a two-page overview.

Ask around to see who else is using it, and how it might help.
This sounds exactly like what I'm looking for. I will dig in, research and see if we can start implementing some of these strategies. Thank you!
 

Rafiko77

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Nov 20, 2019
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Hi can you tell us witch platform do you using to sell clothing ? You own website or selling through amazon ?
 

MoreValue

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Simple, add more value.

I can tell that you aren’t adding much value since your expenses high, meaning others are providing the value, not you.

This is what happens when you sell nonremarkable products.

$2.2M in sales, jaws drop. Says $2.2M in expenses. Just lol
 

Lucky Lu

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This is an awesome thread. So much value in here.

Are you selling online only or also retail? Do you manufacture by your order and desing or buy what your provider already makes? I'm guessing China?

Congratulations on your success, you will get that profit making a few adjustments.
 

1step

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Simple, add more value.

I can tell that you aren’t adding much value since your expenses high, meaning others are providing the value, not you.

This is what happens when you sell nonremarkable products.

$2.2M in sales, jaws drop. Says $2.2M in expenses. Just lol
This is just an asinine post.
You cannot tell the type of products or value he is selling based on his sales and expenses.


We recently started implementing the profit first system mentioned above, definitely recommend looking into that!
 

Jon L

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I'd be curious as to how your various expense categories matched up with industry averages. For example, if your warehouse expenses were 30 percent of revenue, and industry average is 15 percent, you know you have something to work on in the warehouse.

Not that you want to be average.

But its a place to start.
 

Antti

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I don't sell clothing but based on my experience in other categories there is simply not enough room for profit if your cost is $10 and you sell for $25. Have you tried raising prices? Buying for $10 and selling for $35 would sound much better.
 

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Jon L

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here's another question ... how well are you tracking your finances? Are you working with an accountant? If you're continually growing, you could be running into a cash flow problem, but still be making a profit, on paper at least. This is a pretty important point to nail down.
 

broswoodwork

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Hey guys!
I run a successful clothing line. We are projected to hit our 2019 goal of $2.2M in revenue by end of year. Growth is double from 2018.
I have 2 questions.

#1 How do we increase profits? When we hit $2.2M our expenses will be right up there close to that $2.2M. How do we further separate income from expenses?
Our main expense is inventory. For example, say we order 2000 tshirts. Each shirt is $10 per. That's a $20,000 order. That inventory will sit on the shelf for a few weeks until we sell them. We typically sell them for $25 per. So our profit is eventually there but not realized until they are all sold. In the meantime, we're ordering more shirts, or more hoodies, or more apparel. It seems we can't ever further distance our profit from expenses. It's a continuous cycle.

#2 All of our profit and revenue is immediately put right back into the business for more re-orders, staff salaries, operating expenses etc. At what point in a growing business does the CEO (myself) get paid? How does that payment structure look?

Any advice is greatly appreciated, I look forward to your insight!
-Tyler
Can you add a smaller higher margin upsell item at the register?

If my math is right, you're cranking the register 88k times per year, if 20% of the time someone buys something that puts another $5 in your pocket, without adding much in the way of additional expense, that could be your salary.
 

Icecreamchild

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Nov 13, 2019
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This is an awesome thread. So much value in here.

Are you selling online only or also retail? Do you manufacture by your order and desing or buy what your provider already makes? I'm guessing China?

Congratulations on your success, you will get that profit making a few adjustments.
where?
 

amp0193

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It seems we can't ever further distance our profit from expenses. It's a continuous cycle.
Either:
1. Intentionally slow your growth and focus on profit, not revenue.

or 2. Get a capital infusion to support the growth.


Growth at all costs, while being under-capitalized, is a mistake. You're one bad business cycle away from going under.

(Said by a guy who focused only on revenue, went through a bad cycle, and is now trying not to go under)


Read the book Simple Numbers, Straight Talk, Big Profits.
 

MoreValue

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This is just an asinine post.
You cannot tell the type of products or value he is selling based on his sales and expenses.
In ecommerce, you can actually.
99.9% of the time, based on the numbers he gave, he is selling low magnitude (value), high volume. Low margin businesses have little room for error.
And you can tell what type of product he is selling because he said what he is selling.

Long Term Solutions:
1) Develop new product with much higher value. (Recommended)
2) Reduce Expenses either by brining some processes in house, so OP is actually creating the value and not the manufacturer.

Although, there is upfront investment to do both of these. Not immediate solutions.

Short Term Solutions:
1) Penny Pinch, go through every expense and make cuts where necessary.


Your intuition isn't high enough. which is why you called my post asinine. He stated what type of product he is selling in the OP.
 

Walter Hay

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So far a very important factor has not been mentioned. Are you getting the products at the best possible price?

Profits begin with buying. If you pay too much the effect on profits is obvious. Therefore the first place to look for a possible remedy to your problem of insufficient margin is your buying process.

Here are a few questions that might help me to help you:
1. Are you importing?
2. If so, if it's not confidential, from which country?
3. What freight method do you use?
4. Is the $10 cost you mention a total cost of goods? A COG must include unit price ex factory + freight + insurance + freight forwarder charges + Duty on the total of those costs + sales tax (if charged at the point of entry) on the grand total of those charges + local freight to your premises.
If you use packaging and labeling as sales aids, which you should, that cost should also be added.

Other factors already mentioned by members should not be ignored, but in my view buying is most likely the #1 issue.

Walter
 

liero1

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Oct 17, 2019
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Also, you don't talk about marketing costs. Just because you sell a COG 10 for 25 still means you need a decent ROAS on your campaigns. Actually something around 1.8 just to break even. And as Walter said, is 10 really the whole COG.

28758
 

Lucky Lu

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The overall experience explained about a "successful" business with no profit is something to learn about.
Also the replies have a lot of value. At least according to my take. Every discussion about a real experience and possible solutions has a lot of value.

Cheers brother, can't wait to learn from you
 

Kid

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At what point in a growing business does the CEO (myself) get paid ?
Ugh... five years.
 

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@Tyler11 what is your gross margin? net margin? 5 biggest expenses as percent of sales?

DM me. Be happy to look through your P&L with you and see if we see anything!
 

CareCPA

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Also, don't confuse reinvesting into inventory as an expense. If you bring in $2.2 million, spend $2.2 million, but have inventory of $500k at the end of the year, then you didn't really break even.
Make sure your numbers are not on cash-basis so you have a true picture of your profitability. Cash flow =/= profit.
 
OP
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Tyler11

New Contributor
Nov 20, 2019
14
9
12
This is an awesome thread. So much value in here.

Are you selling online only or also retail? Do you manufacture by your order and desing or buy what your provider already makes? I'm guessing China?

Congratulations on your success, you will get that profit making a few adjustments.
Thank you!
We sell online. We use different manufacturers for different products. Each seems to have their niche they're good at. Most all made here in the USA.
 
OP
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Tyler11

New Contributor
Nov 20, 2019
14
9
12
here's another question ... how well are you tracking your finances? Are you working with an accountant? If you're continually growing, you could be running into a cash flow problem, but still be making a profit, on paper at least. This is a pretty important point to nail down.
Yes we are working with an accounting firm. We are definitely having a cash flow problem. We have a line of credit opened and use for re-orders
 
OP
OP
T

Tyler11

New Contributor
Nov 20, 2019
14
9
12
Long Term Solutions:
1) Develop new product with much higher value. (Recommended)
2) Reduce Expenses either by brining some processes in house, so OP is actually creating the value and not the manufacturer.
1) how do you recommended adding value? I personally think our product has a ton of value. All custom made, in the USA, details galore, ver high quality materials
2) We can definitely do this. Keep in mind the machines to print shirts/hats etc are not cheap. We're talking $100k+ machines. Also add a $30-$40k salaried employee to operate.
 
OP
OP
T

Tyler11

New Contributor
Nov 20, 2019
14
9
12
So far a very important factor has not been mentioned. Are you getting the products at the best possible price?

Profits begin with buying. If you pay too much the effect on profits is obvious. Therefore the first place to look for a possible remedy to your problem of insufficient margin is your buying process.

Here are a few questions that might help me to help you:
1. Are you importing?
2. If so, if it's not confidential, from which country?
3. What freight method do you use?
4. Is the $10 cost you mention a total cost of goods? A COG must include unit price ex factory + freight + insurance + freight forwarder charges + Duty on the total of those costs + sales tax (if charged at the point of entry) on the grand total of those charges + local freight to your premises.
If you use packaging and labeling as sales aids, which you should, that cost should also be added.

Other factors already mentioned by members should not be ignored, but in my view buying is most likely the #1 issue.

Walter

We are constantly researching new manufacturers, making new relationships etc to find the combination of best price and best product. It's definitely an on going process. Everything we print is in the USA.

The $10 per shirt was just a very generic example, not exact. That's our cost from the manufacturer. We set the price. Currently selling the shirts for $25.

Some hoodies for example are $16 per and we sell for $39.99.
 

Jon L

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We are constantly researching new manufacturers, making new relationships etc to find the combination of best price and best product. It's definitely an on going process. Everything we print is in the USA.

The $10 per shirt was just a very generic example, not exact. That's our cost from the manufacturer. We set the price. Currently selling the shirts for $25.

Some hoodies for example are $16 per and we sell for $39.99.
have you experimented with raising prices? for example, raise prices by 15% or something for a certain portion of the country, or for a certain small window of time, and compare it to similar locations/ days of the week or whatever makes sense.

Ideally, you'd find that you cut orders by a small amount with the price increase, but increase profit substantially.
 

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