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Part 3 of 12FREE

Revenue Is Not Profit

Reading Your Numbers

Situation

Sandra's salon does $31,000 a month. She works 62 hours a week. She just hired her third stylist. Everyone says she's killing it. She hasn't paid herself in 6 weeks.

What do you do?
A) She needs more clients
B) She needs to cut costs
C) She needs to read her P&L

The Number That Lies

Revenue is the most dangerous number in your business. It tells you things are going well when they might not be.

Looks Successful
Salon doing $30K/month. 60-hour weeks. After everything: nets $1,000/month. Below minimum wage.
Actually Successful
Cleaning company doing $8K/month. Solo. Low overhead. Nets $4,500. Works 35 hours.

Five Numbers That Actually Matter

Revenue
Target: Growing month-over-month
Flat 3+ months = growth problem
Gross Margin
Target: 60-80% for most small businesses
Under 50% = underpriced or labor inefficiency
Labor %
Target: Salons 35-45% / HVAC 30-40% / Cleaning 45-55%
Over benchmark = overstaffed or underbilling
Net Margin
Target: 10-20% healthy / 25%+ exceptional
Under 10% = one bad month from red
Owner Pay
Target: Market salary PLUS 10-15% profit remaining
If business can't support both, model isn't working

Walk Through a Real P&L

Real Salon P&L$28,500
Revenue+$28,500

What came in the door. Not what you earned. Not what you kept.

Cost of Goods Sold-$5,700
GROSS PROFIT+$22,800
Rent-$4,200
Staff payroll-$9,500
Insurance-$680
Marketing-$850
Utilities + software-$1,400
NET PROFIT+$6,170
Owner pay-$4,000
TRUE PROFIT+$2,170
From The Practice

Every number you just walked through is worth reading weekly, not yearly. Compare each line to your industry benchmark. That 33% labor cost? Catching the drift early is the difference between a quick adjustment and a crisis.

Cash Flow vs Profit: The Silent Killer

Cash flow, not profitability, is the most commonly cited cause of small business failure. A business can be profitable on paper and broke in the bank. Both can be true at the same time.

Cash Flow vs Profit$2,170
P&L says: $2,170 profit
Monthly revenue+$28,500
All expenses$-26,330

The P&L looks healthy. 7.6% net margin. Let's see what the bank says.

Your Cash Flow Risk Score

Four quick questions to assess your cash flow vulnerability right now.

Cash Flow Risk Score
Do you have invoices more than 30 days past due?
Yes
No
Did you make any large cash purchases this month?
Yes
No
Did you prepay any annual expenses this month?
Yes
No
Is your bank balance within 2 weeks of covering all fixed expenses?
Yes
No

Your Real Hourly Rate

Most owners never calculate what they actually earn per hour. Include everything: service delivery, admin, invoicing, marketing, driving, thinking about work at 11pm.

Your Real Hourly Rate
$
$

Include everything: service delivery, admin, invoicing, marketing, driving, emails, thinking about work at 11pm.

The Opportunity Cost Nobody Talks About

If you could earn $65,000/year as an employee with benefits, PTO, and retirement match, that's your baseline. When your business nets $45,000 before owner pay, you're not making $45K. You're losing $20K compared to the job you left. Plus no health insurance, no paid vacation, no 401K match. This isn't meant to discourage you. It's the math that makes your pricing decisions rational instead of emotional.

Knowledge Check

Salon: $30K revenue, $7K COGS. Gross margin?

23%
30%
70%
76.7%
Takeaway

Revenue is vanity. Profit is sanity. Cash is reality. You need all three numbers, and they are never the same number at the same time.

Pass the knowledge check above to complete this module.

Educational use only

This course is general business education, not legal, tax, accounting or insurance advice, and no client relationship is created by using it. Rules vary by state and by situation, and rates and thresholds change. Calculators here are estimates meant to frame a conversation, not to produce a filing figure. Confirm anything that carries money or liability with a CPA, attorney or licensed broker who knows your specifics.