# Profit Breakdown



## jseikel (Mar 16, 2011)

How do most of you break up your profit? We are talking about using our profits 5% for repairs 5% for upgrades 10% for supplies. What else should we do?


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## binki (Jul 16, 2006)

supplies would be part of your cogs, maybe even repairs. 

upgrades should be capital expenditures. 

are you taking a salary? if you are not then you don't have a profit. 

we kind of break it down like this:

salaries - 10-16%
rent - 5%
cogs - 30-35%
other monthly recurring costs - 10%
misc - 5-10%

net profit before taxes about 35%


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## jseikel (Mar 16, 2011)

What are cogs?


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## binki (Jul 16, 2006)

cost of goods sold


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## thutch15 (Sep 8, 2008)

jseikel said:


> What are cogs?


Any expenses that are direct to the certain item. Vinyl, ink, shirt... Also misc like inbound freight. Good rule of thumb is if it leaves your shop it is COGS. Sales - COGS is your gross margin.


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## Gyroink (May 30, 2011)

shouldn't you also take into account taxes so you not pulling out of your profit?


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## binki (Jul 16, 2006)

Gyroink said:


> shouldn't you also take into account taxes so you not pulling out of your profit?


there are 3 things you calculate. 

gross profit which is your selling price minus your cogs. this gives you your gross margin. so if you double your cogs your gross margin is 50% 

net profit which is your gross profit minus all other expenses but not taxes. after taking out this stuff your net margin should be around 35%. if it is not either your costs are too high or your prices are too low. fix on or the other or both. 

net after taxes which is all of the above minus taxes. 
we don't worry about this number because it should never make your profit 0 if you have a profit. it is quite possible to make a profit and not pay any taxes though. 

on a side note, in california and llc/llp c or s corp pays a minimum $800 franchise fee each year so that would be your minimum state tax. we also pay a few hundred bux to the city for business license (tax) and to the county for business equipments (1% tax on the value as they calculate it of all business equipment and non-saleable supplies)


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## Gyroink (May 30, 2011)

binki said:


> there are 3 things you calculate.
> 
> gross profit which is your selling price minus your cogs. this gives you your gross margin. so if you double your cogs your gross margin is 50%
> 
> ...



so basically, make 50% more profit than your cog and you'll be good.


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## Louie2010 (Feb 26, 2010)

Gyroink said:


> so basically, make 50% more profit than your cog and you'll be good.


 
A 50% gross profit margin is very good. Just understand that to achieve a 50% gross margin you need price it at a 100% markup. 

If you work on a 50% markup your gross profit margin will be only at 33%.


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## binki (Jul 16, 2006)

look here: Gross margin - Wikipedia, the free encyclopedia


we try to work on 80% margins or more before labor. as an example. if our cogs is 10 and our selling price is 50 then our forumula is ((50-10)/50) * 100 or 80%. 

you really cannot do well with a 50% gross margin. you will only have 15% left for labor, fixed and variable costs. you have to take into account that labor will be 16% and other costs 15% so with this formula at a 50% markup over cogs you will be below 20% before taxes. that is too low for this industry.

having said that, we do offer some products with nearly no profit but those products do bring in more business at our target or above. 

here is an example. we buy a shirt for 2 bux and put 2 bux of stuff on it (rhinestones or glitter) and sell it for $30 so our calculation is ((30-4)/30) * 100 or 87%. not a bad payday.


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## Louie2010 (Feb 26, 2010)

The labor cost to produce something should be part of COGS. Any expenses that are part of making a product are part of the COGS.


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## rndubow (Feb 18, 2007)

Don't forget to add depreciation, supplies. maintenance, rent, shipping and anything else that is a cost as part of your P&L statement.


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## chrisgayle (Jul 19, 2011)

The profit breakdown depends mainly on three influences- cost, competition and demand. It also depends on the product itself, tolerable profit margins and break even points.


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