As I talk with business owners of all stripes, I often find that they use the words “profit” and “revenue” interchangeably. For instance, when I ask them about their financial goals, I might say, “How much do you want to make in 2018?” They may answer $75,000. When I ask if they mean $75K in profit or in revenue, I get a blank stare. Today, I want to give you the tools to answer that question with confidence from here on out.
Revenue is the money you bring into the business. So if you charge $100 for someone to rent a couch. Your rental revenue for that order is $100. If you rent it 5 times in the month, your revenue will be $500. If you also charge $50 each time for delivery, you’ll have delivery revenue of $250 and total revenue of $750. Are you with me so far?
That revenue is also called income in your business. This is where it can sometimes get tricky; when you work for someone else, you refer to your paycheck as your income. When you work for yourself, the income in your business isn’t your personal paycheck, it is that revenue number, the top line, the big numbers that come in first, before anything gets subtracted.
If you’re looking at a financial statement, you’ll see these numbers on your Income Statement as Revenue or Income. They are at the top. You add up everything you bring in to get your Gross Revenue or Gross Income.
Then you subtract your expenses.
Many many many people tell me that they don’t have any or very many expenses in their rental businesses. I find this very hard to believe. If you’re in business, you’ve got expenses. Here’s what I mean:
- Cost of purchasing inventory items
- Cost of storage (warehouse rent, storage unit, container rental, etc.)
- Gas (for deliveries, but also for purchasing trips, to and from meetings, etc.)
- Labor (for deliveries, cleaning, organizing warehouse, etc.)
- Truck Costs (rental, lease, or purchase of trucks or trailers for deliveries)
- Office Supplies
- Computers & Technology
- Marketing & Advertising
- Legal & Professional Fees
- Business License(s)
It is in your best interest to keep track of and report all of your expenses as a business owner. While you obviously want to be successful and make money in your business, you want to be accurately reporting your revenue and expenses. Keeping accurate financial reports allows you to pay the right amount in taxes (rather than over pay or under pay), lets you know what is really happening in your business (so you can make better decisions), and sets you up for long term success.
Once you’ve got an accurate list of all of your revenue and expenses, that amount left is your profit. Depending on how you’ve set up your business, that might mean the profit is what you take home as your personal income (remember that paycheck you got when you weren’t working for yourself). Or, you may have a salary already built in as one of your expenses so this profit is extra money… money you can choose to do whatever you want with. You can reinvest it in the business or take it out as payment to yourself.
Going back to our magic number at the beginning, if you want to make $75,000 in 2018, we’ll want to first define what you mean by that. If you mean $75,000 in profit, we’ll need to know your expenses. If you’ll have $50,000 in expenses, you’ll need to generate $125,000 in revenue in order to have $75,000 in profit. That’s a very different goal than generating $75,000 in revenue.
I want to encourage you that you can do this. Event rental businesses are great models for scalable growth. There is a lot of potential for people who have curated collections, lean infrastructure, and are savvy with their marketing. Strive to increase your revenue without increasing your expenses (focus on utilization— rent more of what you have before you buy more, maximize the space you have with vertical storage before moving, etc.).
Remember that volume is a key to success in the event rental industry and don’t be afraid to have an empty warehouse every weekend. That should be your goal. Rent what you have before you buy more so you can have more profit at the end of the year.