CALCULATIONS
Calculate The Power of 3
See what is possible with your business.
Gross profit is the profit of your business after deducting the cost it takes to provide the goods or services.
What is the Power of 3?
How to Calculate for
eCommerce and Retail
Products
The calculation for Product Retail increased profitability is easy. Input your Gross Revenue (before fees) and enter your Cost of Goods Sold (COGS) — the Power of 3 calculation will show what’s possible for you.
How to Calculate for
Professional Services
The calculation for Product Retail increased profitability is easy. Select the ‘Professional Services’ tab on the calculator. Put in your gross revenue and enter your Salary and Wages. The Power of 3 calculation will show what’s possible for you.
At xendoo Online Bookkeeping, Accounting, and Tax, we believe in the power of small business!
Our dedicated bookkeepers and CPAs are committed to helping you grow your business by delivering timely, accurate financial reports and visibility into your financials. When you implement the Power of 3 in your business, our expert team will provide insight into your growth!
Crunch Your Numbers
Tools developed just for you: see return on ad spend, P&L forecasting, and more.
The Power of 3 Calculator
To see what the Power of 3 calculation can do for you:
– Product Retail — insert your monthly gross revenue and monthly cost of goods
– Professional Services — insert your monthly gross revenue and monthly salary/wages
Complete the entire form to see how much more you could possibly save.
| ORIGINAL | POWER OF 3 | |
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| ORIGINAL | POWER OF 3 | |
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FREE WHITE PAPER TO
EASILY GROW YOUR
PROFITABILITY
Get motivated with exclusive content written by CEO &
Founder Lil Roberts.
Profit vs. Cash Flow:
WHAT IS THE DIFFERENCE?
Profit and cash flow are key indicators of business health in different ways. Profit demonstrates immediate and short-term success. On the other hand, cash flow informs the long-term financial outlook of a company.
Profit, also referred to as Net Income, is the difference between income and expenses.
There are three types of profit: gross, operating, and net profit.
Cash flow is defined as all of the money that flows into and out of your business over a specific period of time. Positive cash flow means there is more money coming in than going out, while negative cash flow means that there is more money going out than coming in.
Profit is not cash flow. However, being aware of when cash flows into and out of your business will enable you to make informed financial decisions at the right time so that you do not run out of cash. The more visibility you have into your cash flow, the more profitable your business will become!
Improving Profit and Cash Flow
If you struggle with cash flow, you are not alone. It is a common struggle for small business owners! According to a U.S. Bank study:
Businesses thrive when business owners have financial visibility. As the best practice, financials should be reviewed monthly to ensure business goals are being met, plan for tax season, and make informed, data-driven decisions.
Here are some steps you can take to maintain a healthy cash flow and increase your profitability:
Adjust your pricing.
Some assume that selling more products will increase profits, but this is not necessarily true. The key is to ensure that your pricing delivers a profitable margin after factoring in all your costs for the product or service plus your overhead expenses (such as rent and insurance).
Know your industry metrics.
Research your industry metrics to see how you compare to your competition. This will show you where you place along the average and how you can accelerate to the top.
Review your Profit & Loss.
The Profit & Loss Statement can help you to predict your profit and trends months in advance. They reveal financial cycles in your business, such as holidays and other high and low periods that affect your sales. Examining your Profit & Loss Statement on a monthly basis will provide key insight into the financial cycles your business experiences.
Make your business easy.
Select a few Key Performance Indicators (KPIs) to focus on. For example, you could aim for a 20% bottom line (meaning 20% net profit). To achieve this, you must calculate the amount of sales you need to make and expenses (COGS and general and administrative expenses). This will keep you mindful of your cash flow and laser-focused on the steps you need to take to increase your profitability.
The Power of 3
The Power of 3 is a simple principle. It is the contrast of increasing one factor by a negligible 3%, while decreasing the opposite by 3%.
For example:
If you sell products
Increase the price of your product by 3%, while reducing your cost of goods sold by 3%.
If you sell time
Increase the price of your service by 3%, while reducing
your labor costs
by 3%.
If you manufacture a product
Increase your productivity by 3%, while reducing your waste by
3%.
All businesses, whether they sell products, time, or manufacture a product, can utilize the Power of 3. To illustrate, let’s take a look at a few examples:
A retail store that sells a product:
You sell t-shirts for $30. You increase the price by 3%, rounding up to $31.
For the other side of the equation, you may reduce your cost of goods sold in a number of ways:
This is an example of increasing the price of your product by 3%, while reducing the cost of goods sold by 3%.
Let’s look at an example of a business that sells time, a marketing agency, for example:
If your monthly retainer is $1,000, a 3% increase would result in $1,030. You could even raise it to $1,050.
For the reduction of 3%, you could implement software tools that may increase productivity, thereby reducing labor costs by 3%.
There are three types of profit: gross, operating, and net profit.
In this instance, you increased your price by 3%, and reduced your labor costs by 3% by increasing productivity through technology.
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The Numbers Tell the Story
To illustrate the two examples above, let’s take a deeper look at the numbers in action. Let’s start with a retail store that sells products:
By implementing the 3% increase and decrease in price and costs, this business owner was able to exponentially affect profits.
This is a clear testament to the effectiveness of the Power of 3! Now, let’s take a look at a business that sells time:
Businesses that sell time will see a remarkable lift in profits. They will also achieve more time from their team by increasing productivity and efficiency. In the example above, the business owner was able to:
By making minor tweaks to their prices and costs of production, these businesses were able to generate greater revenue, increase efficiency, and reap an impressive profit increase!
Your Online Bookkeeping and Tax Team
Our dedicated bookkeepers and CPAs are committed to helping you grow your business by delivering timely, accurate reports and visibility into your financials. When you implement the Power of 3 in your business, our expert team will provide insight into your growth!
