Sales, profit and cash are three different numbers
A busy counter can still be a losing business. Here is the one number most owners never calculate.
Ask a shop owner how business is going and most will answer with sales: “Aaj ₹18,000 ka counter hua.” Sales feel like success. But sales are only the first of three numbers, and the other two decide whether the business survives.
1. Sales: what came in
Sales is every rupee customers paid you, before any cost. It tells you there is demand. It does not tell you whether that demand is making you money.
2. Contribution: what each sale leaves behind
Take away the costs that move with every sale: the stock you sold, packing, delivery and payment charges. What is left is contribution. If you sell a ₹100 packet that cost ₹78 to buy and ₹2 to pack, each sale contributes ₹20. Your contribution margin is 20%.
This is the number most owners never calculate, and it is the most useful one they have. It tells you how much of every ₹100 of sales is actually available to pay rent, salaries and yourself.
3. Cash: what is in the drawer
Profit on paper and cash in hand are not the same. Give ₹40,000 of goods on udhaar this month and you can show a profit while struggling to pay your supplier. Buy three months of stock for a discount and your cash disappears onto the shelves.
Put the three together
An illustrative example: a store sells ₹3,00,000 a month at a 30% contribution margin, so ₹90,000 is left after stock and packing. Rent, salaries and electricity come to ₹60,000. Profit is ₹30,000. To break even, the store needs ₹2,00,000 of sales a month, about ₹7,700 for each of 26 working days.
Now the owner knows something powerful. On any day the counter crosses ₹7,700, the rest of that day's contribution is profit. And if a discount drops the margin from 30% to 25%, break-even jumps to ₹2,40,000. A “small” 5% discount needs 20% more sales just to stand still.
Do this today
- Pick your five best-selling products and write the buying cost plus packing next to each selling price.
- Work out the contribution per unit for each one.
- Put one month's numbers into the Profit & break-even tool on this site.
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