Page 75 - Paulisms: Gold Nuggets for Small Business

That’s where Paul’s Funnel comes into it. If you imagine a funnel, at the left-hand side of the top lip is the first day of the month. The right-hand side lip is the last day of the month. Now see the sales arrows representing your product/widget’s sales going down through the funnel. These result in your turnover (A). Just below the surface of the rim of the funnel on the outside surface are the Cost of Goods (COGS) – the raw material costs associated with producing the product/widget (B). Your gross profit is your turnover less your COGS (A-B=C). In a month, your overheads are basically the same: rent, insurance, salaries, phones, electricity costs, etc. – these are all constant, you know what these are. Think of these around the outside surface of the funnel half way down (D). At the bottom of the funnel there are fewer dollar signs popping out as going in at the top. This is the net profit per widget after Cost of Goods and overheads are applied (C-D="net" profit).
Here is the game changer. Think: ‘How can I get more of those $$s going into the top and increase the number popping out of the bottom? I have these restraints on my business (e.g. fear of expansion, increased costs, capital available, why not do it myself, future work, etc.). How can I increase my profitability?’
You can do that by extraditing or contracting the work out and not by employing more people; for example, for installation, have someone else install it, or get someone to contract manufacture your product for you, so you can get more turnover down through the top lip.