COGS or Cost of Goods Sold is a really important part of running a business. And it is a part of the business that determines what your gross profit margin is going to be. It is a good indicator if you are fair price. I am always surprised by how many people don’t have this top line description on their profit and loss statement. I think it is a vital part and should be something that every business owner should know and see on a monthly basis.
Think of the COGS as all the expenses that you incur because you were hired to do the event. For example, if you had to rent a van, buy specific music for the special dances, pay a second person to come with you, rent some lighting, purchase a gobo or pay a commission (as well as some other expenses), you would add all these expenses up and divide them by the total amount you billed for the event. So let’s say these expenses equaled $450 and you charged $1000. Your gross profit margin would be 65% ($450/$1000). It costs you 45% in expenses. What you have left over after your expenses is what you use to pay your bills.
A general rule of thumb is for you to at least be above a 50% profit margin or you are too cheap and are going to have a tough time managing to pay your bills. A gross profit margin over 70% could be considered greedy and might be affecting sales.
So what is your gross profit margin? How much is it costing you to do each one of your events?
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