As we approach year-end, business owners everywhere are mapping out their journey for 2025. Like Alice, without a clear profit destination, most will approach their pathway through wonderland the same way as always: add an arbitrary percentage of 5% or 10% to this year’s sales and hope to stumble upon some profits along the way.
The most successful business owners are smarter navigators. They know that profit isn’t a lucky discovery made along the path – it’s the most important destination. Just as you wouldn’t start a cross-country trip without knowing where you’re heading, you shouldn’t launch into a new year without choosing a clear profit destination.
Profit — Not Sales — Is Your North Star
Think of profit as your company’s true north – the destination guides every other decision and opportunity. It’s what allows you to:
- Fuel your company’s growth through reinvestment
- Navigate debt repayment and maintain healthy cash flow
- Chart your course to appropriate owner compensation
- Build value for your ultimate destination: a successful business transition
The “Breakeven PLUS” Navigation System
Of course it takes sales to reach your profit goal, but do you know how much sales it takes to meet your company’s profit requirements? Your breakeven sales represents milepost #1 on your roadmap to profit, but your true destination lies beyond that point. We call this “Breakeven PLUS.” You can easily calculate how far beyond breakeven your revenues must go to reach your chosen profit destination.
Here’s how successful owners chart their course:
- Choose the Profit Destination
Instead of leaving profit to chance, they calculate precisely how much they need for:
- Cash reserves to leverage opportunities or manage challenges
- Growing current assets, like accounts receivable and inventory
- Planned equipment purchases and upgrades
- Debt service requirements
- Owner compensation and returns on their investments
- Plot the Revenue Route
With their profit destination defined, they use their cost structure and the Breakeven PLUS formula to estimate the sales volume needed to reach that destination.
Breakeven PLUS becomes their guiding number – a sales target based on data-driven coordinates, not guesswork.
- Create the Dashboard
With a clear sales target in mind, work backward to establish sales and marketing dashboard metrics – the measurable activities that keep the sales team on the right track.
- Average transaction value – from past experience, modified for new upselling and pricing strategies
- Number of transactions – sales divided by average transaction value
- Conversion (win) rate targets – from past experience, modified for new selling and training strategies
- Lead generation goals – Number of transactions divided by conversion rate
- Cost per lead – from past experience, modified for new marketing strategies
- Marketing budget – Leads goal times cost per lead
Operations will need a dashboard developed from a similar process to determine the resources needed to produce the work:
- Required staffing based on past experience, modified for productivity improvements planned
- Required equipment based on past experience, modified for fleet or management improvements
- Required systems and administrative infrastructure based on past experience, modified to resource the support for sales, operations, product development, acquisitions, or other strategic initiatives.
- Use Navigation Tools Along the Way
Regularly monitor the dashboards for each functional area of the business, comparing actual results to the planned milestones. Use a 5-Line P&L to get quick insights into how the business cost structure is changing. This is important feedback on the impact of your strategic initiatives for sales, productivity improvements and cost efficiency.
And use the Magic Number as a decision analysis tool throughout the year. Know how much revenue is needed to cover a dollar of incremental fixed cost increase. Using the Magic Number when considering investments in systems, staff, advertising, expansion or other fixed costs increases the odds of making more profitable decisions during the year.
Want to learn more about the 5-Line P&L, your cost structure, or the Magic Number? Check out this related blog post, What Does A Successful New Business Have in Common with Liam Neeson, or our online training series called Breakeven PLUS: Your Profit Planning Power Tool.
Chart Your Course for 2025
As you plan your journey for 2025, resist the temptation to set your sales goal based on an arbitrary increase over 2024. Instead:
- Set Your Profit Coordinates
Be specific about how much profit you need for debt service, reinvestment, and owner compensation. Look ahead for the next five years. What profit do you need to start generating annually to build the value you need for a successful exit?
- Plan Your Route
Create detailed plans for reaching your sales targets, including marketing initiatives, operational improvements, and team development.
- Master Your Navigation Tools
Understand your cost structure and use it to determine precisely what sales volume will get you to your profit destination. Learn your “Magic Number,” the revenue needed to cover each dollar of increased fixed costs and make it part of your decision-making toolkit.
- Use Dashboards to Bring Your Crew Along
Share your destination with your team and establish a regular system of tracking KPIs that measure progress towards your goals. Use these check-ins to celebrate progress and address roadblocks sooner rather than later. Ensure your team knows your company’s Magic Number and can use it to make better financial decisions.
Remember: Profit isn’t a lucky break found along the way. It’s the destination that every successful business journey must reach.
Make your 2025 plan more than a vague course for more sales. Plot data-driven coordinates for the mileposts each functional team must reach. Define a profitable destination first, then chart the course to get there.
More Resources
Ready to start plotting your course to higher profits? Here are some resources to help you begin:
Business Owners and Managers – Are you a business owner or manager looking to make more profitable decisions for your company? Check out Profit Soup Online, 14 courses, available 24/7, including our most popular series, Breakeven PLUS: Your Profit Planning Power Tool.
Network Managers and Advisors – Bring financial training that sticks to your clients or franchisees. Available via live presentations at your next conference, our acclaimed Profit Soup Online series, and Profit Labs — live cohorts of business owners facilitated by your team members. Learn more here.