A simple P&L includes income, production costs (COGS), overhead, and profit. It suggests that profit is what’s left over. But profit shouldn’t be something you simply hope for.
A simple P&L includes income, production costs (COGS), overhead, and profit. It suggests that profit is what’s left over. But profit shouldn’t be something you simply hope for.

Last month, we looked at the importance of identifying overhead as the basis of your pricing strategy ("Price the Job Right, Starting With Overhead," May/15). Overhead is the closest thing you have to predictable costs, which means that you can create a budget for your overhead and be pretty confident of its stability. But there is a second number that you can predict with some certainty and that is absolutely essential to building a sustainable business: profit. This month we'll look at how to predict profit and why gross margin is significant.

While you can attempt to predict your sales, the actual incoming and outgoing dollars associated with production are going to be, at best, a rough estimate.

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