Financial stability comes from having recurring revenue streams that you lock-in place by executing contracts or having some “subscription” base to what it is you deliver. In contrast, you will not have much stability if you run a one-off transaction model which is often the case when a customer pays you and you never see the customer again. Stability is also challenging when your business depends upon one or two customers only or the business is very seasonal (such as selling Christmas trees in December). You want to get the customer to come back under some type of arrangement so you have stability. The key is to have multiple revenue streams developed that have recurring sales transactions over an extended time period and this usually will require some type of subscription type offering.
If you want a decent level of profits, then I would suggest you make sure your gross margins are 40% or higher. If your gross profit is below 40%, it’s hard to have a decent profit level. Sales Revenues less Direct Cost of what you deliver to the Customer = Gross Margin or Gross Profit. Gross Margin divided by Sales Revenues = Gross Margin Percent (must be at least 40%).
Report Matt's answer
So I have been trying to make sure that our business sustains itself. How do you make that happen? I think I need help with retail and wholesale pricing for sustainability. From my calculations we are at 66% but it doesn't seem like enough or I'm not calculating right. Help.
Report Trina's answer
If you don't already have a running income statement that tracks the revenue, expenses and of course net profit, I suggest that you start with one. Once you have a picture of what the current state looks like, then you can run different scenarios on increasing revenue, adjusting cost to get a sense of what it takes to get to financial stability. Matt already mentioned above that recurring revenue is key. You can also look at your cost to see if there is anything that you can control better to achieve a better profitability.
Best Wishes, Sally
Report Sally's answer
Malaysia hello. You may want to evaluate your business plan and measure your performance. Then see how you can go from the current level to the expected one. Enjoy the process and have success.