Pick the Wrong Business

This is from my mailbag.

Dear Frank,
I am looking for some relationship advice.  You are obviously an expert, being married to a smart, beautiful, and successful woman.  I am coming off another bad relationship.  I tumble from one bad romantic relationship to another.  I need guidance on landing a super stud, Brad Pitt look alike, whose best quality is his humility, like you.  I seem to become dependent on men, never able to achieve my own identity and become financially self-sufficient and attractive to successful men.  I believe self-employment is the key to my self fulfillment.

I am considering selling promotional items.  After talking to the regional sales director, I know I can make $.33 on every dollar of sales.  I have expensive tastes.  So I need to make at least $100K per year to maintain my lifestyle.  Please help me.
Lovingly yours,
J. Aniston

Dear Jen - I mean J.,
Thank you for your sincere and well-deserved compliments.  Self-sufficiency is attractive in a woman.  One of the reasons, I was so attracted to Laura was her success and her achievement of an independent and affluent life.  She didn't need me financially.  I was just another bimboy that she could casually use and toss aside.

Let's explore your chosen business opportunity.  You gave me great information on your life goals.  That is a fantastic place to start.  You need to earn $100K in profit a year after expenses.  That, combined with knowing that you will make 33% in gross profit, gives us the making of a business model.

Maybe you are asking how I got the 33% gross profit percentage.  I got that by dividing the $.33 you make on every dollar of sales by $1.  That gives you one third or roughly 33% that you will make on every dollar in sales.  Of course, that is BEFORE any expenses other then the cost of the merchandise.

For now, let's ignore those other expenses, even though they may be significant.  We can come back to them later.  We can easily calculate how much in sales you will need to achieve to get $100K in gross profit.  To do that, we take the $100K sales and divide it by our 33% gross profit percentage.  That tells us that we need $300K in sales to get $100K in gross profit.  Let's stop here for some perspective.

Doesn't $300K in annual sales seems like a lot of coffee mugs to sell?  It does to me.  I have never seen anyone in this business achieve that.  I'm certain someone somewhere has.  Someone wins Powerball, just never you.  That's $25K in monthly sales and $822 per day.  Jen, if that hasn't scared you off yet, let's analyze this a little further.

Let's bring the other expenses back into this.  If we expect to spend $25K per year to achieve $300K in annual sales, we now need to sell not just $300K but $325K.  Our $100K profit goal recedes ever further into the world of pipe dreams.

Yes, the regional sales director told you thousands of women, just like you, have become wealthy selling these products.  Sales directors lie.  They make money recruiting lot's of sales reps, who each sell a little.  That adds up to real money to the company, but not a lot to the little people in the field, like you.  Here's a hint. That's the business model behind multi-level marketing, masses of asses each selling a little product.  In a lot of cases, a sales rep's sales largely consist of items they use personally.

Here's why so many people fall for the dubious pitches of sales directors.  They don't do the basic math we have done together to really know just what they need to sell to meet their goals.  Here's Frank's rule of business models.  If you can't figure out how your business makes money on the back of an envelope, it probably won't.  Take fifteen minutes to do some fifth grade math on your business idea.  Determine how much you need to sell to succeed.  If you can't sell that amount, get a regular job.  Self-employment in this business isn't the path for you.

Jen,  here is my personal advice for you.  With your looks, you might consider acting in movies.  Maybe, you should even start out in a wildly popular sitcom.  I think you have potential.  Best of luck in finding that special romantic relationship.
Sincerely yours,
Frank

As always, thanks for reading.  For daily snarky business advice, please like the Facebook page, "How to Screw Up Your Small Business."  Until next time, let's do it to them before they do it to us.

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