The Profit First Method is an accounting method made popular by business author Mike Michalowicz. The theory behind this method is contrary to the generally accepted accounting formula of sales minus expenses equals profit. This method states that sales minus profit equals expenses.
Michalowicz based his formula on Parkinson’s Law, which states that people have a tendency to consume a resource when it is made available. In business terms, the resource is your revenue or sales that are consumed by business operating expenses.
In this episode, we debate on whether this method is good for all types of businesses or if it can be applied only to certain types of businesses. Our listeners also give their two cents on this hot topic.
What To Listen For:
- What is the Profit First Method? (1:22)
- How profit first kills business growth by Sigrun (4:57)
- Parkinson’s Law applied in real life (5:40)
- Profit First: the good and the bad (7:09)
- Safety nets for businesses (14:05)
- A business needs about 3-7 years to make a profit (16:13)
- How Profit First could have changed a business (17:25)
- Every business (and the person running it) is different so the Profit First method could apply to some but not others (18:48)
- The value of paid users increases as the business grows (19:39)
- People need to understand their numbers (21:05)
- “Revenue is Vanity, Profit is Sanity but Cash is King” (21:57)
- How do you keep the most amount of profit so you can keep the most amount of dollars? (22:45)
- Using the Profit First method on a start-up: nay, yay or it depends (26:17)
- Amazon as a business example (29:07)
- Understand the future and where your business is going (32:25)
- A lot of microbusinesses don’t have a business model (40:41)
Get My Lunch Money
Jennifer: Splotch Monster Island (37:03)
Sources Mentioned
Profit Profit FirstFirst by Mike Michalowicz
The Pumpkin Plan by Mike Michalowicz
Fix this next by Mike Michalowicz
How profit first kills business growth by Sigrun
Long Tail Success hosted by Brent Basham
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