When you first start your small business, it’s easy to focus on the creative process, building your brand, and getting your product out to customers. But there’s one crucial element that often takes a back seat: profit. Without profit, your business won’t be sustainable, no matter how passionate you are about what you do.

In this blog, we’re going to explore the concept of “Pricing for Profit” and how it can help ensure your small business thrives financially in the long term. You may have heard of the “Profit First” model by Mike Michalowicz. While the principles are rooted in financial discipline, they’re designed to be simple enough for small business owners who might not have formal accounting training. Here’s an overview of how it works and how it can transform the way you think about your business expenses and profitability.

What Does “Profit First” Mean?

Traditionally, business owners think of profit as the final result—the money left over after covering all expenses. The usual formula is:

Revenue – Expenses = Profit.

However, the Profit First model flips this formula on its head. Instead of considering profit last, you prioritise it:

Revenue – Profit = Expenses.

In essence, this model makes sure you set aside profit first, before anything else. You’ll have a clearer idea of how much is actually available for expenses, making it easier to control unnecessary spending and focus on sustainable growth.

Parkinson’s Law & Business Expenses

A key idea behind Profit First is Parkinson’s Law: “Work expands so as to fill the time available for its completion.” In business terms, this can be applied to expenses—expenses grow to fit the amount of money you have available. If you don’t limit your spending, you can easily end up reinvesting every penny back into your business, leaving little to no profit.

For many small business owners, especially those in creative fields, this habit is reinforced by peaks and troughs in income (think holiday seasons vs. slower summer months). If you’re not putting profit aside, it becomes challenging to weather these seasonal fluctuations.

How the Profit First Model Works for Small Businesses

The Profit First model encourages you to manage your finances by separating your money into different accounts. This structure gives clarity and helps keep you disciplined. Here’s a simplified version of how it works:

1. Income Account – All sales revenue goes here.
2. Profit Account – Set aside a fixed percentage of your income for profit.
3. Drawings Account – Put aside money to pay yourself.
4. Tax Account – Allocate money for taxes so you’re prepared when the bill comes.
5. Operating Expenses – What remains after you’ve accounted for profit, taxes, and drawings is what you use to cover business costs.

By dividing your income into these separate “buckets,” you create a clear financial structure. You no longer rely on guesswork to know if your business is profitable—you’ll have set aside money for profit from the start.

Why Small Changes Matter

For new businesses or those that have experienced slow growth, the idea of prioritising profit can seem overwhelming. You may think, “How can I save for profit when I’m barely covering my expenses?” But the goal here isn’t to create massive changes overnight. The focus is on incremental improvements.

Start by setting aside just 1-2% of your income for profit. As you grow more comfortable, you can slowly increase that percentage until you’re hitting the target—often around 5% for profit, 20% for taxes, and 45% for drawings (or salary). This gradual approach ensures that the shift towards profit-first thinking is manageable, without causing financial strain.

The Importance of Evaluating Your Expenses

Once you’ve committed to the Profit First model, the next step is to review your expenses. Small business owners often find it difficult to separate essential costs from the “nice-to-haves.” For example, are you paying for multiple online communities or memberships? Are you using all the tools and software subscriptions that you’re paying for?

Reducing unnecessary expenses is one of the quickest ways to improve your profit margin. In fact, it’s much easier to cut down on expenses than it is to grow revenue. You’ll be surprised how much profit you can free up just by trimming non-essential costs.

Pricing Your Products or Services for Profit

Another key aspect of ensuring profit is to revisit your pricing strategy. Are you factoring in all costs, including materials, labour, and overheads? Have you adjusted your prices to account for rising material costs? Pricing should be reviewed regularly to ensure your margins are healthy, and this process is critical for long-term success.

Take Control of Your Business Finances

At the heart of the Profit First approach is a mindset shift. It’s about recognising that profit is not optional. It’s an essential part of business growth, sustainability, and ultimately, your personal success as a business owner. The model gives you the tools to take control of your finances, so you don’t find yourself scrambling to cover expenses or wondering where your hard-earned money went.

By adopting this model, you’ll not only make profit a priority, but you’ll also ensure that your business is in a healthy, sustainable position for growth. And the best part? You can start today with just a few small changes.

If you’re ready to dive deeper into the principles of the Profit First model and learn how to apply them to your own business, be sure to check out our membership program Handmade Accounts-Ability. With step-by-step guidance and support, you can ensure you’re pricing for profit and setting your small business up for long-term success.

Happy crafting and profitable growth!