Why Being Busy Doesn't Mean You're Profitable

Ask a food entrepreneur how business is going, and one of the first things you'll often hear is:

"I've been so busy."

And that's usually said with pride. As it should be. Customers are ordering. Your calendar is filling up. Maybe you're selling out at markets or turning down work because you simply can't fit anything else in.

Those are encouraging signs.

But there's an important question hiding underneath all of that activity:

Are you actually making money? Being busy tells you there's demand for what you sell. Profitability tells you whether you've built a business that can sustain that demand.

They're not the same thing.

Revenue Can Be Deceiving

It's exciting to have your first $1,000 week, a $3,000 catering order, or a market where you sell out. But revenue is only the starting number.

What did it cost you to generate it?

Most food entrepreneurs quickly learn to think about ingredients and packaging. If you sell a $150 custom order and spend $30 on ingredients and packaging, it's tempting to think:

"Great. I made $120."

Not quite.

How much time did you spend communicating with the customer, shopping, prepping, baking, decorating, packaging, cleaning, invoicing, and arranging pickup or delivery?

Then there are the expenses that aren't attached neatly to one order: insurance, licenses, website fees, merchant processing, equipment, utilities, marketing, kitchen or booth fees, and eventually taxes.

That $150 sale can look very different once you understand what it actually took to earn it.

Money left after ingredients isn't necessarily profit. And that's one of the most important lessons to learn early.

Your Time Is a Business Expense, Too

This is where many owner-operated food businesses get into trouble. When you're the owner and the baker, chef, decorator, salesperson, delivery driver, marketer, and customer service department, it's easy to treat your own time as free.

You wouldn't do that with an employee. If you hired someone to decorate cookies for six hours, work your booth on Saturday, package 200 products, or deliver a catering order, you'd expect to pay them. Your time has value, too.

Let's say that $150 order leaves $120 after ingredients and packaging and takes six hours to complete. That's $20 per hour before accounting for any of your other business expenses. And be careful about what you count as those six hours. The work didn't necessarily start when you turned on the oven. It may have started with an inquiry, followed by emails, a quote, an invoice, design decisions, shopping, production, packaging, pickup coordination, and cleanup. Ten minutes here and fifteen minutes there still belong to the business.

Selling More Can Actually Make the Problem Bigger

This is the part that surprises many newer entrepreneurs. If your pricing doesn't adequately cover your costs and labor, more orders don't necessarily solve the problem.

They can magnify it.

Imagine you're underpricing a product by $5. Selling ten of them creates a relatively small problem. Selling 100 of them creates a $500 problem.

Volume is wonderful when the economics behind the product work. When they don't, increased sales can mean you're working harder, buying more inventory, putting more wear on equipment, and tying up more cash without seeing the profit you expected.

That's why "We're busier than ever!" and "Why don't I have any money?" can unfortunately exist in the same business.

Not Everything You Sell Is Equally Profitable

Another mistake is assuming that your bestseller must be your best product for the business. It might be. Popularity and profitability aren't the same thing.

A custom product might sell for considerably more but require hours of communication and hands-on work. A simpler item might sell for less but be produced efficiently in large batches with very little additional labor.

The higher-priced item isn't automatically more profitable.

As you build sales history, start paying attention to which products: sell consistently, are efficient to produce, have healthy margins, generate repeat purchases, and don't create a disproportionate amount of work.

You don't necessarily need to eliminate products that are less profitable. Sometimes they're strategically important or help bring customers through the door.

You simply need to know which is which.

That knowledge helps you make better decisions about pricing, promotions, menu offerings, wholesale opportunities, and where to spend your time.

Being Booked Isn't Always a Signal to Take More Orders

"I had to turn away five customers this week."

That can be a fantastic sign. You've created more demand than you currently have capacity to fulfill, but, before immediately adding another workday, hiring someone, or staying up until 2 a.m., look at what your capacity is telling you.

If you're consistently booked, perhaps your pricing needs to increase.

• Maybe a particularly labor-intensive product is consuming too much of your schedule.

• Maybe you need better equipment or a more efficient production process.

• Maybe you need help.

• Or maybe you've simply reached the amount of work you want to take on.

Growth doesn't always mean squeezing more orders onto the calendar. Sometimes the better business decision is making more from the capacity you already have.

Don't Confuse Owner Pay With Profit

Here's another distinction worth understanding early.

You work in the business, and you own the business. Those are technically two different jobs. The person doing the baking, cooking, decorating, packaging, serving, or delivering should be compensated for that work. Then, after the business pays its expenses, including the labor required to produce what it sells, what remains tells you much more about whether the business itself is profitable. That is how you know if/when you can invest in something like new equipment, hire another person, more ad spending, additional packaging or something else you feel the business needs. The business pays for those things.

This doesn't mean a brand-new business needs to perfectly compensate its owner from day one. Starting a business often involves reinvesting money and making adjustments as you learn. The important part is knowing what's happening.

There's a big difference between:

"I'm choosing to reinvest my earnings right now."

and

"I thought I was profitable because I never counted my own labor."

So, What Should You Actually Pay Attention To?

You don't need a finance degree or a complicated spreadsheet to start asking better questions.

Start with a few basics.

• What does it really cost to make your products?

• How much time does production actually take?

• How much time are you spending outside of production?

• Which products generate the best return for the effort involved?

• Are your prices covering more than ingredients?

• When sales increase, does the amount of money you're keeping increase too?

You may not know every answer today. That's okay. The goal is to stop using "busy" as your primary measurement of whether the business is working.

A Healthy Business Should Eventually Give You Something Back

There's nothing wrong with wanting a full calendar, a line at your booth, a waitlist, or a sold-out product launch. Those are accomplishments worth celebrating! But the goal isn't simply to create a business that generates work for you. It's to build one that can compensate you, cover its expenses, invest in its future, withstand slower periods, and eventually give you some breathing room.

So the next time you find yourself saying,"Business is great. I've been SO busy."

Celebrate that.

Then ask one more question, "But am I profitable?"

Because being busy tells you people want what you're selling. Being profitable tells you whether you can afford to keep selling it.

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Not sure if your busy season is actually paying you fairly for your time? We help food entrepreneurs price their time, not just their ingredients. Reach out to us on our contact page.