Starting a business is exciting, but there are a few pieces of advice I wish I knew when I began my journey—advice that could have accelerated my growth and made scaling my business a whole lot smoother. One of the biggest lessons I learned is the power of unit economics and how focusing on the right metrics can create a scalable business. By understanding these numbers, you can drive profitability and cash flow much faster than you might think.
If I could go back, I would have spent more time understanding the core financial levers that matter. These levers aren’t just some theoretical concept—they are the very things that allow a business to run profitably and sustainably.
Understand Your Gross Profit Margin (The Right Way)
As a new business owner, the first thing I would do is understand my product or service in terms of its gross profit margin. It’s essential to be crystal clear on what that margin actually means after accounting for all your costs—not just the direct costs like production or delivery.
It’s easy to think, “I sell a service for $1,000, and it costs me $200 to deliver, so my margin is $800.” But here’s the kicker: that’s not enough. You need to factor in everything. You need to account for the hidden costs—marketing, onboarding, sales commissions, merchant fees, and the cost of acquisition. All these add up, and if you’re not paying attention, they’ll eat into your profits.
The mistake most new business owners make? Pricing too low because they think their margin is healthy without considering everything else that goes into running the business. This is where an advisor can be invaluable. A second set of eyes, someone with experience, can help you identify those gaps and set your prices right so that you can scale effectively.
The Power of a 12-Month Projection
Once you have a solid understanding of your unit economics—your margins, costs, and pricing—you need to put those figures into a 12-month projection. This is the roadmap to understanding the financial health of your business.
Here’s why it matters:
- Is your business going to be profitable?
- When is the cash flow going to kick in?
- Does your model align with your end goal?
By creating this 12-month projection, you’ll know exactly when you’ll hit profitability. You’ll understand when your business can afford reinvestment, when you can take a step back and breathe, and whether the business can eventually support your personal goals—like taking that well-earned holiday or reinvesting in growth.
The 12-month projection serves as a GPS for your business. Without it, you’re just driving blind.
Align Your Business with Your Goals
At the heart of these numbers and projections is your true north—your goal. Every business is different. Some business owners are focused on growing quickly and reinvesting to scale, while others want to create a business that allows them to work less and enjoy more time off. Regardless of what your ultimate goal is, your numbers need to align with it.
Understanding unit economics and cash flow isn’t just about keeping your business afloat—it’s about creating the space to reach your bigger objectives. When you focus on these core metrics, you’re not just building a business; you’re building a business that works for you.
Final Word
If you’re starting a business or even if you’re already running one, take the time to understand unit economics and cash flow. Don’t just guess at pricing—calculate it, project it, and monitor it. The faster you understand these numbers, the faster you’ll be able to scale profitably. And when your business is aligned with your financial metrics, scaling becomes not just possible but inevitable.
Frequently Asked Questions
How do I calculate my business’s gross profit margin?
To calculate gross profit margin, subtract your cost of goods sold (COGS) from your revenue and then divide by your revenue. For example, if you sell a service for $1,000 and the direct costs (labour, production, etc.) are $200, your gross profit is $800. Then divide $800 by $1,000 to get a margin of 80%. But don’t forget to include hidden costs like marketing, sales commissions, and merchant fees to get the full picture of your margin. This will help you better understand your true profitability.
How can a 12-month projection help me scale my business?
A 12-month projection is like a financial GPS for your business. It helps you predict future cash flow, identify when your business will become profitable, and determine when you can reinvest in growth or take a step back. It aligns your numbers with your business goals, making sure you’re on the right path to scaling successfully. A well-structured projection also helps you make informed decisions and avoid surprises that can derail your progress.
How do I ensure my business’s unit economics align with my personal goals?
Your unit economics—your margins, costs, and pricing—should always align with your personal business goals. Whether you’re looking to scale quickly or create a work-life balance, you need to ensure that your numbers support those goals. By understanding the financial levers that drive your business, you can decide whether to reinvest profits into growth or take profits out for personal use. Aligning your financial strategy with your life goals ensures your business works for you, not the other way around.
Ready to Simplify Your E-commerce Finances?
Whether you’re looking to optimise your pricing strategy, improve client retention, or better understand your unit economics – we’re here to help. Book a free consultation with our expert team at New Wave Accounting & Business Advisory, dedicated to supporting businesses across Australia.
