205: The lie of profits

"We make a 50% profit margin." - Sometimes you will hear entrepreneurs touting numbers like this.

This makes most other entrepreneurs feel like crap.

But what you have to realize is that those numbers are most likely distorted.

Are they telling you the Gross margin? (The amount of money they make after paying direct costs)

Or are they telling you the Net business margin? (The amount of money leftover after direct costs AND overhead)

Even if they are telling you their Net Margin, they could still be distorting the facts.

Are they factoring in a "salary" that they pay themselves for all of the work they do? Or do they pretend that they work for free and all of that money is profit?

This is the big lie that most business owners don't even realize they tell themselves.

About a year ago, I thought Lead Cookie had ~50% margins...

But here is the thing...

I was doing account management.
I was doing sales.
I was doing marketing.

Once I replaced myself in those roles, it became clear that we had nowhere close to a 50% margin.

Don't compare your margins to others. They most likely are inflating their numbers, even if they don't realize it.