How much does it cost to make a donut?
Flour. Sugar. Oil. Labor.
Seems simple enough.
But what about the rent? Electricity? Insurance? The person handling payroll?
None of those things go into the donut.
But you can’t run a donut shop without them.
And that’s something I’ve seen business owners overlook.
They know what it costs to make their product, but not always what it costs to run the business behind it.
Those are two different numbers.
A Profitable Donut Doesn’t Mean a Profitable Business
Years ago, when I was working on the financial model for a pastry business, we spent a lot of time figuring out what it would cost to make a donut.
The ingredients were the easy part.
The harder part was everything else.
The building. Equipment. Utilities. Insurance.
Those expenses existed whether we sold one donut or a thousand.
That’s overhead.
Let’s say you sell a donut for $3.
It costs $1 in ingredients, packaging, and direct labor.
That leaves $2 to help cover overhead.
Now assume your bakery has $20,000 in monthly overhead.
You’d need to sell 10,000 donuts just to break even.
Sell 8,000, and you’re losing $4,000.
Sell 12,000, and you’re making $4,000.
That’s assuming your prices and costs stay the same.
Same donut. Same price.
Very different results.
That’s why making money on a product doesn’t automatically mean you’re running a profitable business.
Overhead Isn’t the Enemy
Now, I’m not suggesting you start cutting every expense that doesn’t directly produce revenue.
You need overhead to run a business.
You need people, equipment, systems, and a place to operate.
Some of those expenses help you grow.
The question isn’t whether you have overhead.
It’s whether you understand what you’re spending and what you’re getting in return.
Take marketing.
Spending $3,000 on a campaign might sound expensive.
But what if it brings in enough customers to pay for itself and creates opportunities for future sales?
That’s a different conversation.
And it reminds me of a recent guest on Influencing Entrepreneurs.
New Episode of Influencing Entrepreneurs
In this new episode, I talked with Madison Levine, founder of Levine Hearing.
Madison opened her hearing practice in 2015 with zero patients, a WordPress website she built herself, and a logo she made online.
Her first marketing mailer cost $3,000.
Unfortunately, the phone number had two digits transposed.
Not the best start.
But she still broke even.
What stood out to me was how Madison approaches spending and growth.
She tracks cost of goods and average sale price. She gives marketing ideas 90 days to see whether they’re working. And she budgets marketing based on 10% of what she wants the business to make the following year.
We also talked about why Costco selling hearing aids actually helped her business and how her team evaluates the entire patient experience, starting in the parking lot.
Madison understands something important.
The expenses around your product or service matter just as much as the product itself.
You need to know what those expenses are doing for your business.
Watch the full episode:
https://www.youtube.com/watch?v=iuqrVQFkiTU
Your Numbers Should Help You Make Decisions
I’ve seen business owners receive accurate financial reports and still wonder what they’re supposed to do with them.
The numbers are there.
But what do they mean?
Why did expenses increase?
Are we getting enough value from what we’re spending?
How much do we need to sell to cover our costs?
Those are the questions worth asking.
And you don’t need to become an accountant to ask them.
At Nexagy, we bring the financial experience. You bring the knowledge of your business.
Then we work through the numbers together.
Because the goal isn’t just to know what you spent.
It’s to understand what that spending means for the decisions ahead.
Three Questions Worth Asking
Before your next financial review, ask yourself:
- What does it cost to keep my business open before I sell anything?
Know your monthly overhead and the commitments your business needs to cover.
- How much does each sale contribute toward those costs?
Revenue isn’t profit. Understand what’s left after the direct costs of delivering your product or service.
- Are my expenses helping the business?
Some expenses support growth. Others may not be providing the value you expected.
You should know the difference.
it’s certainly part of the business.
Getting financial reports but still wondering where your profit is going?
Let’s talk it through.
https://nexagy.com/contact-us/