Profit margin is the percentage of revenue left after all expenses. Gross profit margin = (Revenue − Cost of Goods Sold) ÷ Revenue × 100. Net profit margin = Net Income ÷ Revenue × 100. Example: you sell a product for $100, it costs $40 to make (COGS), leaving $60 gross profit — a 60% gross margin. After paying rent, salaries, marketing, and other operating costs of $45, your net income is $15 — a 15% net margin. Retail averages 2-5% net margin. Software companies average 20-30%. Service businesses 10-20%. Know your margins before setting prices — many businesses run at a loss without realizing it.

Customer Acquisition Cost (CAC) is the total cost to acquire one new customer: marketing spend + sales salaries + tools, divided by number of new customers. If you spend $2,000/month on marketing and get 20 new customers, your CAC is $100. CAC must be compared to Customer Lifetime Value (LTV) — how much revenue one customer generates over their relationship with you. The rule: LTV should be at least 3× your CAC. If LTV = $300 and CAC = $100, that's a healthy 3:1 ratio. If CAC exceeds LTV, every new customer loses you money. Track these numbers monthly; they are the foundation of sustainable growth.

Revenue (also called sales or top line) is the total money your business takes in before any expenses. Profit (bottom line) is what's left after all expenses are paid. A business can have high revenue and still lose money. Example: $500,000 in revenue with $520,000 in expenses = a $20,000 loss. There are three profit levels: Gross profit (revenue minus cost of goods sold), Operating profit (gross profit minus operating expenses like rent, salaries, utilities), and Net profit (operating profit minus taxes and interest). Growing revenue without controlling expenses does not build wealth — focus on growing profit margin, not just revenue.

Hire when: you are consistently turning down work due to capacity, you have stable enough revenue to cover salary for 6+ months, and the work being delegated is clearly defined and repeatable. Warning: many small businesses hire too early and create a cash flow crisis. The real cost of an employee includes salary + payroll taxes (7.65% employer share of FICA) + benefits + equipment + onboarding time. A $50,000 salary actually costs $60,000-$70,000 all-in. Before hiring full-time, consider part-time contractors or freelancers — you pay only for work done and have no payroll tax obligation. Only convert to full-time when workload justifies it.

The highest-ROI marketing for most small businesses: (1) Google Business Profile — free, puts you in local search results and Google Maps, directly drives customers. (2) Referral program — give existing customers an incentive to refer. Word of mouth converts at 4× the rate of paid ads. (3) Email list — collect emails from every customer and send value-driven content monthly. Email averages $36 return per $1 spent. (4) Content marketing — write or record content that answers your customers' questions, which drives organic search traffic over time. (5) Social media (one platform deeply, not all of them) — pick the platform where your customers are and show up consistently. Most paid advertising fails without organic proof first.