The Reality Of A £1 Million Business
How Much Profit Does a £1 Million Business Turnover? If you’re curious, it’s probably because you’re trying to hit the goal yourself. Or you’re just nosey about how much someone else might be making. Either way, in this blog we’re going to explore the reality of a £1 million turnover business including how much profit you can make for the business, the payments to the owners of the company and the reality of what these numbers look like.
If you’re turning over £1 million a year as a business, then you’re in a pretty small club. Only around 4% of UK companies ever achieve the status of being a £1 million turnover business. High five you!
For a lot of people starting out, hell even after a good few years of being in business, the idea of turning over £83,333 every month seems impossible. £2,740 every single day.
How in the actual frig do you do that?!
Well, this blog is not going to answer that question for you! Sorry.
So what I’m going to do instead, is look at what you get as the business owner when you have a business that runs at that level of turnover.
Err, What Do You Know?
Good question, and one I’d recommend asking anyone before taking advice. I’ve got a bit of a background in this area, thanks to my folks. You see, they were all about numbers and investing when I was growing up. They had a successful marketing company, and it rubbed off on me.
Fast forward a few years, and they decided to take it easy. And guess who got the job of running the company?! Nepotism at its finest. Now, I won’t lie – running the company wasn’t exactly my favourite thing in the world, but I did learn a lot. Mostly because the company was turning over around £5 million a year! So, I’ve got real-life experience with a company that was making over £1 million a year, and I know all about the numbers that go into making it happen.
How to create a £1 million business
This seems like another blog for another day as well. But here are some of the ways you can mathematically get to a business turning over £1m per year.
Single Product
| Price | Sales Per Month |
|
£27 |
3,086 |
|
£47 |
1,773 |
|
£97 |
859 |
|
£197 |
423 |
|
£397 |
210 |
|
£497 |
168 |
|
£997 |
84 |
|
£1997 |
42 |
Therefore, if you have a product that sells for £97, you need to sell 10,309 each year. Which equates to 859 each month.
It’s a lot eh?! Until you get up to the higher end price point, it’s an intimidating and daunting number.
An alternative is to go for the recurring revenue model, which looks a bit like this.
Recurring Revenue
| Price per month | Sales Per Year | New Customers Monthly |
|
£27 |
3,086 |
257 |
|
£47 |
1,773 |
148 |
|
£97 |
859 |
72 |
|
£197 |
423 |
35 |
|
£397 |
210 |
17 |
|
£497 |
168 |
14 |
|
£997 |
84 |
7 |
|
£1997 |
42 |
3 |
Slightly less terrifying, but still quite the number. Now the sensible answer is to do a combination of both things. Sell a few higher-priced one-off products and a few recurring revenue products. But I’ll let you figure that out for yourself.
What Do The Numbers of a £1 million business Look Like?
If you’re turning over £1m each year, then in the UK you’ll almost definitely be paying VAT on your sales. Depending on if you sell to consumers or businesses, this may or may not be a big deal.
But straight away you’re going to lose 20% in revenue to the taxman. Booooooo. This is the main reason for writing this blog, how much profit does a £1 million turnover business actually make?
From a profitability perspective, the average profit margins in the UK are around 10.9%, depending on what sector you’re in.
But you’re great. So let’s assume you are running at 20% net profit. Which when you work it out, starts to give you numbers like this.
| £ | |
| Revenue |
1,000,000 |
|
Less (VAT) |
200,000 |
| Less Cost of Sale | 200,000 |
|
Gross Profit | 600,000 |
| Less Operating Expenses | |
|
Rent, Marketing, Staff, etc. | 400,000 |
|
Net Profit |
200,000 |
| Corporation Tax Due (2023/24 UK tax year) | 49,250 |
|
Net Profit After Tax | 150,750 |
These figures are entirely made up, but it doesn’t really matter. What matters is you turnover £1 million and you make a 20% profit, or £200,000. You then pay some tax on that. In 2023/24 you’ll pay 19% on the first £50,000 profit and then 25% on the amount above. So you end up with £150,750 as net profit.
But stuff the company, this is all about you.
You’re not going to leave anything for the company – screw it. So you want to take the rest of the money out for yourself. All £150k of it! (Some people may take a salary out as well to take advantage of the tax-free allowance, but at this level of income, you don’t get it anyway, so no point unless you want to pay NI).
That’s gonna look a little something like this…
Gross Profit | £200,000 |
Dividends | £150,750 |
| Dividend Tax | £42,800 |
Total Take Home Pay | £107,950 |
| Monthly Take Home Pay | £8,995 |
Effective tax rate | 46.02% |
Now if you are working 7 hours a day, 5 days a week, then your effective hourly rate is £64.26. I gave you 4 weeks off by the way. You’re welcome.
If you’re more of a hands-off CEO then you may get away with working fewer days and hours, so you could probably get the hourly rate up to £150 – £200 per hour.
Weirdly, you’d actually be better off being a sole trader at this level of income. You’d only pay 41.38% tax if you were a sole trader… but that’s by the by. Or is it?
Cool, Interesting Even, But So What?
Honestly, no reason really. Just to illustrate that a turnover of £1,000,000 can reasonably and realistically turn into an income that is more achievable for more people than you might think.
A £1m business is likely to involve racking up more costs, so your net profit margins are likely to be lower. However, what if you could double your net profit from 20% to 40%? Now you only need to turnover £500,000 each year. I’m sure it’s not exactly half as difficult, but you get the idea.
The first year of a start-up is all about survival, but once you’re a bit more established you need to decide which way you want to go. Stay a solopreneur, or take the step up and create a full-blown team and all the costs that go with that?
There’s no right or wrong answer. But I think a lot of people always assume that growing and increasing turnover is the best thing.
What’s the Alternative?
Take someone turning over just under the VAT threshold as a sole trader. Turnover is £85,000, and let’s say you spend £10,000 on some assistant’s time and some random software products, etc.
However, when it’s all done and dusted, you’d end up with £4,561 per month net of all taxes.
So as a one-man band, with nobody else to employ or big overheads to worry about, you are earning 50.7% of someone turning over £1m and taking dividends of £75,750 more than you each year.
Run two separate businesses that are both under the VAT threshold and you’re on more than the stressed out CEO of this mystery £1m turnover business.
Conclusion
I’m all about scale and growth, but not at the expense of time. This blog is all about how much profit a £1m turnover business does, and it was inspired by someone coming to me desperate to scale to £1m because they wanted to be rich and have a take-home salary of £80k a month.
After we’d run the numbers, they a) didn’t like me that much anymore, and b) went away to consider if everything involved in hitting that annual target was really worthwhile.
Do what you want, but never forget to run through the numbers of your goal to make sure it’s worth it.
If you want to book a call with me to talk about this in more detail, working out your numbers and coming up with a plan to make the numbers work for you, we can work together on a 1-2-1 consulting basis, or find out more about my Masterclass.
