Dave WordenTriumph Business Solutions · Founder

Ask Mike- What Percentage To Allocate Toward Profit Using Profit First?

11 Dec 2019 · 1 min

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In this Ask Mike segment, Mike Michalowicz answers a question from Dan Ferguson, who runs a brand‑new waffle business with $4,000 of debt and is unsure how much profit to set aside. Mike advises calculating an "optimal profit percentage" by taking the business’s historical profit margin and adding 1–2 percentage points. He recommends applying this percentage each quarter, gradually increasing it over time even while the business carries debt. For each quarterly profit distribution, at least 95% should be used to pay down the debt and the remaining ~5% earmarked for celebration. This cycle repeats until the debt is eliminated, after which the full profit allocation can be enjoyed. Mike closes by inviting viewers to submit future questions via email.

Chapters

Welcome to Ask Mike. I'm Mike Michalowicz and I got a question from Dan Ferguson about how he's using profit. First, he's got a brand new business and he's in the waffle business and they have $4,000 of debt. He doesn't know what amount of money to allocate to a profit. Here's what you do. Allocate the optimal profit percentage that you determine based upon your historical profits plus 1 or 2%. Build the profits and every quarter keep ramping it up even if you have debt. Dan and here's what happens when you do your profit allocations at the end of each quarter, use the vast majority of it, 95% or more, to eradicate your debts, 5% to celebrate. Repeat that process until all your debts eradicated and then the next profit distribution. In that case, Dan, you're going to eat a lot of waffles because it's all going to you. And if you have a question, make sure you send a question to ask mike@mikemcalos.com and I'll answer your question on the next video.