Diane GardnerFounder, Adept Business Solutions · Profit First Professional

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, host Mike Michalowicz answers a question from new waffle‑business owner Dan Ferguson, who has $4,000 in debt and wants to know how much of his revenue should be set aside as profit under the Profit First system. Mike advises Dan to calculate his optimal profit percentage based on historical profit data, then add an extra 1–2 percentage points. He should allocate this profit each quarter, gradually increasing the percentage over time. Even while in debt, the quarterly profit allocation should be split: at least 95 % of the allocated profit goes toward paying down the debt, and the remaining ~5 % is used for a small celebration. This process repeats each quarter until the debt is fully cleared; thereafter, all profit allocations become personal earnings (and, humorously, more waffles). Mike ends by inviting viewers to submit their own questions to AskMike@mikemccalloway.com for future videos.

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Welcome to Ask Mike. I'm Mike Michalowicz. 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 are eradicated, and then the next profit distribution— well, in that case, Dan, you're gonna eat a lot of waffles, 'cause it's all going to you. And if you have a question, Make sure you send a question to AskMike@mikemccalloway.com and I'll answer your question on the next video.