📖 A Family Business Story
In 2004, my wife started a scented candle company. For almost twenty years it was part of our family’s life. We managed the sales and fulfillment from home, while a contract manufacturer called Aromatic Fillers produced the candles.
We’d tried pouring candles ourselves at first, but quickly learned it’s an art — consistent quality takes real skill. Outsourcing to professionals solved that problem.
The business gave my wife the flexibility to stay home with the kids while contributing to the family finances. We ran a several other online ventures too but her candle company was one of the mainstays. With our daughter off to college and our son married with a home of his own, the need wasn’t the same. And when we decided to spend half the year in Bozeman, keeping up fulfillment from our house just wasn’t feasible anymore.
That’s when we wound the company down — but not before it taught us some enduring lessons about small business accounting.
🍋 Step One: Understand Gross Profit
Think of a lemonade stand.
- You sell a cup for $2.
- Lemons, sugar, cups, and ice cost 50¢.
- That leaves $1.50 gross profit per cup.
Gross Profit = Revenue – COGS (Cost of Goods Sold)
It shows whether your product itself is profitable.
🕯️ Step Two: Apply It to Candles
With candles, the math worked like this:
-
- COGS per candle (~$6.00): wax, fragrance, wick, jar, lid, label, and the labor built into what Aromatic Fillers charged us.
But depending on where a candle sold, the gross profit margin shifted:
Wholesale (most sales)
- Sold to retailers for $10.
- Gross Profit = $4 per candle.
- Slim margin, but steady volume.
Retail (our Shopify store)
- Sold direct for $20.
- Gross Profit = $14 per candle.
- Higher margin, but fewer units moved.
Marketplaces (Amazon & Faire)
- A $20 candle looked like $14 profit on paper ($20 – $6).
- But Amazon and Faire took 15–30% in fees.
- Net revenue might only be $14–$16, making the real gross profit $8–$10.
Lesson: The sales channel changes the math.
💼 Step Three: Don’t Forget Expenses
After gross profit comes operating expenses — the costs of running the business day to day:
- Shopify subscription fees
- Shipping boxes and postage
- Insurance
- Marketing and photography
- Bookkeeping and taxes
Net Profit = Gross Profit – Expenses – Taxes – Interest
That’s the “bottom line” — what you actually keep.
⚖️ Why It Matters
- Gross Profit answers: “Does my product make money?”
- Net Profit answers: “Does my business make money?”
A lot of entrepreneurs confuse the two. They see sales flowing in and assume they’re profitable. But until you understand the split between COGS and expenses, you’re flying blind.
✨ The Takeaway
The lemonade stand makes the basics easy. The candle business shows how real-world costs, sales channels, and fees change profitability.
If you can master the difference between gross and net profit, you’ll avoid the trap of chasing sales without knowing whether your business is actually making money.
If at first you don’t succeed, try, try again.
Fail forward.
