Sales get more attention than profits, and that's wrong. You can't lose money on each sale and expect to make it up on volume. Where does your company stand on profits and pricing?

1. Benchmark Ratios. Compare your gross profit and net profit before taxes as a percent of sales to other companies in your industry. You want to rank at least in the top 25% on both measures. The Risk Management Association (RMA)--a Philadelphia-based banking trade group--compiles balance sheet and income statement information by industry. Many public libraries have the RMA Annual Statement Studies. Also check for statistics from your national trade association or visit businessadvisorprofitgauge.com to get customized reports.

2. Competitive Intelligence. Make your own survey of your competitors' prices. Rank prices from high to low. Ideally, your prices should rank no lower than the middle of the top third of the price rankings. Very few companies can successfully occupy either the top or the bottom ranking.

3. Know Your Best Customers. Twenty percent of your customers will create 80% of your sales. These are your volume makers. High volume creates activity, and activity creates overhead expense. A different 20% of your customers will create 80% of your profits. These are your profit makers. Know which are which. Take care of the profit makers, not the volume makers. It is 10 times more expensive to acquire a new customer than it is to retain a customer.

4. Control Inventory. Twenty percent of your inventory items soak up 80% of your inventory investment. These are the dollar eaters. Usually a different 20% of your inventory items produce 80% of your gross margin. These are the dollar makers. Are you managing to maximize the inventory turn of the dollar makers? Comparative inventory turn data is in the RMA studies. Work to be in the top 25%. Will your supplier drop ship the dollar eaters, so you don't carry them at all? Do you have backup suppliers and automatic reorder points for the dollar makers?

5. Evaluate ROI. Compare the pretax return on your investment--your owner's equity--to the return from other investments. The long-term average return on the stock market is around 10%. Your business has more risk, and therefore your return--not including your salary--should be higher.
A profitable business minimizes dollars tied up in assets, replaces fixed expenses with variable expenses, reduces activity-driven overhead expenses and manages its product/service and customer mix for profitability.

George M. Dawson is a small business finance consultant based in San Antonio, Texas. His advice has appeared in Inc., Entrepreneur, and Nation's Business as well as on CNBC TV and WOR radio. In addition, he wrote the book Borrowing to Build Your Business.