Want to know how to scale beyond one-to-one services? As a service provider there is…
Want to know why growing your business doesn’t guarantee growing your wealth? Many people make the assumption that the bigger a business is the more personal wealth the business owner will have, but that isn’t true at all. In reality it is easy as a business increases revenue for expenditure to increase as well, which ultimately means the business become less profitable. And for many business owners it is the profit a business makes that determines how much money they take out of the business and can use to build their own personal wealth. So if your goal is to be wealthy and you are running a business you’ll want to keep on reading so you can learn why growing your business doesn’t guarantee growing your wealth and what you can do to ensure your business and your wealth grows.
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WHY GROWING YOUR BUSINESS DOESN’T GUARANTEE GROWING YOUR WEALTH
Revenue vs Profit: More revenue doesn’t always more profit
If you follow other business owners online you’ll have likely seen people sharing about being a six-figure business or seven-figure business owner, having a 30K month or doubling their revenue this year. And whilst they are all things to be proud of it is only showing part of the picture.
Ultimately revenue is a vanity metric. It shows how well a business is doing in terms of sales and in that sense it is a valid metric to track. But it gives no indication about the financial health of a business or how well the business owner is doing from that business.
The most important financial metric is actually profit because that shows how much the business is left with after all expenses have been deducted. And if you aren’t a business strategist and mentor like myself who gets to see the financial numbers of lots of businesses it might shock you to see how a busines with a high revenue actually has low profitability due to all of the costs. .
For example, the profit margins between running a marketing agency and being a marketing consultant are wildly different. A marketing agency could be generated 500K in revenue. However, a boutique marketing agency often has a lot of costs, such as team, office, software etc, which means it’s not unusual for an agency to have a profit margin of 20% or less. That means of the 500K generated in revenue the business would only come out with 100K in profit. Whereas a marketing consultant that works solo has a lot less costs and therefore a higher profit margin. They could generate 200K in revenue, but with a profit margin of 70% they’ll leave 140K.
In this example the marketing consultant is make 300K less in revenue, but 40K more in profit. That’s why many marketers, even when successful, will decide to stay as a marketing consultant rather than ‘grow’ and become an agency. Because whilst become an agency might look better on the outside, many marketers know in the reality they’ll end of worse off.
As you’ve seen from this example more revenue doesn’t always equal more profit. This is why some people will grow their business but not their wealth. Because as their business grows (a consultant turning into an agency) more costs occur and profitability shrinks. So if you want to grow your business and grow your wealth you’ll want to keep eye on the costs of scaling.
| WANT TO INCREASE YOUR BUSINESS’ PROFIT ?
A Strategy Day will help you to do just that! I have a tried-and-tested planning process that I’ve used for years that ensures that in just one day I can help business owners to create a plan to increase income and profit over the year ahead. All you have to do is fill in a questionnaire beforehand and then turn up on the day. I’ll then lead you through the whole process and write everything down – making it super easy for you! |
The most common scaling costs that reduce profitability
When it comes to scaling a business there are some common costs will increase. There is nothing wrong with them increase per se, but you’ll want to keep a close eye on them to to ensure that the additional costs don’t overtake the additional income
Building a team
It’s common when scaling a business to need more help from other people and so you build a (bigger) team. Every person comes with the cost of their salary/fee, but there is more than that. You could be recruitment fees, onboarding and training costs, equipment and softwares costs, additional taxes to pay, pension contributions and more.
Increased software and operational expenses
As your business grows your might need to get new software or upgrade to the next plan. There might also be additional operational expenses
Marketing and advertising budgets
Another expense that can easily increase is marketing and advertising. In order to generate more sales it can make sense to spend more on marketing and advertising. But you’ll want to keep a close eye to understand the return on investment (ROI).
Tax implications
Depending on where your business is registered it may be that as your revenue increases there are additional tax implications and more tax has to be paid.
How to increase revenue without drastically reducing profitability
It’s easy when growing your business for profitability to decrease, and in awful situations it can be that your business has created more revenue, but actually comes out with less profit. But that doesn’t have to be that way. If you want to grow your business to grow your wealth and therefore you are focused on increasing profitability here’s what you should focus on.
Pricing
Review the prices of all your offers and calculate the profit margin of each. Understanding the profit margin of each of your offers is key if you want to increase revenue and increase profit. It might be that from your review you find an offer with a bad profit margin. You can then decide to stop selling it, to redesign the offer for better profitability, or you continue as is, but at least you are aware now. At the other end of the spectrum if you have an offer with a great profit margin it would make sense, if possible, to focus on selling that more.
Lean Operations
Given that the majority of operational costs and fixed and ongoing this should be an area you play close attention to. Do you need to get an office or a bigger office? Do you really need that extra person? Are you using of the software and technology you are paying for? Is there a better solution?
Profit-First Mentality
If your aiming to increase profit then you’ll want to adopt of profit-first mentality. The most important metric in your business should be profit over revenue.
Scaling
If your business is current only selling one-to-one services it might be time to switching and looking at one-to-many solutions, which will allow your business to scale. I’ve written more about going from one-to-one to one-to-many services here but by adding one-to-many or scalable offer into your business you could be able to drastically increase revenue without many additional costs, thus improving the overall profit margin of your business.
| GET A PERSONALISED STRATEGY SO YOU CAN INCREASE YOUR REVENUE AND PROFIT ON YOUR TERMS – BOOK A STRATEGY DAY.
When you book a Strategy Day I’ll review and refine your offer suite and pricing to ensure you have made the right choices to achieve your lifestyle and financial goals. And then I’ll create the marketing and sales strategy so you can sell everything in your revised offer suite and ensure those profit goals become a reality. |
Don’t forget growing your profit won’t automatically grow your wealth
Fast forward and you now have an offer suite that means the overall profitability of your business has improved, and at the same time you are making more revenue. You’ve kept your operations lean and have a profit-first mentality. You are seeing your profit going up and up, but that doesn’t mean automatically you are going to be wealthier.
Given that most online, service-based, business owners don’t have an exit plan aka they aren’t building a business to sell it on you need to be growing your wealth outside of the business. You’ve done what needs to happen inside the business to increase profit so you can ‘pay’ yourself more. But now it’s up to you. You need to work out your strategy for growing wealth and follow it.
That’s it. You know know why growing your business doesn’t guarantee growing your wealth.
I really hope by reading this you’ve realised that if wealth is your ultimate aim you need to switch your focus from high revenue to high profit, and then have a plan in place for what to do with the money once it is in your ‘hands’.
If reading this has got you rethinking how you grow your business so you can make more profit and increase your personal wealth then I’d love to help you.
A Strategy Day is perfect if you are looking to get your business growth and profitability strategy created fast – and you know once you’ve got a plan you’ll hold yourself accountability for implementing it.
Or if you’d prefer the strategy and then ongoing support check out my 1:1 Business and Marketing Mentoring.
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