PJS #002: More Revenue isn't actually the Right Goal for your Business
Updated: Oct 24, 2022
In today's issue of Profit & Joy Simplified, I'm going to share a strategy that may be hurting your business.
I don't mean that it never works, but I do mean that I wouldn't want to risk my own money counting on it. In fact, I've rarely seen it work in practice.
Unfortunately, it's pretty popular so you've probably heard it and been taught it.
Revenue growth strategies are distracting us from success.
Wait, what? Revenue growth is awesome, Christie. What are you talking about?!
Let's think through this. When your primary focus is on growing revenue, ask yourself:
Do I (or my employees) currently have extra capacity to accommodate more revenue?
Do I have systems in place that will handle growth?
Will we achieve more profit from the increased revenue?
Does doing more of this sound like a way to increase my joy? (or is this an offering that sucks the life out of you? ask me how I know about this one...)
If your answers to all 4 questions isn't a YESSSSS...
then your business strategy shouldn't focus solely on revenue growth.
Now don't get me wrong, if you have no revenue, then we have no profit to even discuss. So by all means, sell your services!
Here's a better strategy (along with action steps, of course):
Focus on your cash & profit position as a barometer of success.
Have you heard the phrase, "bigger kids, bigger problems?" Well, there's another in the business world that goes around "More money, more problems."
Revenue is a vanity metric, like 6 pack abs. You can show them off, but what if your cholesterol number is off the charts high? I'd say you might need to focus on lowering your cholesterol instead of only focusing on your core. 😉
If you have a 6 pack abs revenue number, but are overspending to get it, you aren't taking any more money home and you don't have more to invest in the business. Focusing on more profit means you are watching your revenue AND your spending and operating efficiencies. It's like focusing on abs AND cholesterol for a healthy you!
Focusing on cash is super important. The confidence you'll have knowing your business has cash available to pay teammates, vendors and debt obligations is a weight lifted. In fact 82% of business failures are due to cash management issues.
And having extra money to reinvest in your business, set aside for taxes, and even take home is what you really want, isn't it?
Create a cash flow forecast. This will give you such a sense of peace. A rolling 13 weeks is what I recommend typically, but even monthly will be a big help if you aren't doing this already. Your business can survive without profit for awhile, but no cash means no business. Get a handle on your cash position pronto.
Review your financial statements to understand your current profit. Look for ways to increase it:
Does your team have excess capacity?
Are you paying for things that you shouldn't?
Do you have a clear sense of which offering brings in the most revenue AND which brings in the most profit?
Are there ways to become more efficient?
Revenue is cool, but Profit is Revenue's cool older brother.
That's all for today.
See ya again next week!
P.S. Whenever you're ready, there are 3 ways I can help you:
Get help building a cash flow forecast or understanding the levers affecting your profit here.
Want to chat about how I can help you achieve your vision of success as your fractional CFO? Schedule a call to see if we'd be a good fit to work together.
I post on LinkedIn every weekday at 7:15a CST. I'm responding to comments & engaging in posts from 7:15-8. I'd love to connect. Find me here, my friend!