How often do you hear an entrepreneur or business owner say “I made 7 figures last year”, and you assumed that meant they took home 7 figures? We’re here to break it to you real nice: 7 figures in revenue is not the same thing as 7 figures in profit. You want to aim for the stars when it comes to both your revenue and your profit, but it’s also important to know the difference so you can properly plan and leverage your business’s money for long-term growth and stability.
Interested in how to do that? Listen in on Episode 90.
[01:02] The definition of revenue
[01:09] The definition of profit
[01:24] What’s really going on when people say they make 6 figures in their business
[02:37] The “Ritz Carlton” difference and what it means for your brand
[06:20] The value of sacrificing short-term profit for the long-term
[07:22] Deciding which is more important in your biz: profit or revenue
[07:49] Why increasing revenue is much more valuable than cutting costs
[08:07] The parallel between your business and the national economy
[08:34] How profit can be manipulated
[09:37] Ways long-term profit can be “secured” by investing in your business
[11:00] Why you don’t want to be Kodak
[12:42] How to review profit through a different lens
Do you know the actual difference between revenue and profit? It’s cool, a lot of people use the terms interchangeably. But they’re not interchangeable — and they mean very different things. Revenue, for example, is any income coming in from your business. This is every dollar you get paid. Profit, on the other hand, is revenue minus your expenses. So you might make $25,000 a month in revenue, but you have employees, a lease, and monthly subscriptions of pay, so you only have $16,000 left. Then you have to take taxes, retirement, healthcare, etc. into account. Your profit is the money you have left after everyyyyything else comes out.
Got it? K, good.
So, when you’re thinking about building a business that really lasts, which one do you need to be really focusing on: revenue… or profit? Because revenue means you’re killing it at what you do, and profit means you’re probably taking more way more money. They’re both pretty great.
However, if your goal is to make this whole thing last, you might want to consider focusing on revenue. It’s counter-intuitive, right? Profit means that you’ve got a lot of money leftover after expenses, but when you focus on revenue (making 7 figures as a business, for example), it means you have an even higher threshold of income that you can use to really grow and stabilize the business.
Let’s take, for example, the Ritz. You know it’s a hotel, but you also know that it’s almost become an adjective for high class. Part of that process — and why the entire franchise is still so successful — has been to re-invest in the hotels in ways that their guests love. The owner of the Ritz has been known to put piano players in lobbies, and to pay for much higher-end touches than other hotels. They’ve even gone above and beyond to get a stuffed giraffe back home to a young guest. While, yes, these things all decrease their overall profit, it improves the customer experience and makes it more likely that people will come back for more. That increases long-term revenue.
And that, friends, is what you should be focusing on.
What you’re making right now as a business will inevitably advise your long-term success. Even if you’re not a wildly successful hotel chain like the Ritz, you do have some way you can invest in your business so it is even more sustainable down the road. For example, you might have grown your business from the ground up as a one-person operation. But to really make it successful in the long-run, you need to invest some of your profit into hiring someone to help out. Other businesses might need to invest profits into software, or a new storefront, or a business coach so they can take their brand to the next level. And to do all of that, you can’t just cut corners. You need to make enough revenue. Period.
So, how can you start focusing on revenue to build long-term success in your business? Consider your expenses through an investment lens. Are you spending money that’s just going out the door, or are you spending money on things that will help you grow in the future? Here’s a good example: are you wasting money on “amenities” for your office that you don’t need — like that ping pong table you see in all the startups in movies? Or are you investing in things like office space for your growing team, which is going to help you grow faster than before? Maybe you’re investing in a better camera to take better social photos which help you attract new customers or clients, or maybe you’re just spending money on software you don’t use or doesn’t do what you need.
Take a good hard look at what’s cutting into your profits to make sure it’s useful. From there, you can increase your profit margins and grow your business. But it all starts with making sure you’re making enough revenue and investing it where it really matters.
For more tips on how to focus on revenue > profit, check out this episode of Worth It. You can also see all the resources we referenced in the show notes below.
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