How Much Do You Make?
Sheesh, accountants are always asking the most invasive questions! Whenever I ask people how much they made last year, without fail, they tell me their revenue number. I understand why. It's easy to figure out, feels more impressive and you worked hard for it.
But here's the thing. If you are not keeping the money, are you really making it? Here begins the dance between revenue and profit.
What is Revenue?
Revenue, sometimes called income or sales, is the amount of money your clients pay your for services and product. When you are looking at a profit & loss statement, this is the very first number listed, which is why it gets the nickname "Top Line Revenue."
Having a large revenue number can make you feel really proud. You should be. Creating a revenue generating business is hard work. But it's also not the full story.
What is Profit?
Profit is what is left over after you have paid all your expenses. Profit is what you pay taxes on. Profit after taxes is how you get paid. You might hear people call this net income or the bottom line. Profit is the last number listed on the Profit & Loss report, which is how it got the nickname "Bottom Line."
What's More Important - Profit or Revenue?
What's more important to you? Your left hand or your left foot? There is no profit without revenue. Period. However, the size of profit and revenue is not always correlated. Ever heard of a million dollar salon with a loss? This happens all the time. What's zero percent of a million? Yup, one fat goose egg. Can you imagine all that hard work to generate a million dollars in sales and then not being able to even pay yourself a penny from the business? Completely heartbreaking. But that's not going to be you.
Your ego wants to chase revenue.
Your inner wisdom chases profit.
How Do I Maximize My Profit?
If your revenue is the top line and your profit is the bottom line, maximizing your profit has everything to do with what's in between. Open up a recent profit & loss report.
***Wait, you don't have a profit & loss report? Ok, stop right here. Having a profit and loss report is foundational to owning a business. You need one. Every month. No exceptions. If you don't have one or don't know where to start, check out my bookkeeping course where I show beauty pros everything they need to know to make a gorgeous profit and loss report.***
Ok, you have your profit & loss report open. Dive deep into each expense item. What can you cut back on? Did you know if you're using QuickBooks, you can click on the expense amount and it will show you all the transactions that make up that number? That really helps if a number looks too high. You can see exactly what you spent the money on.
Ultimately, for a commission salon, you're shooting for a 20% profit margin. For a solopreneur, you're aiming for a 50% profit margin.
So Should I Maximize My Revenue Too?
Increasing your revenue can be another way of maximizing your profit, but you have to be intentional about the ways you are increasing your revenue.
Hiring a new employee? That only works if you have priced your services and the employee's wages correctly.
Raising prices? Could be a great idea, but it depends on how many new client requests you are getting every month. How far booked out are you?
What about Facebook ads? Could be a winning strategy to build awareness, but what's your cost per lead?
With every method of increasing revenue you have to consider, "How much revenue will I get from each dollar I spend?"
Growing a business is hard work, but when you are focused on driving everything that produces a healthy profit, you will get the satisfaction your craving. The results will speak for themselves.