Salutations friend and welcome to another episode of The Profit Scale! This is the podcast for service-based coaches, consultants, and creatives looking to stop living paycheck to paycheck, pay themselves more, and scale their business beyond the 6-figure plateau all without being overwhelmed by working 60+ hours work weeks. I understand how it can be daunting for an entrepreneur to realize that their business is not having the right cash flow despite earning high revenues each month. Thus, for today's podcast episode, I'm going to address this problem and discuss how you can create the right profit margins for your business.
Salutations, friend! Welcome back to another episode of The Profit Scale podcast.
For today's episode, I'm going to discuss one of the biggest problems that every businessman and woman undergoes and how to deal with it. And to make sure I properly get the message across, I'm going to cover these 4 major topics.
Links:
For today's podcast episode, we are going to cover how you can create profit margins for your business.
But before we start, I just want to ask if you also get to feel the following:
â—Ź Concerned about your business
â—Ź Nervous about the longevity of your business
â—Ź Discouraged that you did not notice mishaps earlier
â—Ź Resentful (when clients ask for more of you and ask you to shift their pre-scheduled hours)
Don't worry, every businessman and woman undergoes this kind of stage. Thus, to help you get through it, I'm going to include these 4 major topics today.
Salutations friend and welcome to another episode of The Profit Scale! This is THE podcast for service-based coaches, consultants, and creatives looking to stop living paycheck to paycheck and who wants to pay themselves more and scale their business beyond the 6-figure plateau all while without being overwhelmed by working 60+ hours every week.Â
I’m your host and Income Strategist, RJ Connell, and if you are looking to collect more coins, stop dropping coins, and grow your business sustainably, then you, my friend are in the right place! Turn up the volume and lean in, cause we are about to get started!
Salutations, friend! RJ Connell here and I am so excited about today’s conversation! Today we are going to talk about how to turn around a business that is revenue rich but profit poor!
In last week’s conversation, we talked all about the common misbeliefs about profit. That episode set the groundwork for what we are going to discuss today, so if you happened to miss it, hit pause on this episode, and listen to last week’s episode first — titled “Three Common Misbeliefs about Profit,” because we are going to pick up right where we left off.
Once you are done with that, you can come back to this one and we can continue our conversation on how to level up your business. Before we jump into today’s conversation, let’s do a brief recap of what we talked about last week.
We discussed three misbeliefs that entrepreneurs have about profit. Misbelief #1 was that the words revenue and profit are interchangeable. You have to remember that revenue is different and distinct from profit. Revenue refers to all the income your business earns while profit is the income left over after your business has paid for all of its expenses. They are two very different numbers, they are not the same, and they are not interchangeable.Â
Misbelief #2 was that if you are paying yourself, you are running a profitable business. While it is amazing that you are able to pay yourself a salary or dividends, that is actually not an indicator that your business is earning a profit.Â
Finally, Misbelief #3 was that as long as you are making sales, you are running a profitable business for which is definitely something to be corrected immediately. As you probably realize by now, sales do not always equal profit. You might spend $10,000 and earn $10,000 all in the same month, and that is what I refer to as a revenue rich and profit poor business.
You can get a better understanding of those three beliefs and what they mean for your business by checking out the full episode of last week's podcast titled: Three Common Misbeliefs about Profit.
Now let’s talk about the concept of revenue rich and profit poor. Running a business that is revenue rich means that you have either a high volume of sales in your business, you have a consistent flow of sales, you have a low number of sales but at a higher price point, or a combination of these three things.Â
Essentially, making money is not really a problem for you. Whether you launch a program or accept new clients, you have a pretty large pool of people who want to work with you and there is always a demand for your service.Â
Now let's take a look at the other half of the term, “profit poor” which means that you spend almost as much money as you make, even if you are making over 6 figures in your business. You see what happens really often is that you see a lot of sales coming into your account and the money is piling up so much that you get a little lax with your spending and end up losing track of your expenses.
You are not clutching the wallet as tightly as you once did because there is money in the bank now, right?Â
That leads you to booking your 4th conference with all expenses paid by the business because after all, it is professional development, right? You start convincing yourself with words like "I’m technically networking while I’m there."
Afterward, you will feel like more sales come through and you realize you can now afford to hire a virtual assistant and should probably hire a lawyer to write up a contract for you, but it does not end there. You will start thinking about hiring an accountant to make sure that you are saving for taxes properly, as well as having someone else manage your website all because you can now afford it, and the list of people to hire starts to get longer.Â
Before you know it, you are spending just as much money as you are earning! Here is the thing, you are probably not even spending your money recklessly. These are legitimate purchases to help you run and grow your business, often these purchases even help you show up and serve your clients better! So then, you are probably wondering now what is really the problem here, right?
Well, I know that you have a huge vision for your business. You want your business to grow by expanding it beyond your local city or country, to reach and serve people on an international level. You want to be able to hire a team to support that growth so that you can hand off the things you do not want to do, and only have to show up in your zone of genius, which is doing the thing you love. You want your business to create wealth and legacy for yourself and your family. You probably do not just want a paycheck; you want to leave a legacy behind. That, my friend, is the reason why profit is so important!
Profit is what allows your business to grow and not just maintain itself. It is the difference between a business that is thriving versus the one that is surviving. Having money leftover after you’ve paid yourself and all of your business expenses is what allows you to plan and fund the future of your business, without going into debt.
Now, you have to remember that expanding your business is expensive, even if you run a digital business. You need capital to hire and you cannot scale your business without hiring a team that can support its growth.Â
Whether you decide to hire a contractor, part-time assistant, or full-time help depends on you. However, you have to consider the fact that you cannot run a multi-million dollar business as a one-woman or one-man show. There is an old proverb that my mom always says and it goes like, “If you want to go fast, go alone. If you want to go far, go together”. Well, this perfectly applies to growing businesses. The bigger your vision is, the further you want to go and the more help you are going to need.
Hiring the virtual assistant, lawyer, and accountant while attending business conferences and making all those investments into your business is not a bad thing at all. In fact, your mindset is in the right place as you are already thinking of the future. That means you are on track towards manifesting that vision. However, do not do them all at the same time, friend! As amazing and necessary as these things are, you are going to have to prioritize them.
There has to be a portion of your revenue that is consistently available solely to grow your business. That is what allowed me to hire my first virtual assistant, followed by my second as I moved a little closer to my vision, and I believe that it is what is going to help you do the same.
If you are in a position right now where you are looking at your business numbers and realizing that you are spending just as much money as you are making where there is barely any profit in your business or maybe none at all, then friend, I got you! I’m going to share with you three strategies that helped me grow my business to where it is now, and what I use to help me continue growing my business. All of these strategies are things you can apply today and you do not need to hire anyone to help you with them. All you need to do is invest some time to get them done.
If you are listening to this and your hands are currently occupied or you are doing things like driving or washing dishes, you do not have to worry because you can just download this worksheet with all three strategies at rjconnell.ca/3.Â
We created the worksheet to make it more convenient for you! It will serve as not just a recap of the three-point strategy but for you to be able to actually apply the strategies and fill out the worksheet as you listen. So, go ahead and click the link in the show notes or head to rjconnell.ca/3 to download the worksheet now!
Now, as promised, here are the 3 strategies you can apply for your business.
Strategy #1: Predict and Prioritize
As the CEO of your business, part of your role is to look ahead of where you are now and align your daily actions to help move you closer to where you want to be. With that being said, the biggest thing you need to consider is how you can predict your expenses to increase as your business grows and that is what this strategy is about.
There are 4 steps that you need to do in this process.
Step 1
You need to create a list of expenses or resources you want to purchase for your business. Every year, I do four quarterly sabbaticals where I write out a list of the expenses or resources I want to acquire for my business. Some of the things on my list last year were hiring an accountant, a virtual assistant, a web designer, and a lot more. There were a total of 9 things on my list, and since writing it out, I have already acquired 3 of them while the rest are still in progress. Â
Your list might include:
This list will be unique to you and your business. After creating your list, you will come to realize that not all of these expenses are equal, both in their dollar value and in their impact on your business. Some will be more expensive and have a smaller impact while others will be less expensive and have a larger impact on your bottom line.
That’s why you prioritize the list. You have to decide which items on your list you want to give financial priority and purchase first.Â
Before you do that, let’s take a look at Step 2!
Step 2
There is no right answer when you are going through this process as you know your business and vision better than anyone. This next step will help you prioritize your list.
You need to give each item a rating on a scale of 1 to 5 as to how it impacts your business. If you downloaded the worksheet and you have it in front of you, there is already a chart with instructions, so all you have to do is fill it in. Also, when you are assigning a value for “impact” you have to decide what that means to you.Â
You might be at a place where you have a certain focus such as growing your email list, hiring more support, or protecting your business from a legal perspective (with contracts, copyrights, and trademarks). Whatever it is, it always boils down on what is more important to you.
Step 3
Estimate the cost of each resource. You can get an idea and sometimes even fairly accurate numbers by simply doing a Google search to see where you can purchase or hire that resource and inquiring about their prices. It is always a good idea to take a look at multiple prices, so you can get a range of the cost, or better yet, ask fellow entrepreneurs what they have spent for the same services. You may even be able to get a recommendation from them. That way, you can prepare for the cost in advance where you will not have any sticker shock when it is time to pay and you will not end up spending more than what you need to.
Calculate the total estimated cost at the end so that you have a clear idea of what it’s going to cost you to grow your business. Just knowing this number is going to help you be more conscious of how you spend money in your business.
Step 4Â
Prioritize! This is where you put them in order. Simply number them according to the impact score you gave them and the estimated cost. If you want to knock out the big costs first, go ahead and put them higher up on your list. You now have a pretty good idea of what it is going to cost you as you grow your business and it is normal for you to add more to your list as your business grows.
How exactly does this help you create profit margins in your business today? Well, the primary purpose of this strategy is to prevent you from overspending which eats up the profit margins in your business. Thus, before we do any intervention, we are putting a prevention strategy in place so we can eliminate the source of the problem.
Strategy #2: Track your expenses
There are simple ways you can track your business expenses online. One of them is setting up a bookkeeping software. It helps automatically track and categorize your spending so that at the end of the month you can simply click a button, have it generate a report for you, and easily understand where your money is going every month.Â
Understanding where your money is currently going in your business will help you know if there are areas where you can cut back or maybe even eliminate expenses. If you find that your overhead costs are cutting into your margins which means that the cost of running your business is so high that there is barely any money leftover, ask yourself if there are any expenses that you can eliminate now and add it to the prioritized expense list you created using Strategy #1.
Try reducing or eliminating unnecessary expenses until you are generating enough revenue that can support that expense without compromising margins. For example, that could mean reducing instead of eliminating your marketing budget by $300 and adding that as an item to your expense list. Another idea is eliminating the retainer services for your website designer and having your virtual assistant make the updates when necessary.Â
The changes you make are likely going to be temporary but they will help give you some breathing room to be strategic about which new resources to add, and do so in a way that will allow your business to grow faster without compromising profit margins. Speaking of resources, you can find QuickBooks and FreshBooks links in the show notes and take your first step of gathering resources strategically by downloading the links.Â
Strategy #3: Adjust your pricing
Take note that the prices you charge will play a role in growing your business. If your current pricing does not include the cost of running your business, naturally, you will not see any profit leftover even if you have a high volume or quantity of sales coming through. This will lead you feeling hesitant to increase your pricing since you will need a stable flow of money coming in. For your business to grow, you need to earn money that will allow your business to thrive and not just survive, and that means earning more than you are spending.Â
For that to be possible, you need to revisit the total estimated cost of expanding your business while adjusting your prices to support your business growth. It is irresponsible to know the impact that your business has on the lives of your clients without planning to continue helping them in the future. I know it is a hard truth, but it is the truth. You have to make the hard calls and this is one of them.Â
When you use all three strategies together, you will notice your profit margins start to increase over time and you will be well on your way to running your business more sustainably!
Now, let’s do a quick recap of our conversation!Â
We first talked about how crucial it is to have profit margins which allow your business to thrive and not just survive. We also discussed the fact that even if your business is revenue rich, it can still be profit poor. If you happen to find yourself in that situation, there are three simple strategies you can start today to change that.
All three of these strategies can be found in the worksheet for this episode at rjconnell.ca/3, where you will also find instructions and a template for the prioritized expense list.Â
Friend, I am confident that where you are today is not where you will be tomorrow! I know you are an action taker and I know how passionate you are about the work you do. Thus, I am confident that you are going to use this worksheet to start making immediate changes in your business for the better and for that, I am so proud of you and excited for you!
As usual, I want you to join the conversation on our IG page @rjconnellconsulting and let me know what resonated with you the most from today’s episode!
In our conversation next week, we are going to talk about an extremely important strategy that every service-based business needs! Without it, you will probably end up feeling overworked and underpaid. So if that is you right now, you are not going to want to miss next week’s conversation.
I will see you at the same time and place next week, friend. Goodbye, for now.
Â