Revenue vs Profit

I worked in the legal industry for 15 years.  It’s an industry going through a transition because the producers are having to better understand the difference between the two. I’m over simplifying but a common perception was “I brought in $50 million so we made money”.  Uh maybe.  Understanding revenue vs profit is very important in small businesses… ok big too.  It’s critical when setting strategies & processes.  While it seems so “well duh” it’s really misunderstood a lot.  A couple examples…

  1. All revenue isn’t good revenue – Wait what?!  I have rent to pay!  Yes and adding a new service, marketing towards a new client type or upgrading a product may increase sales but in the end decrease profitability.  It can also reduce service for your current clients or simply take focus off your core competencies.  Steve Jobs once said, “I’m sometimes more proud of when I said no than yes”.  Think about the probably impactful, world changing and just downright cool ideas he said wasn’t right for Apple. Growth is critical to your success.  However, all revenue isn’t good revenue.  Just because it’s hot doesn’t mean it’s right for your business.
  2. Control costs – Well, first you must understand your costs. (Hint, hint – my post on dashboards).  Taking care of clients, selling, making money & building teams are why you started your business.  Just remember at the end of the day though… it’s a business with two sides of the ledger.
  3. Keep it simple – Again, stay focused on your core competencies.  Your business should be building blocks stacked on the foundation of what you do well.  Everything should fit nice and snug. If not, one piece can… well, you get it.

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