One of the big things that comes up over and over is the need to have a discussion about how to understand that revenue alone is meaningless. The key for your organization is to generate profitable revenue.
In too many instances, we can find ourselves falling into the trap of looking at revenue alone as the key indicator of our organizations’ health.
In almost every instance, that is the wrong metric and here is why:
Let’s say your organization makes one sale this year for $1M, but your profit margin is 100%. You have just made $1M in profit.
Not bad, right?
Now let’s look at another organization…and they also make $1M in sales, but there profit margin is only 10%. They have $100,000 in profit.
Depending on what business you are in, still not too bad.
Finally, let’s look at a situation that plays out in all too many non profits and other organizations, where they make the same $1M in sales, but have a profit margin of 0%.
That’s $0 profit.
Which if you are in a non profit, may or may not be a good fit for your organization, but here is an even more readily occurring situation, where the profit margin is negative. Let’s say negative 3% and at the end of the year, you have to make up $30,000 from somewhere.
Depending on your organization, that may not be easy.
So what are you do?
1. Understand the real costs associated with making a sale:
It is very easy for you to look at your business and say that you make a 27% margin on your services. But have you factored into account the labor costs, the marketing costs, infrastructure, IT, etc?
In many cases, these costs aren’t accounted for correctly.
This leads to situations where you may think your most profitable item or service is one thing, but in truth it is something else.
So understand the real costs and profits from the products and services you produce.
2. Make sure you are charging the right amount for the value that you produce:
In a lot of instances, we don’t fairly price our products and services.
Part of this is lack of market awareness.
Maybe poor market research.
But whatever the reason, this hinders your ability to maximize your profitable revenue from your sales.
In any business, it is fair for you to be compensated in a way that enables you to capture some of the value that you have created for your consumer.
This is even the case if you are working with non profits.
Why even non profits?
Because if you are a nonprofit and you don’t have the ability to fund your work, you can’t serve the population you are working to protect.
So make sure you add a sufficient margin into your pricing.
No matter what.
3. Revisit your processes:
I visit with a lot of companies and I find out pretty quickly that they are struggling with systemizing their processes.
It isn’t even from a lack of knowing that they have a process.
In most cases, they just never have the chance to think about their systems and business in the form of a series of repeatable processes.
Here’s a book that I suggest you pick up: The Checklist Manifesto (Amazon Link)
This book talks about using checklists to ensure the quality of your work.
In looking at maximizing your revenue, you can learn a lot from the idea of using checklists as tools for success.
I’m sure that there are a few things you do in your business that can have checklists built around them.
This will do two things:
First, it will allow you to free yourself up from thinking about each step.
Second, it allows you to delegate these repeatable tasks.
A bonus is, that by being able to delegate these tasks and not think about them, you also free yourself up to think and do more creative, strategic work.
These 3 steps are just a primer to generating more profitable revenue.
So let me know what steps you are taking.