Not every sale is a good sale. Why making the switch from revenue to profit is needed, yet rarely done at a day-to-day level.
Dear fellow agency owner,
Do you reward and strive for sales revenue or sales profit? Are the troops rallying around and celebrating sales numbers all the time?
What number is most important to you when reviewing the business over the last month, quarter, year?
- At the end of the month, do you check to see if the team has hit their sales targets?
- I’m guessing you’d be doing the same at the end of each quarter. You need to make sure the sales are being hit, right?
- But what about at the end of the financial year? Do you still just look at the Total Revenue for the year? I’m going to take a guess and say that you then also pull up the Profit & Loss report and look at the Total Profits for the year. Right?
Typically the answers are yes, yes and yes!
Profit is the most important figure!
But isn’t that a funny thing?
All throughout the year (at the day to day, week to week, month on month level) you’re all focused on total sales. Revenue figures. The big sales numbers. The sexy targets that show you’re going somewhere and things are really cranking!
But then at the end of the year, the most important figure is not that one… but rather the Profit one!
I know, right?
So then wouldn’t it make a lot more sense than to be focused on profit levels each time you’re doing your weekly/monthly/quarterly reviews?
Because once the year is over, it’s done. It’s gone. You may have had a killer year with those revenue numbers.
But you’ve also spent money at that point too. And that can’t be undone.
And what’s left over – the profits – well that could take one by surprise, thinking it should have been more. Much more.
It comes down to this:
Not every sale is a good sale.
A good sale is a profitable one.
Really, we all want as many of those as possible. And the fewer bad sales as humanly possible too.
Sometimes it’s hard to know if a sale is going to considered a bad one when all is done and delivered.
But we have to try.
For the sake of our business, we must figure out when we’re about to make a good sale versus a bad one.
To get closer to figuring that out, there are a few things we absolutely need to know at a micro level.
At a macro level, it’s simple.
Money in minus cost to delivery equals profit. Done. Neeeext?
But what about at the micro level?
Still simple, isn’t it. You just need to know down to every dollar how much money you’re charging for a product/service and how much money you can spend to deliver that.
However, here’s where most of us go wrong: we don’t track and follow through.
You need to track every expense towards a corresponding project.
Generally, most agencies do this right. Need a plugin? Add it to a client project expense and link it to the right project. Need to pay a freelancer? The same story – link it as an expense to the project. Easy.
The biggest one missed… staff hours.
And it’s the one that generally costs the most.
But due to peoples aversion to time trackers and general hate of clocking in and out of anything, this isn’t done well, accurately, or at all.
And it could be costing you massively.
You. Must. Track. Staff. Project. Hours.
“ugh, we’re not lawyers!”
Tracking this will need total buy-in from every individual in the company.
You’ll also need an easy to use time tracker that’s linked to all projects and easy to select what task and project you’re working for right now.
Most importantly, you’ll need follow-through.
Once you’re tracking something, you can measure it.
And now come the glorious project reports.
And then at the end of every project, a report should be pulled together.
- Start with the sales amount. Tick.
- Add in any widgets or bits and bobs you had to buy. Tick.
- Any freelancer costs. Tick.
- And every staff member’s hours multiplied by their hourly rates. Tick?
Then: 1 – (2 + 3 + 4) = Profit!
Once you know these things, you have everything to gain.
It will take time and effort to set all this up.
It may even take a culture shift (this is the hardest part).
Find the patterns & amplify your wins.
When you know how much profit every job has made, you can start looking for patterns.
You can start seeing the types of jobs that might sound good when the deal was signed, but turn out to cost you most of that to deliver it. (And you will find out which jobs you essentially had to pay to bring on… where the total money spent is more than what was charged).
And when you know this, you’re golden.
Keep on making those good sales. Stop chasing the bad ones.
Keep smashing those revenue targets and profit big.