Hi {{first_name|there}},
Put two owners in the same room. One runs a $4 million business, the other runs a $2 million business. Ask who's doing better, and almost everyone points at the first one.
That's the mistake. Revenue is the number owners compare because it's the number everybody asks about. How big is the business? Nobody asks how much of it you keep.
What you keep
Say the $4 million business runs at an 8% net margin. Net margin is what's left after everything: payroll, rent, software, marketing and what you pay yourself. 8% of $4 million is $320,000.
Now say the $2 million business runs at 22%. 22% of $2 million is $440,000.
The smaller business keeps $120,000 more. With half the revenue.
Why the bigger one keeps less
Revenue doesn't show up alone. Every new dollar of sales brings more people to deliver it, more management to watch those people, more tools, more mistakes, more refunds and more of your time. Far too often, cost grows faster than revenue, and nobody notices because the top line keeps going up.
The bigger business also has less room for a bad month. At 8%, one slow quarter can wipe out most of the year. At 22%, the smaller owner can take a miss and still be fine.
The reality is, growth is only good if what you keep grows with it. I use 15% as the line for a sustainable business and 20% as healthy. Those are my benchmarks from working with owners, not a study. Below 15%, more revenue usually means more stress, not more money.
(HINT: My Theory of Unlimited was born because of issues like this...but that's for another time)
Your move this week
Pull your last 12 months. Take everything that came in and subtract everything that went out, including what you paid yourself. Divide what's left by your revenue.
That's your number. If it's under 15%, chances are the next move isn't more sales. It's finding where the money leaks before you pour more in.
Bigger isn't better. Keeping more is.
Steve