How to Increase Your Personal Income: Focus More on Profit and Less On Revenue
Episode 340: Show Notes
Welcome back to the Strategy Hour Podcast! Today’s episode is mostly for the listeners out there whose businesses are under the $500k a year earning mark but who have this possibility on the horizon. We want to talk to you about the growth that happens around this point and for you to ask yourself whether you really need to keep growing. The reason this is an important question is because as you scale past $500k you actually may not increase your profits.
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This law of diminishing returns is something we have experienced at Boss Projects as we grew. What does it really mean to have a seven figure business? The answer might not be quite what you expect. In order to get you ready for these possibilities we will be talking accounting and the different ways that making money works in your business. So if you are ready to start making your revenue work for you and to keep your profits up, listen in, we cover it all!
The Basics of Accounting
We are willing to bet that a lot of you hate math or haven't done that much accounting. You might not know as much as you could about balancing books, so we are going to go over a few basics very quickly. Your top line revenue is all the money that comes into your business, everything that you make. Your profits are your revenue minus your expenses. These two things are very different and we want you to spend more time thinking about increasing profits instead of increasing revenue, okay? The underlying rule here is that it often costs a lot more to make a bit more, so why not change your point of departure so that it suits you? We have noticed that around the 150k a year mark is where it starts becoming impossible to run things yourself without outside help. This might mean an assistant or more systems or software - whatever it is your expenses will go up! As you grow, your goals should still be financial independence, you do not want to be making more money but less independent. Often when we make more money and reach our goals we then set new, higher goals but this is not always in our best interest. Tightening things up and cutting expenses can make such a big difference so do not overspend where you do not have to!
Some Ideas for How to Keep More Money
The obvious idea here for making more profit is to lower your overheads where you can. It is easy to keep adding on another piece of software or services that seems helpful and inexpensive, but these costs add up and you could be spending way more than you can afford or need to. Condense these costs as much as you can! Look at the ROI of each of these and get brutal, if they are not really making you money, get rid of them. You can also downgrade plans to the absolute necessity, a basic version of a software is often good enough. It has been a big lesson for us that you often do not keep more money when you bring in more revenue. This is different for every business but you can rest assured that it is often the case. A lot of money goes into growing and scaling things, so do not rush into getting bigger. We sometimes feel like we want to go back to making less revenue so we can take home more profit again!
Lowering Goals and Increasing Earnings
The percentages of profits versus revenue change as your business moves up in scale. So the margins are not the same on the other side of 500k. You need to recognize that it is likely there will be less profit for you personally as your grow, so while you make decisions about your business maybe think more about profits than revenue so you can think of ways to make more money for your pocket. Keeping the equations simple and strong can serve you so well. You do not have to be a very diversified entrepreneur in order to be a millionaire! Doing one thing well can take you a long way. This does not mean you cannot pursue other outlets and there is no need to put unnecessary pressure on your business. All our success does not have to come from one thing and having more space for passion projects is one of the true gifts that growing a business affords us. Remember why you started things and why you wanted to design your life like this in the first place!
The Fallacy of Passive Income
There is always a lot of talk about passive income but our experience is that nothing in the business world is actually, fully passive. The only way to make money passively is through a diversified stock portfolio, where your money can grow slowly each year with the help of a good financial advisor. We are not trying to get you to go buy stocks! That is a long game and if you do it the right way you only make money over a long period of time. You can make more money quickly through a business but then there is also obviously more risk. Why not think about trying to grow your business as much as necessary while having some stocks to give you a strong foundation? This strategy can balance things out for you as your business has inevitable ups and downs. There are many ways to think about reaching your financial goals and you can still run a business while you pursue other options on the side. Look at your goals holistically and figure out what makes sense for you. Doing more things can be distracting but can also open up new worlds of excitement and profit. It does not have to be sexy but it does have to make sense!
Quote This
We want you guys more focused overall on profit than on revenue.
Highlights
The Basics of Accounting. [0:03:21.4]
Some Ideas for How to Keep More Money. [0:11:16.5]
Lowering Goals and Increasing Earnings. [0:19:11.2]
The Fallacy of Passive Income. [0:25:50.6]
ON TODAY’S SHOW
Abagail & Emylee
The Strategy Hour Podcast
We help overwhelmed and creative entrepreneurs break down their Oprah-sized dreams to create a functioning command center to tame the chaos of their business. Basically, we think you’re totally bomb diggity, we’re about to uplevel the shiz out of your business.
KEY TOPICS
Profit, Revenue, Expenses, Taxes, Investing
