— by Katy Triefenbach
You may be surprised at the concept that there can be such a thing as bad revenue. But revenue that diverts you from the direction you’ve set for your business might deserve that label. Ask yourself:
- Is the source of the revenue in line with my company vision and strategy?
- Is it profitable?
Let’s look closer.
Simply producing income is not a strategy; it’s a short-term goal. You must first outline your overall vision and strategy for the next 3-5 years. Company vision means, “Who do I ultimately want to be?” Strategy means, “How am I going to get there?” This is where you need to be laser focused. For example, if you want to be the lead marketing firm for the greater L.A. area food and beverage industry, then maybe one of your strategies is to work with OC Food & Wine magazine to capture more potential clients. Look at whether your revenue lines match this vision and strategy. If not, then the revenue might not help you to achieve the goal, and may derail your growth. In this example, imagine that the majority of revenue for this marketing firm comes from business outside the food and beverage industry – say, if their largest client is an auto dealer. The question they need to ask is, “How will this company sell my story to my target audience?”
Many business owners think they understand profitability, but actually when we dive into the data, their assumptions are wrong. In service-based organizations, the bigger revenue generators are often the least profitable. The total dollar amount may be larger, but if the client is not in line with the vision and strategy or requires more time and resources by comparison to others, then the profit margin may not be acceptable. In such a case, you need to start thinking of a long-term exit/replacement. Developing an internal process for capturing time and managing profitability is crucial for scaling a service-based business. It is best to get a software program to track the data, instruct all employees (especially yourself) to use the tool, and review the results monthly.
Decisions made from fear are never the right decisions. Do not let the fear of losing revenue defer you from staying on track toward your company vision and the strategy designed to get you there. The more focused you are, the greater your chances of success.
Katy Triefenbach is Co-founder and CEO of Stage 1 Financial, which delivers fully-outsourced operational, finance, and accounting solutions that align organizations and strategic priorities. The company’s insights and tools for data mining result in turnkey solutions for today, and for the future as your company grows.