Let's talk about running a sustainable biz
My guess/hope is that I could say to you,
“If you earned $10,000 of revenue tomorrow, how much of that would end up in your pocket?”
If you run a service-based biz, I’d guess this number is $2-3k (20-30%).
That’s normal for most professional services firms - lawyers, interior designers, marketing agencies, accountants, doctors, physiotherapists, etc.
But I’d challenge you to go a level deeper and get really curious about your business because likely you have some services that are highly profitable and others that you might be losing money on.
And my guess is that you don’t know which is which.
I say this with love, but in today’s economy, identifying the profit margins for different services in your biz is CRUCIAL if you want a biz that lasts more than the next 6-12 months.
Yes, identifying segment profit margins is that important for the long-term sustainability of your biz.
Let’s put some numbers on this and go through an example, friend:
Say you have two services - Service A and Service B.
Unbeknownst to you, the margin on Service A is 3% and Service B is 29%.
You see an overall profit of $311,000 at the end of the year. You think ‘awesome’.
You undertake a marketing campaign to sell more of Service A because you think there is room for growth:
Over the next year, your sales of Service A grow at a very high rate (from $700k to $1.2M) and sales of Service B slow down (from $1M to $500k):
Your profit margin is shrinking FAST (from $311k to $181k): you actually have less money in your pocket each month before you started your fancy marketing campaign and can’t figure out why.
➡️ It’s because you increased sales of a service (Service A) that had a significantly lower margin and decreased sales of a service with a higher margin (Service B). Not ideal.
Let’s talk about how you can apply this to your business today to ensure your biz is profitable for years to come, friend.
Your homework is as follows:
Calc your profit margin for each line of business or service you offer so you’re super clear on which services are profitable and which are not (aka the dogs)
Make changes:
If you have a service where you have a small (or negative) profit margin, consider how you can increase prices or decrease costs/find efficiencies to improve the margin. Can you automate anything? Can you use tech/AI so your team’s WIP on a project can be drastically reduced? Can you eliminate this offering or stop actively selling it?
If you have a service with a high-profit margin, can you figure out how to sell more of this service through promo/mktg efforts?
That’s all I have for you today, friend!
Take care and talk soon,
Tanya