Putting all your energy into sales and marketing is not enough. To make more money, you need to focus on profitability. I hear so many entrepreneurs say that the one thing they need is more sales. But... what if I told you that increasing your sales does not guarantee you will make more in profits. That may sound crazy, but as an accountant, I have seen this countless times over the years, looking at businesses' financials.
As a CPA and business strategist, I have met many entrepreneurs that are working themselves ragged. However, despite making over six figures in revenue, what ends up in their pocket is less than minimum wage. That's because they don't have a financial strategy. Instead, they make decisions in their business based on emotions rather than data. The end result leaves them wondering where all their money went.
Don't let that happen to you. Listen to learn how you can positively impact your profits besides accumulating more clients and chasing down sales.
For more info, see complete show notes: https://www.getthebalanceright.net/blog/episode99
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I hear so many entrepreneurs say that the one thing they need is more sales. “If I could only get more leads, more customers!” They’re always chasing after the next customer. BUT - What if I told you that increasing your sales does not guarantee you will make more in profits. That may sound crazy, but as an accountant, looking at businesses' financials, I have seen this countless times over the years.
Hey dudes, I’m Heather Zeitzwolfe, I’m a Profitability advisor, and known as the Vegan CPA. Besides vegans, I help creatives start and build sustainable and scalable, profitable businesses based on their authenticity and talents. I’m also the host of this podcast, Get the Balance Right.
Admittedly I’m not a sales expert, although I had a kick-ass one on my show, Nikki Rausch aka the Sales Maven, she was on back in episode 32, where Nikki dropped some killer sales tactics, check the show notes for the link. But this episode is about profits, something that is in my wheelhouse. There is a distinct difference between Sales aka Revenue and profit. Revenue is what you make before expenses. Profit is what you have after expenses. And if your expenses are larger than your revenue, then you have negative profit, also known as a net loss.
If you’ve been following the podcast for a while, then FYI - This is the last episode in the series called From Passion to Profits, so today, to tie it all together, I wanted to emphasize an area that is so vital for creatives who are entrepreneurs following their passion and really any business owner, and that’s the importance of focusing on profit instead of only focusing on sales. If you haven’t heard the other episodes in this series, you can totally start with this one and then go back, the series starts at episode 92, and episode 94 was another solo one, where I talk about Not Winging It With Your Numbers - You Need a Plan.
As a CPA and business strategist, I have met and continue to meet many entrepreneurs that are working themselves ragged and they have the sales to prove it, oftentimes they’re making well beyond six figures in revenue each year, however, what ends up in their pockets…is less than minimum wage. The author of Profit First, Mike Michalowicz, refers to those businesses as a Cash-Eating Monster and those types of business owners as victims of entrepreneurial poverty. If this is you, you’re not alone. Many entrepreneurs find themselves in that trap, where they are making money, but all of it seems to disappear. Oftentimes, they're unsure how to dig themselves out and what they need to change to keep more of the money they’ve earned.
You’ve probably been a witness to these types of businesses or even a customer and not known what was really going on under the hood.
This lack of profit issue plagues so many solopreneurs and businesses. That’s why statistically so many businesses go under. According to the Bureau of Labor Statistics, 20% of new businesses fail during the first two years after opening, 45% fail during the first 5 years, and 65% during the first 10 years. I don’t want you to be one of those statistics. But to survive, you really need a financial strategy. Marketing and sales are only a piece of the success puzzle.
Think about where you live, and the businesses in your community that appear very successful- on the outside. You know, the type with a giant line of hipsters going around the block, waiting for hours, just to get a glazed donut dusted with acai berry and a house-infused CBD seltzer.
I’m sure you’ve seen it in your own town… Imagine a trendy ice cream place, let’s just call them the Sundae Morning, you know, like the Velvet Underground song, Sunday Morning…except Sunday is spelled Sundae like the dessert… OKay…I’m totally making this up, so if there is a place called Sundae Morning out there, I’m not talking about you. This is fictional.
Ok, So I want you to imagine that Sundae Morning, is all the rage in your town with hipsters and families lined up around the block, week after week. You finally decided to check out what all the fuss is about. But you get there and discover the storefront has changed, the location has been replaced by an artesian vinegar and sea salt shop. Which sidebar, is probably not going to last very long either.
But what happened to Sundae Morning?
They were so trendy, they were the place to be for ice cream, so what in the world happened? Let’s pretend someone got a cockroach in their cone and then they got some nasty comments on Yelp. Like, “Surprise - Sundae Morning has new, exotic toppings” Ok, that stuff can kill a business, but their devoted fans aren’t necessarily reading the YELP reviews, they already love the place…Sure, the cockroach in the cone incident, could have forced them to shutter their doors…but that wasn’t the real reason. They could have bounced back, but they didn’t..they closed down their sweet shop, using the bad publicity as their excuse. Instead, the reality was that Sundae Morning had a long history of problems with its overhead. Between the rent in the trendy neighborhood, the labor, the cost and shipping for all their gourmet toppings, purchasing the wrong quantities of perishables that were thrown out due to spoilage, all the refrigerated units that required repairs, the fancy ice cream truck they bought for events but never used, etc, etc, They were so far in the hole that despite being totally slammed, they could have scooped ice cream until their fingers bled, and still remained in the red, literally. Because their expenses remained greater than their sales, it didn’t matter how many sprinkled-covered sundaes they sold, because they never truly found a way to operate profitably. Therefore, although they appeared to be a successful business, they just weren’t. Here’s the cherry on top - Because they lacked a financial strategy, they just kept spending more and more money hoping that would be the answer. But to achieve profit you need a plan, but not one that is rigid, instead you need to be nimble as an entrepreneur and make tweaks in a timely manner. But to do this you must understand and review your numbers, and then take action.
I’m not telling you this to discourage you from starting a business or following your dreams to be an entrepreneur. Instead, I’m letting you know, that you are not alone. Your financial struggles are common. Your road ahead might include tough times. However, being an entrepreneur has so many amazing benefits, that it's worth it, and having a financial strategy will help you achieve your dreams.
In my experience, I have personally seen the financial books of businesses that have been written up in national magazines for their popularity and noted internationally for their influence, yet these “successful” businesses, I’m saying with air quotes are in reality crashing and burning on the inside financially. Not only were they suffering from a net loss, but they had several loans with giant interest rates, owed back taxes, maxed out credit cards, and were constantly scrambling to make payroll.
When you have a business that is focused just on passion and not profitability, it can lead you down the path of overspending. Why? Because people think dumping more money into their business is the answer. Instead of digging deeper to discover the real issues, they use money as a band-aid, over and over until the bleeding just won't stop because all the band-aids are used up.
This band-aid approach can often be a result of ego and mindset. Our ego can cause us to make irrational decisions based on feelings rather than data. Our mindset may hold us back or cause us to make choices out of fear, doubt, or uncertainty. To get to the root of the real issue, emotionally-driven actions need to be taken out of the profit equation. Understanding them is important, but don’t let them cloud your judgment.
When we’re building a business based on passion, sometimes we get blinded by what we love and forget to think about what the end-user really needs and is willing to pay for. That requires time, effort, and patience to test and tweak after gathering data. Then the cycle begins again, testing and tweaking. But instead of following that process, we’re more interested in our next masterpiece, because we suffer from Brilliant Idea Syndrome.
Oftentimes, as entrepreneurs, we fall into the trap of the shiny object and before we finish one idea we’re onto the next. I am so guilty of this. I have notebooks full of ideas. I’m always reading several books at once because there is so much to learn and I want to take it all in. Except, in reality, I have piles of books with sticky notes, bookmarks, and underlined passages, along with countless unread chapters.
Constant creativity and curiosity are both a blessing and a curse to us entrepreneurs. Sometimes the most mind-blowingly clever ideas, fade away because they never get fully executed before we move on to something else. Getting bored and restless is common for us. If we’re not getting quick results, we grow tired of it and want to move on to something else that seems more exciting… because the next thing, we perceive as having endless possibilities. We end up spending more money looking for that magic unicorn (another piece of software, another book, another course, another conference, or whatever). The unicorn is more attractive and enticing than spending the time and effort of examining the current model and tweaking it to work towards our advantage. We don’t know what the profit potential is, because we’re too busy being squirrels.
But if we keep chasing the “what-ifs,” and never fully solidify what we start, we will dilute our dreams, spread ourselves thin, and wonder why we’re not making enough money. After all, we have so much to give the world… but then get discouraged and wonder why aren’t more people buying it? Why are sales so unpredictable? But rather than trying to understand the WHYs, we end up on a hamster wheel, trying to constantly create new ideas and new offers, before we’ve given our old ones a fair chance, by examining the data and crunching the numbers.
I did a poll recently, asking entrepreneurs in my network the question: If I could wave a magic wand to give you ONE result in your business, what would that ONE result be? I had 66 people respond to my question and based on that data 15% wanted more customers, 10% wanted more leads, 12% wanted an increased audience and around 13% wanted more revenue. But as we’ve discussed, increasing sales doesn’t always equate to increased profits. So I think the real WHY behind these answers is the desire to obtain increased profits. Therefore, besides sales, we must also concentrate on the other profit levers. These include pricing, productivity, cost per sale, and overhead expenses.
Going back to the difference between Revenue and Profits. Revenue is the amount you make from a sale, that’s the money that comes in. The expenses involved in producing it are not included. Whereas profit is the difference between revenue and expenses. It’s the amount leftover. If you’ve heard of a Profit and Loss statement, that’s a report that shows your revenue minus your expenses, giving you your net income or net loss, which is your profit.
I’ve worked with clients who made around a 1/2 a million in revenue, but because they had so many expenses, they ended up making in profit, far less than someone who barely reached six figures in sales. Why? Because the one with 1/2 million in sales had lots of expenses, whereas the entrepreneur making less than six figures had very few expenses. In other words, you can have a 7-figure business, but make less in profit than the one pulling in 80K in sales, if they keep their expenses under control.
To effect revenue in a positive way, you can do the following:
Obviously, increased sales can increase your profits, but there are other factors to consider. In the most simplistic terms, here they are:
To increase your profit you can:
Considering these factors, getting more leads may not be the real issue. Yes, we want more sales, but by tapping into your existing clientele, you might be able to reach the profits you desire. In fact, if you tweak your pricing, improve your productivity, and develop more enticing offers for your client base, you could see your profits soar without having to increase advertising and marketing dollars.
But to have this insight, we need to be able to dig into our numbers. We are so focused on the future, that we don’t actually examine the present. If you haven’t been logging your financial activity, then I encourage you to start. I’ve developed an easy tool for this that you can download for free, it's called the Profit Tracker Tool. https://www.getthebalancerightpodcast.com/tracker
Being an entrepreneur is full of many challenges and rewards. Oftentimes when we’re following our passion, we don’t consider all the hurdles we’ll need to overcome. But starting with our heart is key. Now we just have to plan and take action to generate profit from our passion.
Rather than tossing aside everything we’ve built, we want to learn from what has been working and what hasn’t. Being an entrepreneur requires testing and tweaking. To start, we need to take the current pulse of our business.
It’s so important to make decisions based on data. I worked in market research for years as a project manager and worked on data collection for Cartoon Network, NBC, Miller, Lexus, to name a few. These brands never relied on hunches to make decisions, they entrusted the data. When you start collecting your own data, for instance through questionnaires with your target market, the data might surprise you.
Oftentimes, when we are building a business based on passion, we are so focused on our dreams and desires that we don’t consider the data, in fact, you may never consider it when establishing your pricing, developing offers, or chasing after potential clients, who could be detrimental to your profits, yet you had no idea because you never examined the reality.
In episode 94, I discussed Stop Winging It with Your Numbers - You Need a Plan. If you haven’t heard that one, I recommend you go back and listen to that one. I talked about the importance of having a roadmap to understand and plan how you will reach your financial goals.
I am super jazzed that you want to build a business based on your passion, but that love alone is not enough to make the level of income in your pocket that you desire. If you are ready to start making your passion into a profitable business, I encourage you to enroll in my new group coaching program, called From Passion to Profits Roadmap. This program will help you get on the right path for revenue that converts to higher profits. We will cover in-depth, what I talked about on the show today, but it will be totally hands-on and applied to your unique situation. We will examine the effective ways your business can utilize the profit levers and create a successful, sustainable, and scalable business based on your passion. To sign up go to: https://www.getthebalanceright.net/group-coaching
If you have any questions about the program, please schedule a discovery call with me, Heather Zeitzwolfe!
If you’re hearing this episode in the future, please check the waitlist link for the next group or other opportunities I am offering.
As you may have noticed, this is episode 99 and For episode 100, we are starting a totally new season of the podcast. We will be taking a short sabbatical for a couple of weeks. But I will be back with some really exciting guests.
In the meantime, please check out some of my prior episodes and would love to see you in my next From Passion to Profits Roadmap Group, which is starting soon.