Tag: profit

Optimizing the Margin

I was on a call with a client yesterday and asked them what impacts their revenue the most?

They have a new website that they’re feeding over 1.5 million visitors to a month and monetizing that traffic through advertising. There are a bunch of technical levers that we could pull to increase ad impressions: improve site speed, optimize the mobile ad display, work on pages per visit, and etc. But while we were going through these, they mentioned that they’re sourcing advertisers through a reseller that takes a 30% cut.

30% is a huge bite of revenue.

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Brilliance in The Basics

I was on a call with four other agency owners this morning and it was interesting to see how different our businesses were. Agencies should be similar, but there were real differences in how we priced and delivered work. What roles were needed in one business and weren’t in the next. What systems worked for one agency and didn’t make any sense for the next.

Mike Michalowicz has a line in one of his books where he says all businesses are the same.

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$4k More a Month in 5 Minutes

“Within three months, I created an additional $10,000 a month of income.”

This was the featured testimonial for a business coach I came across yesterday. The page was full of similar quotes of happy clients who had experienced fast growth.

Any good testimonial speaks to what is possible. What was listed on this business coach’s website was a collection of best case scenarios. Which is normal and as it should be.

But it’s still worth asking the question: what is going on here?

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The Inherent Power in Basics

I watched a webinar on the financial management of agencies last week. Over the course of an hour, a consultant took us through a byzantine spreadsheet that forecast profit based on how your agency was configured. It was filled with numbers, tables, highlighting and took up every millimeter of screen real estate.

Using the spreadsheet you could model changes to your business. What if you hired a new developer? What if you changed your pricing? What if you decreased time off? This impressive spreadsheet could tell you what the result would be.

At the end of the call, he asked for questions.

I asked, “What are the top changes that your clients come back to again and again?”

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$80K From a Bit of Thinking

Back in January I wrote about the Profit Window and the process of profit optimization.

I used that writing as a prompt to look at our business again and identify areas where we weren’t as efficient as we could be in generating profit.

Based on that thinking, we implemented a handful of changes.  It took about a week’s worth of work to execute.

Now, in June, we’re on track to capture $75 – $80,000 in additional revenue with margins of over 50%.  

To provide a concrete example of how boosting efficiency works, I’ll explain my thinking and how this came about in this short case study.

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Optimizing for Profit

In the book “Built to Sell” John Warrillow explains how approaching your business as if you’re going to sell it will help you to maximize the value of it- regardless of whether you actually intend to sell the business.

Pretend for a moment that you were going to try and sell your business within the next quarter.  What would you change?

It’s like getting divorced- all of a sudden you’re on a diet, in the gym, and doing all sorts of stuff that would have kept you from getting divorced.

Pretty funny.

If you were going to sell, it’s a safe bet that you would clean house:

  • Updating systems
  • Updating SOPs
  • Reevaluating your employees, costs, customers
  • And seeing what changes you could make to improve your value

All of this in an effort to appear more valuable… really to be more valuable to a buyer.

The thing is:

The opportunity to be more valuable was always there.

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The Profit Window


Most business owners are obsessed with it.  

Early stage entrepreneurs focus on top line revenue.  As they gain experience some of them shift priority to profit.  As they gain more experience, some veterans shift back to revenue (or back and forth.)

Many entrepreneurs focus on vanity metrics like headcount.

For the past five years, I’ve managed a small team and been stuck under the $300,000 revenue ceiling.  The entire time I’ve worked diligently to grow the company and have continually invested in sales and marketing.

Superficially, it doesn’t seem like much has changed.  We certainly haven’t grown from the perspective of revenue or number of employees.

But we’re actually much more profitable than we were five years ago. 

We’re more productive at creating value.

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Profit Isn’t the Bottom Line

Profit isn’t the difference between revenue and costs.  It’s not a line item on an income statement that is black or red.

Profit is the capture of excess productivity in value creation.

There’s a functional difference between the ideas.

The first is a measurement which can be gamed.  The second speaks to the underlying forces that drive a business.  

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