Revenue vs Profit: Which Is More Important?

Summary

How many times have you heard that it’s all about profit? They say your revenue doesn’t matter.

Well, I’m about to tell you why that’s a load of crap. You can be making the same amount of profit as someone but less revenue, and that just means you are spending less on your business.

If you want to grow your business you need systems, employees, automation, paid to advertise, etc. This costs money and eats into your profits, but it GROWS your business.

So a business that is successful will be investing into these, thereby lowering it’s profits, especially in the growing phase.

I’m gonna break down how it works in this video, and why focusing on profit isn’t the only thing you need to worry about.

 
 

Transcript

Is Profit Really King?

Some people in the internet marketing industry talk about their revenues as if that’s the end, all Beale. And if you don’t know, revenue is top line, what comes into the business?

That means actual cash that came into the business. And sometimes people even report the sales that were made, including accounts receivable, meaning cash that hasn’t been collected yet as revenue where other people will say profit is all that matters. I don’t care what your revenue is at all.

So how do you know which one matters revenue or profit or both, but like most things it’s somewhere in the middle. So today we’re going to break down. What’s important about each one and why profit is not the only thing that matters. Here we go.

So I have some friends who say profit is all that matters and they don’t have any interests in revenue, numbers of a business. And this is just silly because does profit matter.

Yes, it matters what you take home at the end of the day. Profit is what’s left over after you have paid your team, your ad expenses, your software, your overhead, anything else that you have in the business. So it’s what you actually get to keep either before or after taxes, depending on what we’re talking about.

Where’s revenue is everything that comes into the business. Now there’s a big difference between profit and revenue obviously. And so a company can have huge revenue numbers and very small profit. Like if you look at drop shipping margins, the numbers are going to be huge for sales volume, but the margin is going to be very, very small.

So how do we know if revenue is important or not? Well, let’s take a look at two different businesses. Let’s say for simplicity sake that we’re looking at coaching businesses. Let’s say we have two coaching businesses and each one is doing $20,000 a month in profit, but one of them has a hundred thousand dollars a month in revenue.

And the other has $25,000 a month in revenue. Which one of those do you think is better off? Well, it’s hard to say for sure, but in this example, business, number one with a hundred thousand dollars in revenue, most likely is spending money on ads to bring in customers, meaning that they’re not manually doing it themselves.

They’re probably also paying sales people, commission. They probably have an operations team. They probably have software to automate everything. And it’s probably a business that doesn’t depend on one person to run.

So let’s say that business is bringing in $20,000. The other business is a solo preneur coaching business. That’s also bringing in $20,000, but this business depends on one person to run.

One person is doing all the prospecting. They’re not spending any money on ads. They don’t have any operations people, and they’re doing everything in the business themselves. So the second business, they might be working 80 hours a week.

And the minute that they stop working their business dries up and they do not have a sellable asset or anything that will operate without them for any period of time.

So were looking at two businesses with the same amount of profit, but I don’t know about you, but in my eyes business, number one with a hundred thousand dollars in revenue and $20,000 in profit is clearly superior. So any person that goes out there and says revenue doesn’t matter, all only profit matters is missing the whole point of a business.

#2. Revenue Equals Investment

We have to have revenues to support the operations of a business. And oftentimes they’re taking some of that profit and we are investing back into our product. We’re making things better.

We’re building systems and we’re gearing up to scale. So we’ve had the comparison of these two businesses, but let’s take things further. Let’s say that revenue in the business, number one is almost the same as profit with the solo preneur.

They probably cannot scale very much at all next month. They’re probably max out, but we take that business with a hundred K in revenue, 20 Cain profit.

They can probably double because they’re spending all that cash to build systems and operations and the infrastructure needed to scale. So next month they might do 200 K in revenue and 50 K in profit. Meanwhile, the business that’s all profit. They do the exact same numbers next month, or they burn out and they do even less.

So do you see the difference here, but we can take it even a step further that business is doing a hundred K in revenue. They’re most likely bringing in thousands of leads every month to do this because they’re spending money on paid advertising.

And so what do they have? They have a huge email list that they can launch new offers to. They have tons and tons of leads in their retargeting audiences, in their ad accounts that they can launch new offers to or continue to sell their current offer. They have tons of customer data from how many customers are coming in.

They’re getting feedback. Why do people buy their offer? Why do they choose over the competition? And they have tons and tons, more customers to get testimonials and case studies from. So now we have two businesses, one that is light years ahead of the other, but the same amount of profit.

#3. Scaling Requires Revenue Not Profit

So does revenue matter? Of course it does more than most people think this is how you build an actual, scalable business versus just building a job for yourself.

So when everybody says profit is the only thing that matters, it matters what order we’re doing things right. When we’re scaling revenue is going to be more important. And we’re going to cut into our profit margins.

You cannot scale without cutting those margins and giving away some of that money. But what you have to realize is a small piece of a massive pie is so much better than the whole pie that is very, very small and could go away at any minute, but we can take things even a step further.

Now that we’ve got all that customer data, we’ve got all those people on our email list. We’ve got all these retargeting audiences. We can actually launch new backend high ticket offers to our audience that are a hundred percent profit margins.

And we have the time and the energy and the resources to do that because the revenue and team and the infrastructure supports it. So we just blew way past the pure profit business guy. But then the next month we add a backend offer and guess what? We double our business again.

Now the business that had more revenues is doing a hundred K a month in profit. Whereas the other guy still doing 20 K and working eight hours a week, and the minute that he stops, it’s all over with meanwhile, the a hundred K a month profit business, that guy can go on vacation for 30 days and everything will keep running as it is not to mention, he gets to build a better product because he has a whole team working on it. And he has thousands of customers to put through the products, get feedback and make it better.

#4. Start with Revenue, End with Profit

He also gets to provide a paycheck for people and a sense of purpose and training and build out a team and develop his people and get that sense of fulfillment and create bigger opportunities for him or herself. So do you see how important it is to not just focus on profit, but focus on revenue and then put some of that money back into the business.

Now, famous example of this is Amazon has built one of the most valuable companies in the world that provides value to pretty much every single person you can see and hundreds of thousands of jobs, they didn’t make a profit for 20 years because they just put it all back in.

So if you’re out there and you’re a solopreneur and you’re thinking profit is all that matters. Remember that the order of this matters, eventually you need to extract profit from the business, but if you want a sustainable business that will run without you over time, think about taking some of those profits that you’re making and reinvest that back into the business.

And when your friend says profit is all that matters. Think hard about taking that advice because the more you can invest in making a better product, building a competitive mode, building out your team and your systems and your automation and your infrastructure, the more you’re going to have a business that works for you instead of you having to work for your business.

So if you’re listening to this right now, and you’re not reinvesting money in your business to acquire new customers, to automate things, to use paid advertising, to build a team, why not? What if you took some of that profit and put it back in, and next month you might make the same amount of profit, but with much less required from you, let me know in the comments, does this help clarify things?

The difference between revenue and profit, how to balance the two in your business, what the order of things should be. And are you going to do anything differently after listening to this? I know for me, when I want to scale, I haven’t in my head.

Okay. I’m gonna take more of my profits. I’m going to put it back into the business, knowing that that’s going to come back to me, tenfold in the future, put in the comments, let me know what you’re going to do. I would love to hear it.

That’s all for late it’s Christian. He worked from anywhere, digital marketing guy. I’ll see you on the next one.