Show me the money.
Ah, money. It’s what makes the proverbial world go ‘round. You have to spend it to make it. Saving it can make you more. Spending it feels good (well, when it’s on something you actually want – not like… car repairs).
Let’s talk about it, then.
How do you determine pricing?
How do you consider price increases during crazy inflation?
What should you offer loyal clients to keep their business?
Pricing isn’t a one-size-fits-all structure. There are many things to factor in, consider, and regard. And ultimately, when the goal is to make money, above all, the almighty dollar is king.
Revenue vs. Profit. And what the heck is a margin?
Maybe this is all new to you, or maybe you need a refresher. Whatever the case may be, it’s important to understand what revenue, profit, and margin mean.
Revenue is the total dollars coming in, regardless of the cost of doing business. If you sell 100 widgets for $100 each, your total revenue is $10,000. We haven’t considered anything except dollars the money we made on selling the widgets.
You can certainly break down revenue into different funnels, like Monthly Recurring Revenue which is revenue that has been committed to by a company who has contracted long-term purchases. You can also look at how revenue is accrued, like through interest or dividends. Revenue streams can vary so it’s imperative that they are broken down on your balance sheet.
Profit is the money left from the revenue once expenses are subtracted. Of your $10,000 widget sales, it cost $3,000 to make them, you have $1,000 in overhead for rent, and $1,000 for other costs associated with making and selling them (think marketing, shipping, website, insurance, etc.). Of your revenue, $5,000 goes to expenses which means the remaining $5,000 is profit.
Margin is the percentage of profit compared to overall revenue. $5,000 of our $10,000 revenue is 50%. That’s the profit margin on your widgets. Margins can fluctuate based on variable costs, overall sales, discounts offered, and more. It is highly recommended and encouraged to set your margin as a KPI goal. This is the best way to ensure you are consistently making enough profit to continue to support your business.
Well, there are plenty of other money-related topics we can discuss. Let’s start with customer loyalty.
Monthly Recurring Revenue (MRR) is the best. Seriously. Consistent income, even if they are slightly smaller deals, can be better than one-off big ones. Those recurring deals keep your employees paid, keep the lights on, and allow you to invest back into making and selling more widgets.
Consider MRR like the golden retriever of the revenue world. He’s trusty, makes you smile, and gives the best cuddles. You want to keep him happy with treats because he is your best bud.
What kind of treats? Well, discounts are great in upselling situations. Maybe your client approaches you in need of added services. It would be great to extend your appreciation to them for their continued business by offering a small discount on these new services.
Referral benefits are great, too. Word of mouth is a phenomenal way to thank clients for sharing your services with others. This can be a gift card, or a credit for a future purchase. A little bit goes a long way.
When walking through your business’s finances, there is clearly a lot to think about. How do you make the most money with the smallest cost? How do you improve profit margins when things are getting more expensive every day?
Understanding what it all means is the first step. Identifying what your fixed and variable costs add up to is the starting point. Then you decide how much profit you need to make in order to stay in business and grow that business. Finally, you work on strategies to keep that business.
Then, it’s time to make that money.