How Many Figures Is Your Business? (And Why It Doesn’t Really Matter)
There is a trend I’ve noticed lately in marketing in terms of ‘number of figures’.
‘I’m a 6-figure business! or ‘grow a 7-figure business like me in 7 days!’
I’ve heard it referred to as ‘Revenue Marketing’…and it is a pet peeve of mine.
Not because I have a problem with businesses’ growing to multi-million dollar valuations. But because this type of marketing misses the point in why you pay attention to the ‘figures’ of your business.
Shouting ‘6-figure business’ across the internet or using Revenue Marketing to catch someone’s attention is simply attention seeking headlines. It doesn’t tell me anything about the FINANCIAL HEALTH of that business.
LET’S FIRST CLARIFY WHAT THEY’RE SAYING
There are many different ‘figures’ in business; there is sales revenue, also known as turnover, there is profit and there’s even profit after tax and profit before tax. So what ‘figures’ are we really talking about here?
People are usually referring to turnover, or the dollar value of what has been sold, and this can also include courier/postage costs or other costs that are immediately paid to suppliers. In some cases, it is actually the dollar value of what has been sold since the business began. This could be 5 years in or 20 years in. It also could be that they are referring to their sales volume in just one year.
Who knows, unless they have mentioned the details or time frame?!
WHAT OTHER INDICATORS COULD YOU TRACK?
Sales volume is only one part of an equation. Other important factors that further paint the picture of the health of your business include:
– Owner wages (are you earning what you want to?)
– Profit margin
– Profit after tax
– Avg revenue per customer
– Avg cost per customer
– Non-monetary factors (hours worked, energy levels, stress, lifestyle)
Why run a 6-figure business if all of it goes in expenses? If you sell $200,000 in goods but it costs $199,999 to make, sell and distribute it, how is that healthy for yourself or your business?
LET ME GIVE YOU AN EXAMPLE
I’ve discussed frequently with business owners who are aiming for higher revenue that we also need to track profit margin, profit after tax and owner wages. Then assess taking into consideration your non-monetary factors to decide if this income stream is right for your business.
BUSINESS OWNER Launching a new online course
GOAL: $200,000+ in sales
It costs $10,000 in filming, graphic design and support. $100,000 to online advertising, email and delivery costs, PayPal fees, launch strategist fees, affiliate fees and customer support. TOTAL COST (before tax and owner wages): $110,000.
This course then sells for $1,500 and is sold to 100 people. SALES REVENUE: $150,000. (This may be received over many months if a payment plan is offered. And a factor of 3% may be applied for non-payment. That is, 3 out of the 100 customers will end up not paying or asking for a refund.)
PROFIT (before Owner Wages and Tax): $45,000. Approx tax 30%: $13,500.
REMAINING: $31,500. Potentially $4,500 may not be received from the 3 non-payers.
FINAL OUTCOME: $27,000. Or 13.5% profit margin. The owner during this period may take weekly or monthly wages.
Comparing the $200,000 in revenue to the remaining $27,000 before owner wages is quite a difference. I hope you find this insightful.
Another business may be bootstrapping and not have nearly as many expenses. But when reading headline articles about 6- or 7-figure businesses, I hope you see through these attention seeking statements and use some of the factors above to devise the right income streams or revenue strategies for your business and lifestyle.
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