Several years ago, a headline caught my eye that I still remember. It was a story on a widely known company and the headline read “Revenues Grow, Profits Decline”.
I mention it now because it’s a reminder that revenues are not profits, and more importantly, if you aren’t careful, your focus on increasing revenues can lead to dollars dribbling out the back door while you aren’t watching.
Profit holes – those leaks of dollars from your business for what appear to be ordinary and needed expenses – are just one of the problems.
The other is the cost of bringing in those new sales through a deliberate campaign to increase revenues without a matching effort to keep the dollars you bring in.
For those who have assumed that “profits follow revenues”, let the headline mentioned above remove that myth from your thought-bank. If you are taking a short-term focus on increasing revenues, step back and take a longer look. A focus on revenues is no guarantee of sustained and rewarding profitability. Shape your efforts with a double goal: increase revenues AND profits.
Here’s the difference in focusing on profits versus focusing on revenues:
A focus on revenues is an external focus.
It’s one of increasing sales, whether it’s repeat sales, new sales to existing clients or new sales to new clients. The focus is on activities to make the sale, which means it’s an on-going process. When you stop, conceivably, the revenues could slow. If your promotional campaign generates a big push for one-time sales and you do not have a follow-up program or additional services to sell, well, you get the idea.
A focus on profits is an internal focus.
It’s taking a look at internal factors that impact profits, such as trimming costs, doing more with less, maximizing resources and so forth. A focus on profits is a focus on the policies and practices of how you run your business. It’s a focus on how you spend, conserve and maximize the dollars you bring in.
A financial or operational policy put into place can have long-lasting impact, conserving dollars that go directly to the bottom line. A sales campaign put into place has a short-term impact, bringing in revenues for that time period, minus the expense of the campaign.
For high, sustained profitability, you need both – a focus on generating dollars and a focus on maximum retention of those dollars. That’s what will make you profitable for the long haul.