A discussion with a business leader recently motivated me to write this article around vanity growth. I hope it helps you to figure out what you can do to make sure profit – rather than revenue – becomes a mission for business growth.
You’ve all likely heard the term ‘Revenue is Vanity, Profit is Sanity’ – and my discussion with this leader centred around the fact that whilst her business had grown considerably of late (in terms of headcount and revenue) – profit margins were down somewhat.
When leading an ambitious business, there’s a temptation to become blinkered around the profitability of your business – instead recognising growth of your teams and increased revenue as key metric for success.
It’s important to remember that higher staff costs with less profit funnelling into the balance sheet means higher risk with potentially no additional rewards.
Prioritise profitability
From the outside, growth in terms of additional revenue and great talent appears fantastic – and it makes a worthy PR headline – but business health is a sum of its environment and what’s happening within, and key here is to remind yourself frequently that its profitability, not revenue, that equates to true growth.
Understanding the value of profit. Make it a mission
My client – concerned that they were growing for the sake of being bigger rather than more profitable, wanted to explore how they could address the issue. We discussed putting in place a 100-day sprint to focus on profitability, with ALL departments involved.
This profitability sprint will kick off with a taskforce session, explaining to teams what profit is, why it’s important, how it’s made and what they can collectively do to improve margin.
“Everyone knows what profit means, and why it’s important, right?”
Well, no, actually. Profit has – unfortunately – always been seen as a somewhat dirty word, despite the fact it’s profit alone that allows for investment into people, training, new technology, systems, office space and everything else that buoys a business forward. For some team members – although not all of course – there might be a misconception that profit is nothing more that extra cash in a leader’s pocket – a metric that serves only for personal leader/founder gain… a down payment on that new car or holiday home.
By making profitability a mission – and communicating how important it is to every aspect of building the business – teams will be more considerate of it as a worthwhile metric. Recognise and call out the great work teams do in relation to being aware of profitability. Manifest the impact people are having and keep encouraging. Set goal and milestones.
Finally, it’s also important is recognise that profit is not simply a question of cost cutting to success (at least not necessarily). It’s more about how you can find more profitability. You might consider how you can use people’s time more efficiently, charge more, balance non billable work, look at waste, consider recruiting costs – there are hundreds of ways to improve profit margin in every department.
I hope this inspires you to look at your balance sheets and think long and hard about revenue versus profit.
Andy.