I attended a business roundtable just before Thanksgiving. We were asked: “What’s one of the biggest obstacles you’ve encountered growing your business?”
Spending years targeting the wrong audience.
Trying to generate revenue from people who were familiar to us. In our comfort zone. Who couldn’t — and wouldn’t — make us any money.
How about you?
Are you making the kind of money you want? The money you need?
If not, maybe your client engagements aren’t as profitable as you think.
You see, it’s not just a matter of what you get paid. You also have to factor in what you pay—in salaries, vendor costs, and your time.
Are you doing that accurately?
(BTW–I see a lot of entrepreneurs who don’t.)
Here’s a thumbnail sketch-y way to figure out profitability. Try it! Play with just one client—maybe your favorite client.
Five steps … with simple math:
- Step 1: See how much you billed them last year.
- Step 2: Add up all the hours you spent serving that client. Add back in any time “shaved”.
- Step 3: Multiply those hours by the hourly rates you paid your vendors, employees, and self. Those are your Direct Labor costs.
- Step 4: Subtract Direct Labor (Step 3) from total billed (Step 1). That’s your Gross Margin.
- Step 5: Divide Gross Margin (Step 4) by total billed (Step 1).
If the result is less than 30%, you’re not billing enough. As much as you love that client, it’s not profitable enough to help sustain your business.
Now, if that’s happening with your favorite client, imagine what’s going on with the others!
What do your numbers tell you?
Clarity cuts through a lot of crap and self-deception.
Clarity saves you a lot of time.
Clarity identifies the clients and sales that are more likely to get your engine humming.
I’m already helping my clients get more clarity so they have a smarter business strategy.
If you want to breathe more easily with more money in the bank, get in touch.