As a business owner, your focus should be on how to increase your business profits, NOT just how to increase your business revenue. This may sound like a strange statement because most often we only hear about business revenue. However, business profits and business revenue are two very different things, and business profits are way more important!
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Quick accounting lesson.
Revenue and income are interchangeable terms. Revenue (income) is the money you bring into your business.
As a blogger, your revenue is most likely comprised of ad revenue, affiliate revenue, sales of your digital products, or sponsored post income.
As an Etsy seller, your income is from the products you sell in your shop. Every time your phone makes that lovely “Cha-ching” sound from your Etsy app, you have just made a sale and earned some revenue for your business.
Here is a quick no-brainer accounting lesson just to make sure we’re on the same page!
An expense is money that leaves your business. Expenses are comprised of the things you have to pay for to make your business run smoothly.
As a blogger, your expenses include things like purchasing your domain, hosting, and maybe some online tools that help you manage social media.
As an Etsy seller, your expenses include things like the raw materials that you use to make your products, packaging supplies, and shipping costs.
Profit is the most important number to your business. Your business profit is what is left over. Profit = Revenue – Expenses. Another word for profit is Net Income.
REVENUE – EXPENSES = BUSINESS PROFITS
At the end of the day, your profit is what lets you know if your business is doing well, or if it’s struggling.
It’s easy to place too much emphasis on the Revenue generated by a business. Sensationalists are the worst offenders! They gloat about their 6 figure income or how they made $20,000 with one product launch. Some blog headlines drive me nuts: How I Earn a 6 Figure Income, $10,000 in Blog Revenue This Month, How I Earned $20,000 from my Etsy Shop, and the list goes on! I roll my eyes and sigh every time I read these headlines.
Why do these headlines bug me so much? Because they don’t present the whole truth. The missing part of the equation is the expenses required to achieve those income numbers. You can easily have a $20,000 product launch that cost $25,000! Not a very impressive statistic when you account for the expenses! A blogger’s claim to $10,000 monthly blog income sounds way less outstanding when you learn that they spend $9,000 each month to run their site!
Pay Attention to Both Numbers
Most blog articles and business books are full of strategies to increase your revenue, and I agree that increasing your revenue is a very important part of running a business! In fact, revenue is absolutely essential to a viable business!
However, business expenses are almost equally as important. If you are doing an awesome job at generating revenue and doing an awesome job at incurring tons of expenses, you’ll never get anywhere. If you can do an awesome job of generating revenue, while simultaneously controlling your expenses, then your profits are going to skyrocket!
Ways you Might be Overspending
There are a few ways that small business owners tend to overspend, thereby decreasing their profits.
Bright Shiny Object Syndrome
In the online space, there is always someone trying to sell you their latest and greatest new product or new course. Certainly, some of these products or courses have value. Many do not. In addition, it takes time to read every new book, watch every new video, or complete every new course. Carefully consider how much time these products will take away from your business. These bright shiny objects appear to guarantee instant success, rampant growth, and amazing income. However, often there is no substitute for just getting to work.
There are so many helpful tools available to help your business grow. Many seem reasonably priced at only $10 or $20 a month, making it tempting to sign up for every new tool or program that comes along. After all, it will really help your business grow! And it’s only $20 a month!
Unfortunately $20 a month subscriptions can really add up, especially as you add more and more monthly subscriptions to your business. That super cheap $20 a month is $20 more you must earn to break even. It’s $240 you will not put in your pocket at the end of the year. Combined with 3 other super cheap tools, that’s almost $1,000 lost by the end of the year. That is a lot of money, especially for a new business!
Free Trials that Have Kicked In
What was once free is free no longer. It is very easy to sign up for a free trial, but it is much harder to pay attention to when the free trial ends. Be wary of signing up for free trials, but if there is something you really want to try, record in your planner when the free trial ends. This way you can make a decision about whether you want to continue with the service, instead of continuing the service by default. There is nothing worse than paying for something you don’t actually need, use or want.
Overbuying on Inventory
This one is for the product based business owners. I have definitely been there done this. You get so excited for a new product idea, and when you go to get the raw materials to make it, you realize how much less each item will cost you to make if you buy your raw materials in bulk. You are certainly thinking in the right direction by trying to reduce the cost to make each item. However, when you are experimenting with a new product idea, that is not the time to buy in bulk.
So many things can happen between your idea and the item becoming a best seller for you:
- The idea may not work
- It is too difficult to make
- Your excitement for the idea fades
- You realize you have bitten off more than you can chew
- You love the product but your customers don’t
- And the list goes on
Start off by buying just enough for a few prototypes. Test the idea and test the market. Then if the new product is a hit, buy your raw materials in bulk. With this method, your first couple items will cost more to make, but you will ultimately save hundreds of dollars by not buying large quantities of raw materials that go unused.
How to Increase your Business Profits Now
There is one easy thing you can do right now to increase your business profits. Pull out your last credit card statement, and closely examine where your money is going. Is there a recurring expense you are no longer using? Is there a service you thought you would use more often, but you just never seem to need? Is there a pattern in your spending that you could adjust to save more money? Cancel those extra services, programs, and tools right now!
A periodic review of your expenses will help keep your business lean and earning more profit!
Next time you see a headline claiming amazing business revenue, you’ll know better than to be duped. Be wary of business articles touting amazing revenue without revealing the expenses. Anyone can spend their way to big revenue numbers, but not everyone can truly make a profit. Now that you know how to increase your business profits, take some time and do it!