If there’s one conversation I’ve had with business owners more than almost any other, it goes something like this.
“Andy, the accountant says we’ve made a profit this year.”
“Apparently we’ve got a corporation tax bill to pay.”
“The problem is… there isn’t any money.”
“So how the hell did we make a profit?”
It’s a fair question.
Because from the owner’s point of view, it doesn’t make any sense.
You’ve worked hard.
You’ve been busy.
You’ve got good orders.
The accounts say you’ve made a profit.
So why does it still feel like there’s never any money left?
At first glance, the answer seems obvious.
You need more customers.
You need to cut costs.
You need to work harder.
Or perhaps you need to put your prices up.
Sometimes those things help.
But in my experience, they’re rarely the real problem.
In fact, I’d argue that being busy and being profitable are two completely different things.
Busy is an activity.
Profit is an outcome.
You can work twelve-hour days, have a full order book and still have very little money left in the bank.
I’ve seen it happen countless times.
The Wrong Question
When profits are disappointing, most owners ask:
“How do I make more profit?”
It’s a perfectly reasonable question.
The trouble is that it often leads people towards treating the symptom instead of diagnosing the cause.
Profit isn’t something you create directly.
Profit is the result of hundreds of decisions made every week.
Who you market to.
Who you quote.
What you charge.
How well your team performs.
How efficiently work is delivered.
How much rework takes place.
How many customers come back.
Every one of those decisions affects profit.
That’s why I’ve come to believe that most businesses don’t actually have a profit problem.
They have a measurement problem.
One Business That Changed Everything
A client came to me convinced they weren’t making enough profit.
Like many owners, they believed they had to become more competitive on price.
Whenever work became harder to win, they discounted.
When a customer said they were expensive, they assumed price was the issue.
The problem was they weren’t measuring anything meaningful.
They didn’t know how many enquiries they received.
They didn’t know how many of those enquiries were actually ideal customers.
They didn’t know how many enquiries became quotations.
They didn’t know how many quotations became sales.
Most importantly, they didn’t know why customers bought from them or why they didn’t.
Everything was based on assumptions.
Once we started measuring the right numbers, something interesting happened.
We discovered that price wasn’t usually the problem at all.
There are two very different meanings behind the phrase:
“You’re too expensive.”
The first means:
“I genuinely can’t afford what you’re selling.”
That’s usually a marketing problem.
You’re attracting people who were never your ideal customer.
The second means:
“I don’t yet understand why you’re worth that price.”
That’s usually a sales problem.
The money exists.
The value simply hasn’t been communicated effectively.
Those two objections sound identical.
They aren’t.
Until you know which one you’re dealing with, you’re guessing.
Stop Guessing
Once we understood the numbers, we started making decisions based on evidence instead of assumptions.
We identified which enquiries were worth pursuing.
We measured conversion rates.
We adjusted pricing gradually and watched what happened.
Instead of hoping customers would still buy, we knew.
The business became more selective.
Margins improved.
Confidence improved.
Within seven months the owner went from finishing each year with virtually no money left in the business to having more than £40,000 sitting in the bank.
Nothing magical happened.
They simply stopped guessing.
The Five Numbers Every Business Owner Should Know
The mistake most business owners make is measuring outcomes instead of the things that create them.
Customers aren’t a measure.
They’re an outcome.
Revenue isn’t a measure.
It’s an outcome.
Profit isn’t a measure.
It’s an outcome.
If you want to improve those outcomes, you have to measure the things that create them.
Leads × Conversion Rate = Customers
Customers × Average Transaction Value × Average Transactions = Revenue
Revenue − Costs = Net Profit
You can’t directly manage customers.
You can’t directly manage revenue.
You can’t directly manage profit.
You can only influence the activities and decisions that create them.
If you don’t know those numbers, you may be trying to improve profit without understanding what’s actually creating it.
Busy Doesn’t Pay The Bills
I’ve met plenty of busy business owners.
I’ve met fewer profitable ones.
The difference is rarely that the profitable owners work harder.
It’s usually that they understand their businesses better.
They measure what matters.
They make decisions based on evidence.
And they focus on the causes rather than the symptoms.
If your business became 20% busier next month, would it automatically become 20% more profitable?
If the answer is no, then perhaps profit isn’t the problem you’re trying to solve.
It may simply be the symptom.
If this article has made you think differently about your business, you may also find my article The Problem Behind the Problem useful.
Because in my experience, the problem you can see is rarely the problem holding your business back.
By Andy Walter
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