Running a business can feel like a football game or a street fight.
Some days you’re winning. Other days, you’re getting knocked around and can’t figure out why.
When emotions run high, you need to come back to fundamentals — the core formula that drives your business forward.
What should you focus your energy on in a moment of transition in your business?
When clients hire me to help them SCALE we create a plan to drive their business called the START to SOLD Scale Formula and the first step of this process is defining your PROFIT EQUATION.
What’s Your Profit EQUATION?
Do you know the elements that determine your profit and are those optimized? Everyone knows this stuff on a surface level but few people take time to apply it literally to themselves.
What’s the minimum measure of our success in a business?
Maximize profit.
And your profit formula at one point of time is:
PROFIT = TOTAL REVENUE – TOTAL COST
We always seek to optimize this. You can increase profit that by increasing your revenue or reducing your costs:
- Increase Revenue: Profit ↑ = Revenue ↑ – Costs
- Decrease Costs: Profit ↑ = Revenue – Costs ↓
But here’s the catch: you can’t grow profit without generating revenue in the first place. And that’s where sales comes in.
The Variables You Control
Let’s break it down:
- PROFIT = TOTAL REVENUE – TOTAL COST
- TOTAL REVENUE = Price per product (P) × Quantity sold (Q)
- TOTAL COSTS = [Variable cost per unit (VC) × Quantity sold (Q)] + Fixed Costs (FC)
Which means…
And here’s where the magic happens — you can control P (Price) and Q (Quantity Sold) when you do sales.
Costs Firsts – It’s Easiest
Costs are something you focus on once to optimize your business. Start here. And then you leave them alone for a set period of time and focus on the more important drivers of your business.
1. Fixed Costs-
These are business costs, such as rent or insurance rates, that are constant whatever the quantity of goods or services produced.
Decreasing fixed costs is the fastest way to increase profit. The thing about them is that FIXED costs don’t change easily or fast so in a year’s time it’s smart to look at these costs 1x in a year and leave them alone after you’ve optimized them.
2. Variable Costs
These are expenses that change in direct proportion to the quantity you sell. THe good news is usually when you sell MORE, your costs per unit to make something go down because of economics of scale.
Revenue Next – It’s the Leverage
Income is the true driver of success for your business. Where there is DEMAND and customers willing to pay for something you have a powerful diving rod to figure out what to focus on. You can always revise costs as your business grows to increase profit – at any time. But you MUST have sales to be able to do this.
Figure out what customers want and what they will pay for – this is the most crucial information you need to scale and optimize your growth strategy.
3. Increase Price will Increase Profit
If you sell your product or service for more, and everything else stayed the same your profit would go up. Increasing prices can help you take more money in your business.
4. Increase Quantity Sold
If you sell more, but everything else stays the same, you would make more profit. This means focusing on selling more will help you make more money in your business.
Priority Tools: Pareto’s Principle
When you feel like time is short OR you have a large company with many SKUS it can be confusing what to focus on. Use Pareto’s Principle, also known as the 80/20 rule, which shows that roughly 80% of effects come from 20% of causes.
The other key principle of this principle is that it’s not always the same exact percentage breakdown all of the time the case with every business or process. Sometimes it’s 10% / 90% or 30% / 70%. The key point is the minority of outcomes are created by the majority.
The point is – Pareto’s Principle applied to your business is that you can focus on a small part of your business and create big results
This means you have to focus on the LARGEST impacting elements to have the biggest impact. For example:
- What are the products or services you sell that have the largest percentage of sales on your business? Look at the 80% largest costs.
To figure out export a list from your accounting software of Customers, Products / Service and sort by TOTAL REVENUE. Look at the largest / majority contributing factors and focus ALL your energy on that.
Should it be SELLING more (increasing your Q) or RASING PRICES? Or both?
Focus on improving the most powerful parts of your business.
Consider eliminating your efforts in the other less impactful areas.
- What are the variable costs and fixed costs that – if changed – would change your business this year? You only need to focus on the LARGEST ones.
Focus on, export a list of total costs and look at the top 80%. Usually it represents a minority of expenses… about 20%. Sometimes it’s less or more. But the point is usually a minority of items create the majority of expenses.
To figure it out export a list of all vendors or assets you pay for and sort by total. Look at the top 80% of all costs and look for marginal improvements. Prioritize top down.
These are the simplest tools to re-focus your energy is to think about the MOST important inputs and outputs of your business.
Why This Matters
Your emotional energy, time and money are all a form of investment and a large source of stress is a lack of clarity on WHAT to invest in for the greatest reward.
Too often I see entrepreneurs focusing on the wrong things and losing that energy. They also feel sad their business isn’t where they wish it could be.
Committing to clarity and investing there can unlock LESS STRESS, more FREE TIME, MORE FUN and JOY in your business!
Doubt it? Trust me. Trust this process.
I Want You to Win
Running a business means a million things are going on at once that require your attention.
The most valuable thing you have is your focus and ability to create a prioritization of what you focus on.
What should you focus on in your business?
This technique I use here helps my clients (people like you) prioritize what drives profit and success for your business.
Have you made your own PROFIT FORMULA? What should you be focusing on this year?
I hope this technique helps, you get CLARITY.
Clarity on what drives success and reward in your business will help you feel way less stressed. It will also help you spend less energy in the wrong direction!
That’s what I want for you. Clarity. Confidence. Success. For your, from START to SOLD!
Want My Help?
- If you’re ready to simplify your sales strategy and grow your revenue with clarity, I’d love to work with you 1:1.
In our sessions, I’ll help you build a formula that works for your business so you can stop second-guessing and start selling with confidence.
👉 Click here to learn how I can help you and let’s get to work!
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