Revenue and Profit: The Heartbeat of Business

Revenue and profit are the lifeblood of any business. They have a direct impact on a business' ability to invest in future growth, stay competitive and deliver the best possible service and product.

Revenue is defined as Income that a company receives through normal business operations. This can be in the form of direct sales, interest, dividends and royalties. Profit is defined as gross revenue (profit) minus operating expenses and cost of goods sold. In simple terms, profit is what you take home after all the bills are paid. Increasing revenue is simple enough. Sell more services or product! Increasing sales equal increasing revenue. But, the more important factor is increasing profit. What are some ways an independent business can increase profit margins?

Charge more.

By generating more income, you also generate the potential for more profit. Charging more sets a precedent for increasing profit margins on all future projects. It’s also a good sign that your business is maturing and you’re landing better work. An alternative way to look at this is to increase the ways you receive income. Don’t feel like you can charge more for your creative services? OK, how about selling an online product, expanding your service offerings or generating passive income through reseller programs or advertisements. Think about ways you can increase your gross revenue and you’ll probably also see an increase in net profit.

Add a buffer to all estimates.

Try 10-15% to start. Add this buffer after carefully considering your anticipated expenses and time to complete the project. The buffer helps with under estimating time and scope of work, which happens more often than we care to admit. Buffers also give you more room for price negotiation and can even cover you in the event that project scope is adjusted during the estimation process. If you don’t need the buffer, congratulations! You’ve just realized even healthier profit margins.

Work with clients who understand value versus price.

What is the project worth to the client? What is it worth to you to do it? The inherent worth to you should include a profit. Clients that want something done at the lowest possible price and haggle you on cost are not conducive to increased profits. When you sell value, you’re also selling the realization that you are a professional and treat your business and customer as professionals too. Respecting your business means you demand compensation that includes a reasonable profit. True business professionals understand this and appreciate it.

Hire subcontractors.

It sounds counter-intuitive but it works. Hiring subcontractors frees your time to seek out new and bigger work. It alleviates you from responsibilities and tasks that may not be the most profitable. Whether its a bookkeeper, developer, illustrator or project manager, bringing other independent creatives onboard allows you more time to work on your business, not in it. Working on your business is essential to planning and nurturing channels that will generate more profit.

Reduce overhead.

Simplify your life and your business. Increase revenue, decrease expenses. It’s a simple formula, but a difficult one to put into practice. Do you really need a new computer every 12 months? Do you need the latest and greatest software? Find ways to reduce monthly expenses and see an immediate increase in profit even without increased revenue.

"I have worked extensively with Eric and have always been impressed with his level of professionalism and his commitment to the quality of his work. He is focused on improving the entire web design industry through his web standards compliant coding and design. I look forward to any opportunity to work with Eric."
Dan Kobler, Partner, Campfire Digital

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