These offers are everywhere. If you ever looked for ways to make money or start your business, you know what we mean. You find all these marketers: “make thousands of dollars every month!”
It appears on social media too.
“How I made $5K in 45 days.”
“How to become a millionaire.”
“How to build a $10K/month business.”
If those titles hooked you, you might have clicked on some of those videos. Most people, however, feel misled by these promises:
Did they lie to you? Or did they play with your expectations? You see, although revenue isn’t what matters in finance, it does draw attention.
Think about it the next time you find an offer that sounds too good to be true, whether it’s investing, entrepreneurship, or a job. The advertised numbers are probably excluding taxes, cost of goods, and other recurrent necessary payments.
The question isn’t if you’ll make money, but why are you taking the opportunity in the first place. Know the difference between revenue and profits, so that you don’t fall for these mental traps and take only the projects that are worth your time. Who wants to do all that work for such little payoff?
Before we start, it’s important not to see any of them better than the other. This article will show you the pros and cons of both, why they are interdependent, and how to increase them.
Finance 101: Revenue and Profits
Before you choose which one to focus, let’s set the groundwork. In simple terms:
Revenue = Quantity * Closing price
Profit = Revenue - Expenses
The first instinct tells us: what matters is the money we keep, so we should focus on profits, not revenue. But as you can see, the profit equation includes the latter. You cannot maximize your profits without increasing revenue.
That’s why saving alone doesn’t work. If you compare large inefficient brands with small but effective businesses, there’s not that much difference.
In fact, being big and having a lower margin is more dangerous. Although you cannot make profits without revenue, you can make revenue without profiting. But is it sustainable?
Pros And Cons Of Increasing Your Revenue
Efficiency does matter in business, except when revenue is close to zero. Unless you make a few thousand dollars a month, there’s really not many things to optimize.
If a small owner focuses on profits, he won’t find noticeable changes in his finances. Even worse, focusing on profits first could prevent your business from growing, despite how counter-intuitive it sounds.
Let’s see why you might want to boost your revenue:
Focusing exclusively on revenue has its drawbacks too:
Once you handle millions in revenue for little profit, you may find yourself working in the business, not on the business. You become so busy that you can’t innovate, and all will eventually collapse.
That’s why profits are critical. Once you get the best margins, we’ll show you how to increase your revenue.
What Is An Invoice?
As a client, you receive a document from a seller who has provided a service. It includes complete information about price, contact, and product details. Most big brands generally charge your account automatically.
It requires buyers to pay within the first 48 hours, sometimes for the first week. After you deposit, you get a receipt as proof of payment. You should always double-check those numbers and question whatever you didn’t agree with.
These invoices directly tie to the seller’s revenue. However, one can also register profits even when a client delays a payment (only cash-flow reduces temporarily).
Although invoices are not legal documents, all of them must include:
Take also a look at what is payment fraud and how you can avoid it.
Pros And Cons Of Increasing Profits
Everybody likes making more money, and profits are a big part of it. Instead, we’re going to show three benefits you may not know:
More profits allow you to come up more prepared. For example, one of the craziest Jeff Bezos strategies is “going underwater” with more supplies than everyone else.
Then, he will drop prices at the point nobody else can make money. He would hold it until everyone goes out of business (or buys them), and once there’s no-one left, he’d drive prices back to normal.
Overall, better margins make you more resilient to market demand, competition, and better relationships with suppliers.
Now, you may wonder: How can there be any disadvantages in making more profits? Without the context of revenue, they are.
Should you work on your profits, revenue, or both? If so, which one should you do first?
Whether you chose one or the other, we’ve prepared a simple guide on how to boost both:
6 Ways To Increase Your Revenue
More revenue means more profit potential, and it’s usually the right way to start growing your business.
In short, you boost your revenue by reinvesting.
How To Boost Revenue With A $1/Year Salary
Would you run some of the biggest companies for one dollar a year? It seems many world-class executives are more than happy with that salary. They certainly don’t have low-income lifestyles, so what aren’t they telling us?
Why Would Anyone Accept The One Dollar Salary?
As a business owner, one has the purpose of making the company as successful as possible. Since we talk about money, these professionals have to make more sales and optimize expenses.
For committed CEOs, every dollar matters. Business growth isn’t only about being profitable, but taking the net profit and reinvesting it back into the company. For every dollar that you compound, it generates exponentially more value over time.
But that’s not always the case. That’s why executives only pay themselves $1 if they believe their market valuation is going to rise. And if it doesn’t, they are the first ones to lose.
As an employee who searches for a stable income stream, this wouldn’t be ideal. But as the decision-maker of the company, it makes a lot of sense. Why spend money moving it from one place to another if it’s going to end in the same place?
The short answer is, yes. It helps the company to save money on taxes and brokerage fees. Yet, it’s 100% legal as long as you don’t pay $0. If companies had to pay these CEOs their actual net worth, it would greatly limit their growth.
What’s The Catch?
The business owner has the most decision power in the company, among other reasons, because they own the most of their stock.
Since they’ve been there from the beginning and always stay in the market, they get the best returns. Of course, it’s their responsibility to make sure valuation increases, which makes them active investors.
It doesn’t mean they drive prices up all the time. But they don’t mind if reinvesting in the company will cause the price to drop because the long-term projection will be positive.
Is it good or bad to set $1/per year? It’s convenient and legal. Although tax evasion is not acceptable, tax avoidance is. By law, one has the right to save as many taxes as one can, if that means taking advantage of legal loopholes.
How The $1 Salary Makes The Company More Valuable
The one-dollar salary does have a psychological trick behind.
From the CEO perspective, you don’t get paid if you don’t make the company work. It requires you to be all in, and that sense of commitment makes people more resourceful.
What happens to the public is even more curious. Investors find out the executive pays himself $1, which means the CEO is confident in the company. If an insider thinks the value will go up, many investors will start to believe it too and join the movement.
Here’s a controversial example. The CEO of Zynga, Mark Pingus, followed the $1 salary as well, which was a vote of confidence. However, the corporate decisions he took put the company at risk many times. Is it a reliable executive?
Later, when the stock reached an all-time high of $14, Pingus sold his stock, which then dropped it to $2. Imagine how investors reacted!
The question is: do you believe in the team behind it?
Although one shouldn’t base investment advice on other people’s opinions, business leaders have played a fundamental role in the company’s growth.
6 Ways To Increase Your Profits
Although increasing margins isn’t easy, it’s definitely not as hard as starting a brand new business. Now that you have all the sales momentum, it’s time to make it profitable. Only then scalability will make sense.
As a retailer, you might want to order more a larger inventory now, which will get you a discount with the manufacturer. As a salesperson, you may want to consider putting your effort on high-ticket offers, not low-ticket. You’ll find out that making $100K takes nearly the same work as $20K.
Is there any way you could do the process independently, even if it cost more at first? It’s essential for consistent growth.
Best of all, they are tied to perceived value, meaning your ideal customer will easily justify spending more on a polarizing company.
It could be status, security, even an ideology. Give people a story they can relate to, and they will choose you, even when competitors come up with better products. That doesn’t mean you should stop innovating if you want to keep that image. The best examples? Apple, Nike, Starbucks.
Well, who said they only need to buy once? Yes, you can use low prices as a strategy to make people keep coming back. You can leverage email marketing and strengthen those relationships with email sequences. The question isn’t if it’s profitable, but when will it be.
Say the average lead buys a cheap $50 product and stays on your list for six months. But before leaving, they might have bought a high ticket product of $1000. Your lead-to-value (LTV) becomes $1050, which is your maximum acquisition cost. You can now be more aggressive on ad campaigns because of this long-term strategy. As more people sign in, this number turns more predictable. The solution is remarketing.
Aditional saving tips may include hiring a tax specialist to take advantage of your situation, or at least avoid paying more than you should.
By this point, you would have maxed out your net profits. If you want to make even more, consider adopting financial minimalism until you reach the income level you want. For example, keeping a simple lifestyle helps to reinvest money and generate wealth faster.
The Bottom Line
Revenue or profits? Focus on one variable at once, each of them at the right time. Start increasing your revenue, and don’t worry about making money first.
It’s okay not to make any money today if that ensures more profits in the long term. Losing can be a strategy.
But no matter what strategies you use, what matters is the amount you keep, especially the factor your statements don’t include: your financial accountability. What you do with those profits is up to you, and it could mean the difference between business success and failure.