Why More Sales Won't Fix Your Profit Problem

Welcome to Profit Points! I'm your host, Megan Schwan, founder of Sidekick Accounting, Certified Profit First Professional, Fix This Next Advisor, and your accounting sidekick. As a business owner myself, I know how easy it is to focus on staying busy while pushing your numbers to the side. That's why each week on Profit Points, I break down one financial concept into simple, practical lessons that help you understand your numbers, improve profitability, and make smarter business decisions with confidence.

In this episode, we're talking about one of the most important metrics in your business: profit margins. Too many business owners focus on revenue as the primary measure of success, but revenue alone doesn't tell the full story. You can generate impressive sales numbers and still struggle financially if your margins aren't healthy. I'll explain what profit margins are, why they matter, and the common mistakes business owners make that prevent them from building a truly profitable business.

In This Episode, You'll learn:

• What profit margins are and how to calculate them
• Why revenue isn't the same thing as profitability
• The dangers of running a business without knowing your margins
• How focusing only on sales can hurt long-term growth
• Why your time should be included in your service delivery costs
• The hidden expenses that often reduce profitability
• How underpriced services can drag down your overall margins
• Why small adjustments can create significant improvements in profit

This episode is for small business owners, entrepreneurs, consultants, freelancers, service providers, and anyone who wants to better understand the financial health of their business. If you're generating revenue but aren't sure where the money is going—or you're wondering why growth isn't translating into profit—this episode will help you identify what to look for and where to start.

If you enjoy this episode, be sure to subscribe to Profit Points so you never miss an opportunity to strengthen your business finances. And if you know another business owner who is focused on increasing sales but struggling with profitability, share this episode with them.

This Week's Action Step

Review your top three products or services and calculate the true cost of delivering each one. Then determine your profit margin for each offer. Getting clarity on your margins is one of the fastest ways to identify opportunities to improve profitability and make more informed business decisions.

Resources Mentioned

• Sidekick Accounting
• Free Business Consultation
• Sidekick Accounting Facebook Community
• Profit First Methodology

Connect with Megan

LinkedIn: Megan Schwan

Website & Community: youraccountingsidekick.com

Book a Free Consultation: chatwithmeg.com

Connect with me for practical financial education, resources, and support designed to help you build a profitable, sustainable business that works for your life.

Transcript

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Hey, Classroom Certif, Business Profit Fife, Five, Certified Fix, and Certified Profit First Professor Centers. If you're a profit designer who wants to actually understand what is happening in your business financially, not just survive it, but genuinely get it. You're in the right place. Every episode covers one concept, uses real numbers, and ends with something you can actually do. That's the deal. Let's talk about today's topic. Revenue is vanity. Profit is sanity. You can hit six figures or even seven and still feel broke if your margins are weak. Hi, I'm Megan Schwan, CEO and founder of Sidekick Accounting, and this is the Profit Points podcast slash LinkedIn live show. I'm excited to talk to you today about profitability and your profit margins. Too many CEOs measure success by their top line revenue, but margins are what tell the truth. It's what's left after the cost. I had a podcast interview yesterday with another profit first professional who works with seven and eight-figure businesses. Well, and while I usually work with six and seven-figure businesses, we had a common thread as we were chatting. Both of these kinds of business owners, these different levels of business owners, have something wrong. They pay attention to the wrong things, they spend too much time often on the busyness and not enough time on the numbers. The numbers are what give you the foundation you need to grow and scale, which is why we're talking about profit margin today. This is one of the first profit points that you need to look at in your business. Whether you've been in business for a few years or you're just starting out, reviewing and optimizing your profit margins are essential to your success. So, real quick, let's talk about what a profit margin is. It is essentially what's left over from your sales after all of your direct costs are accounted for. So, for example, if I have a product that I sell for $10 and it costs me $6 to make all of the different materials and supplies and labor, all of those things get accounted for the direct, direct cost of producing or delivering those services. Essentially I only have $4 left over, which means my profit margin is 40%. So mistake number one for business owners when it comes to profit margin is that they don't know what their profit margins are. And when you don't know your profit percent for every product and service, what you're really doing is flying blind. And profitability is one of the key parts of your business foundation. So if you walk away with nothing else today, make sure you walk away with this action step. Start figuring out your margins, they are essential to everything else that you want out of your business. Okay. Mistake number two is chasing revenue instead of profit. What do I mean by that? Well, like I said when I first started, revenue is vanity, profit is sanity, and it's not just a catchy saying, it's a real life fact. If all you're worried about is sales, but you haven't crunched the numbers, you're focusing on the wrong things. There are business owners right now making millions of dollars, and they're barely able to give themselves even a $50,000 salary. That is not a badge of honor, it's a problem, but it's fixable. If you start focusing on profitability and not just how many sales you're bringing in, things can drastically change. So, number three, mistake number three is ignoring service delivery cost. What does that mean? Remember, number mistake number one is not knowing your profit margins. Well, the other part of that is not really understanding what goes into the delivery cost, which also includes your time. This is a big thing that I see people miss all of the time. They don't account for what their time costs as the owner when they're pricing their services. That's a problem because if you are not including your time and you want to grow and scale and you haven't accounted for that in your pricing, it means when you start adding team members, you're either going to have to drastically change your pricing or you're going to be significantly undercharging because your time is worth something. It's valuable, it needs to be accounted for. And if you're not sure what that looks like, take a look at or think about whatever that position is, whatever, if it's fulfillment, if it's deliverables, if it's assembly, whatever that is, what would you pay somebody in that type of position to do that job? And that's at least your starting place for figuring out what your c what your time cost for that specific uh position, right? Or that specific deliverable or piece of the process. So make sure you're accounting for that. But then other things might be contractors. If you have contractors that are doing deliverables or fulfillment, software, um, other pieces of your time, other people's time, it all counts. Don't ignore the pieces of creating, delivering your products and services, because it all adds up. Even those, even those little software costs, right? As a bookkeeper and accountant, we have to account for software costs within our overall cost of delivering our products and services. So make sure you're thinking about that. What are those direct costs, all of those little things, packaging, um, you know, the the package bubbles, the boxes, the the shipping. If you're not charging separately for shipping, you need to make sure that you're accounting for all of those. If you offer free shipping at a certain point, you need to make sure that you're still accounting for those things because technically it should then be included within that pricing of however you're pricing your things. So make sure you're looking at all of those different pieces so that you're getting a full scope picture of what your costs actually are because that is going to affect what your profit margin ends up being at the end of the day as well. Okay. So the biggest roadblock owners have when it comes to improving their profit margins is overcomplicating this. I did talk a lot about like all these little pieces and all these things you need to think about, but it doesn't need to be complicated. I had a client that I worked with a few years ago, we started working with who had more of a vanity sales number than actual profitability. In fact, when we sat down and crunched the numbers, we realized that her profit margin was only about 20%, which is not enough because that typically your profit margin after you take account for all those direct costs, your profit margin, what's left over, has to cover all of your overhead costs. Things like rent, your salary. If you have administrative salaries, if you have those indirect software like email and websites and advertising and all of those other things, those things that are not that are business expenses, but not directly tied to delivering or creating that goods goods or services, all of that overhead needs to be covered by that remaining profit margin, which is usually why we stress or we recommend to try to shoot for at least 40%. Typically, that number is higher if you're in a service-based industry or business. Um, but at least that 40% gives you a pretty good cushion. Um, and of course, it depends on the industry and what what your goals are and all that kind of stuff. But 40% is a good marker to like hit minimum. So, anyways, with this client, we made a few tweaks. We reviewed her delivery costs, which she was paying her contractors, her softwares, the administrative fees that she had that were directly associated with that. Um, and those things had gone up over time, but she hadn't made any adjustments to her pricing and hadn't raised her fees. So we also looked at we looked at that. We also took a look at how she was packaging her services. She was bundling underpriced services with her high profit services, which was causing her overall profit margin to be less than it should have been. So we split this up. We made those underpriced services as add-ons. We made sure that they were no longer underpriced. Now, at that point, once we got through all that, she had clarity in not just her pricing, but also in her deliverables. And the bonus was that this increased her profitability because she raised her prices, but it also was able to help her streamline her delivery services. Um, and she was able to set up systems that she could then scale. She increased her profitability and efficiency, which was a win-win win. So don't overcomplicate this. See where you are, think about what small changes and adjustments can be made to improve where you're at. And PS, as a CEO, you need to make time and space to think about these kind of things. You need to make sure that you're giving yourself the ability to be creative in figuring out these solutions to what's going on in your organization. Because if you're always go, go, go, go, go and just working on delivering, delivering, delivering, which is great and very important, you won't have the capacity to scale. You won't have the capacity to start thinking a little bit more about how can I pull out these services, make multiple streams of income, make things more efficient, um, bring in somebody so that I can delegate some of these things. If you're not giving yourself space to work on your business and to think about those solutions, you need to, as a CEO, you're going to be stalling your growth. So that's uh my soapbox tip for the day. Okay, so basically, you got to know your profit margins. You need to make sure that you are not chasing revenue or not chasing just revenue, but also worrying about your profit on your services or products. You want to make sure you're not ignoring the service delivery or product delivery cost. So those things, they're all kind of connected together as the same, you know, can be the same kind of group of mistakes, but those are the mistakes that come with not paying attention to your profit margins. And you can change things drastically by just making some small tweaks. So, where do you start? First, start with your top three offers or products this week. What are the total costs for delivering these or creating those? What is your profit margin on each of those? Don't overcomplicate it. Get clear, take action, and know your numbers. And if you need help, schedule a free consultation with me at chatwithmeg.com. Oh, sorry, the sun was like right in my face as it's coming up, or join my Facebook group. Um, let me see, where is my little banner thing? All right, join Facebook group, your accounting sidekick.com, or set up a free consultation with me at chatwithmeg.com. And I will see you next week. Bye. All right, that's your episode this time. Don't forget your action step. I want you to actually do it, not just add it to the list. If this episode was helpful, share it with a fellow business owner who needs to hear it. And if you're ready to go deeper on your specific numbers, book a strategy call with Sidekick Accounting. Go to chatwithmeg.com, and I'll see you next time on Profit Points.