PODCAST - you're not broke. your business is leaking profit
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What if I told you that your business is leaking profit and you don't even know it? Well, today on the show, I'm gonna share with you what I help my clients uncover so that you can plug the profit leaks that may exist in your business. Before I became an entrepreneur more than a decade ago, I spent a little bit of time with PricewaterhouseCoopers as an IT auditor and consultant.
I actually went to business school and got a degree in accounting, an MBA, and for fun, I [00:02:00] decided I would study film and get a bachelor's degree in that as well. Well, during all of this, I learned some pretty basic business concepts in business school and at my time at PricewaterhouseCoopers, one of the most basic being profit.
What is profit? Well, profit in a theoretical perspective is very different than profit in practice. In theory, what profit is is when you take revenue, which is the total amount of money your business brings in. You could look at this on a yearly basis, a monthly basis, even a weekly or a daily basis, but revenue is the total amount of money your business brings in.
Revenue is what we use to pay for everything else. And really, this is what I learned before being a business owner and really putting this into practice. So how do we get to profit then? Well, after we look at revenue, we need to look at [00:03:00] expenses. Expenses, on the other hand Are the total amount of money your business spends.
We can look at this daily, weekly, monthly, yearly. Expenses are what theoretically we need to monetarily invest in to run our businesses. And when we take expenses out of revenue, what do we get? Profit. And profit is what is left over. Now, this is very basic, but I believe that this equation is very misunderstood and is contributing to your business leaking profit.
The other day, I was preparing for my Plug the Profit Leak Challenge, which I host periodically throughout the year. And part of that prep is I wanted to know what AI defines profit as. I wanted to know what AI defines revenue expenses as. And what I found was [00:04:00] very interesting, and it made me remember back to when I first learned the concept of profit back in business school.
Nothing against business school, nothing against my time at PricewaterhouseCoopers. Both amazing experiences for me. The challenge is, in business school, you learn the theory of business, not the practice of business. And I even went to a business school where I got to start multiple businesses, take classes that promoted that.
But from a theoretical perspective, the definitions of these things is very misleading. This is why. If you're listening to this as a podcast, what I'm writing right now is the profit equation. Profit equals revenue minus expenses, or this is the theoretical profit equation. Well, there's a big reason why this equation misleads you and I, and it's because the textbook definition of an expense is [00:05:00] the total amount spent to operate your business.
Why is this a problem? Because when I work one-on-one with a client, and when I work with business owners and enterprise team leaders inside my Plug the Profit Leak Challenge, what I have found is that you and I tend to spend money on things that don't have anything to do with operating our businesses.
We may think that they do, but they don't. And this is why if you look at the textbook definition of expenses, you can trick yourself into thinking that every single thing that you spend your money on that is categorized as an expense in your business is necessary. And this is why what I like to do is change how this entire equation even looks.
And really, we're not changing it by much. [00:06:00] We have profit over here. Equals revenue. And yes, we need to remember that revenue minus expenses is profit, but Let's change this minus sign into an arrow, and here's why. When you look at your business and you look at every single thing that you're spending money on, what we need to do to make sure is that the expenses that we are spending money on are creating revenue.
This is different than looking for expenses that we use to operate our business, 'cause you could be operating your business poorly. But when we relook at this, we start digging into our businesses to see what expenses we are investing in are actually creating revenue, it changes everything. So now that you know that you need to look at your business and look at the expenses in your business as are they helping you create revenue or not, here are the five ways that you and I can really [00:07:00] relook at our businesses and identify the profit leaks.
Number one, you guessed it. You are spending money on things that don't actually make money, and this could be for a number of reasons. This could be because someone told you that you need to go out and join as many networking groups as possible and meet as many people as possible, and it's okay if you spend all this money on memberships, events, taking people out to coffee, going to eat, all these different things when you haven't tested it yourself.
Now, you do need to test these things, but we test these things by looking at, I am investing in this thing. I am spending money on this thing. This is an expense, and is it creating revenue? And if it doesn't create revenue, then you need to get rid of it. This could be that someone recommended you to use a specific software, and after testing the software out, you decided that you'd keep paying for it for [00:08:00] months and months and years and years.
I've had business owners inside my Plug the Profit Leak Challenge that have identified that they are spending $100,000 per year or more on expenses that aren't driving revenue. Just in a matter of days of working with me in their challenge, they were able to identify and save six figures. I invite you to grab your ticket to my next Plug the Profit Leak Challenge, linked in the show notes and in the description if you're watching this on YouTube.
This is why when I recommend a technology to anyone, I recommend it in conjunction with a free trial and a free program that empowers you to get as much value out of the technology as quickly as possible. 'Cause I want you to figure out if it is the right fit for you before you even have to pay for it.
This is how you and I as business owners, as enterprise leaders, need to evaluate things, is can we see the ROI? Can the vendor show us [00:09:00] what the ROI is for us? And if they can and we can see a payback in a reasonable amount of time, then this is an expense worth investing in. If- It doesn't, then we need to get rid of that expense and move on to what is actually working.
And that brings me to number two. You are doing too much. What one of my business coaches, Graham Cochrane, has advised me heavily on is when you're looking at doing things in your business, the best thing that you could do comes down to six words. Do more of what is working. This is extremely important because what happens in our businesses, I've done this for years, where I know what's working, but I get excited by other things.
I get excited by new technologies. I get excited by new tactics, new ways to grow my business, versus looking at what is actually working. Well, what this does is when you and I start integrating new things that aren't [00:10:00] proven to work for you and I, we tend to increase our expenses. We increase our expenses without knowing if it's going to increase our revenue.
Because really when we're looking at this equation, the whole goal of investing in anything, investing in an expense, is to increase revenue, and we need to increase revenue by more than just a one-to-one ratio. We need to increase revenue exponentially. We need a two to five to 10X return on whatever we invest on.
This is how we grow our businesses. It's hard to see this when we're doing too much. So I invite you to look at your business and see how you can do even less. This is something that we work on heavily in my plug The Profit Leak Challenge. Number three, you are spending energy on bad clients. And when I say bad clients, I don't mean bad people.
I mean bad clients for you and your [00:11:00] business. I mean clients that they might have the best intentions, but they're sucking your energy out. What I find is that business owners, we have clients that fit into three different buckets. We have our A-plus clients, we have our B clients, and we have our F clients.
And really, what this means is our A-plus clients, they're, they're clients that pay well. They may pay more than everyone else, and they take the least amount of time. These are A-plus clients. These are clients that we wanna work with. Over and over and over. Then we have our B clients. Our B clients either pay us well or don't take that much time.
It's either or, and it might be a combination somewhere in between. And then there's our F clients, and our F clients don't pay us well, and they take up the most time. The crazy thing about this is that it can be really hard [00:12:00] to let go of the F clients. Really, in a perfect world, we want 100% focus on our A-plus clients.
But the reality is working with our B clients isn't a bad thing, and we can figure out how to either get paid more or spend less time by automating how we serve these clients. The F clients, though, tend to drag our energy and all of our resources. And I know that it can be really hard to let these clients go, because you have a big heart, and you don't wanna fail.
And you think that you can change them, and that eventually, someday they're gonna thank you for all the hard work you've done, they're gonna celebrate you, and that because you stuck with these clients, you're gonna become successful. Telling you right now that you don't have to get rid of all your F clients all at once.
But I invite you to, at the very least, try to [00:13:00] price these clients out and see what happens. So instead of you going out to the client, to your client, and telling them you don't wanna work with them anymore, double or triple your prices for these clients and see how they respond. Over time, I want you to get rid of all of these clients and only work with B and A-plus clients.
And that brings me to number four: you May not be charging enough. I know this because I did this for about 10 years. I, today, can say that I am charging enough. It took me 10 years plus an extra year, year and a half, to get to the point where I can confidently say that for everything I do in my business, I am charging enough, and I want this for you, too.
Now, I want you to think about that A+ client you have and how they pay you what you're worth and they don't suck your energy or time. Now, I want you to think about that F client that doesn't pay you what you're [00:14:00] worth and that sucks all your energy and time. You may even feel bad because the A+ client is paying you a lot more than the F client, and they're getting less of your time than the F client.
Well, I want you to think about that. Why do you feel bad? You feel bad because the A+ client said yes and they don't complain at all. It's crazy. And the F client you know would not say yes, and they complain all the time. So you feel bad because there's this big discrepancy between these two parties. Well, I say that the best way to fix this is getting rid of this party and- Make sure that you're charging enough, which means that you may need to 2X, 5X, 10X your prices.
Well, what this also does, as we go back to our profit equation here, is that when you increase your prices, when you find the price that you're charging enough, the amount of [00:15:00] time and effort and expenses and resources that you put into attracting A-plus clients is the same as it takes to attract the F clients.
So what this does, your expenses, your investment, that's what this really is, is when we get this right, we turn our expenses into investments, and your investments start getting higher return. And that really brings me to number five. You may have an ROI misalignment. What is ROI? ROI is return on investment.
ROI is revenue. So when we really look at this equation, profit equals return from investments. But when we have a misalignment of ROI, a misalignment of this return, we have profit leaks in our businesses. Now, what I invite you to do right now is to draw a circle [00:16:00] and, uh, write inside you or your name or your business's name.
And then I want you to write inside what ROI you are looking for in your business. Then I want you to draw a second circle, and this circle is gonna be called your customer, or I like to say ideal customer. And I want you to write inside this circle what is the return on investment that your customer is looking for.
Then I want you to assess where the overlap is in your business and your customer's business. Where these two circles overlap is what you should be spending your time on. It's what you should be investing in. This shows you what expenses actually matter for your business to drive return, to drive revenue.
Now, if you want help aligning your ROI and plugging the profit leaks in your business, I invite you to grab a ticket to my [00:17:00] next Plug the Profit Leak Challenge, a live group consulting experience where you and I and a group of highly successful business owners and enterprise leaders like yourself dig deep inside of our businesses to uncover profit leaks and plug them forever.
Invite you to grab a ticket in the show notes and in the YouTube description, and I'll see you in the next episode.
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AI is rising and so are we
