There are 4 core variables you control in your business right now (regardless if you sell services, experiences, or advisory)
The 4 are:
1 – Your average revenue per client (controlled by your pricing and influenced by your positioning)
2 – The total number of clients you have (controlled by your marketing and sales engine)
3- Your labor efficiency (if you have a team, controlled by your hiring, team design, and team development efforts)
4- Your overhead costs (controlled your operational efficiency)
Today I want to focus on Margin Control: Setting yourself up to earn the profit margin you want every time
To do that we have to do a little math and probably increase your prices. Fair warning: Every team I’ve influenced (I mean helped) has increased their prices after going through this exercise.
You’re most likely undercharging for your services (even if you are a “premium” brand). So let’s figure out your base pricing using the Task Unit framework to allow you to scale.
Simple 3rd grade maths: take out a sheet of paper or a spreadsheet. Now let’s split your business model in half:
1 – Take every investment (some people call them expenses) you make to feed your business monthly and tally the amount on the left side of the paper. These include office equipment, tools, tech, admin staff, your salary*, aka: overhead.
2 – On the right hand side, isolate the salaries of the Task Units by pod that work directly with clients. These are your drivers, operators and specialists grouped into Task Units. Divide each unit by 12 to get the monthly Task Unit investment cost.
Each Task Unit manages a set of revenue for you (think of Task Units as investment pods!)
Figure out what the average revenue is per client, per task unit.
Add up the total overhead costs (left hand side of your paper) to the Task Unit monthly investment cost. (If you have more than 1 Task Unit, evenly distribute overhead costs per task unit)
Calculate your Task Unit’s ROI = (Task Unit Monthly Revenue – Task Unit Investment Cost/ Task Unit Investment Cost)
Do you like the margins you see?
If yes, you can proceed to scale.
If not, we have some work to do and dive into the 4 variables you control.
PS Bonus section (we are over 350 words here, but this is important)
I learned this the hard way: not all revenue is good revenue.
Revenue that is generated with a negative return on All-In Costs is inefficient revenue.
How do you find out if your revenue is effective?
Add up any tool, investment, ad spend, and energy from your teams that focuses on revenue-generating activities…
Then add up your top-line sales/revenue for that month (determine if you want to focus on a MRR or ARR view)
Finally, calculate your return on revenue:
Fresh Revenue (new top-line revenue)
All in Costs of your Revenue Engine (the investments and stuff you do to generate rev)
The goal is to have this output be at least 1 and ideally more than 1.