Ask almost any business owner how much money their business makes and they will talk about the top line. We made $5 million this year! I raked in $7.6 million! We squeaked out $2 million. The truth is, that is not what the company made. Revenue is simply the amount of money that flowed into the company that year. What is left over is what matters. Profit is what matters.
Every dollar your company earns isn’t identical. Sometimes the dollar you earned cost you $0.80. Other times it cost you $0.20. And more often than you think, it cost you $1.25. Revenue treats each dollar as identical. The bottom line tells you how your dollars really performed.
It is time that you get very clear on what it costs you to earn your money, because all revenue is not created equal. Take a close look at your offerings and your customers, what it costs to produce and deliver each product or service, and which customers take up more or less of your time. Which are the most profitable, and which are costing you profits? Your company makes profit. Revenue is important, but how much you keep is more important!
The amount of revenue taken in is usually LESS the the amount of cash flow since it includes sales that will ultimately be written off to bad debt.
I couldn’t have said it better myself! Revenue is only a starting point for understanding how well a business is doing. Thanks for the post, Mike.
Totally agree! and it gets more complex when a company works by projects because you have resources directly allocated to the project but also resources (staff) that works in different projects at the same time, here is when many business got lost tracking profits by project or by product in a production line company.