Revenue Is Up. Are You?

A recent Wall Street Journal piece caught my attention. 

American consumers are still spending, even while saying they're worried about prices and the economy. 

But there's another part of that story that's easy to miss: Spending is up partly because people are buying more. And partly because things cost more. 

Your books can do the same thing. I've seen this in a few businesses lately. Revenue is up compared with last year. On the surface, the business looks like it's growing. Then you look underneath the hood and see that they're serving about the same number of customers and working about the same number of hours.  

They raised prices, which may have been exactly the right move, but some of that increase goes straight toward higher costs for supplies, software, insurance, contractors, and other expenses. The revenue line went up. But the business underneath it didn't necessarily grow by the same amount. 

That's why I think every business owner should compare three numbers with the same period last year: 

Revenue: How much came in? 

Volume: How many customers, projects, products, appointments, or hours did it take? 

Margin: After your costs, what percentage of each dollar did you actually keep? 

Revenue tells you how much money came in. Volume tells you what it took to generate that revenue. Margin tells you how much of it you actually kept. 

You could have higher revenue with fewer customers and a better margin. That could mean the business is becoming more efficient and more profitable. Or you could have higher revenue, more customers, and a shrinking margin. In that case, you're doing more work and bringing in more money without necessarily keeping much more of it. 

So don't stop at: "Revenue is up." 

Ask: Why is it up? What did it take to generate it? And how much of that growth did I actually keep? 

A bigger revenue number feels good. But understanding what's behind that number tells you whether the business actually got better. 

J&C Briefs | Joachim & Co. 

Tax. Business. Money. Explained.