Show Notes
Jenna asks: "Last year I closed more deals than ever. My revenue is up 40%, but I'm looking at my bank account and I honestly have less money than when I was doing half the volume. Where's all the cash going? Am I doing something wrong?"
In this episode, Scott diagnoses Jenna's real problem (she's in the "sales trap"), explains why revenue is a vanity number, and breaks down the only two solutions to margin decline: raise prices or cut expenses. You'll hear Scott's Cloudflare story about using AI to audit expenses and finding $150/month in unnecessary spend, learn why your company might need a financial diet, and understand how to diagnose whether you have a sales problem or a profit problem.
The bottom line: You don't have a sales problem—you have a margin problem. Put your company on a diet.
Got a business question? Ask Scott here: https://scotttodd.net/ask
📜 Full Transcript (Click to expand)
Scott Todd (00:00)
Welcome to the Fix My Business Show, the show that helps you get unstuck, helps business owners get unstuck. How do we do that? Well, we do that by answering other business owners questions who are stuck. And from their questions, we learn how to unstick ourselves either now or in the future and what we can avoid or what we should be doing. I'm your host, Scott Todd. And our question today comes from Jenna.
and Jenna asked, hey Scott, last year I closed more deals than ever. Like my revenue is up 40%, but I'm looking at my bank account and I honestly have less money than when I was doing half the volume. I don't get it. Where's all the cash going? Am I doing something wrong? Or is this what growth looks like?
Jenna, the challenge here is you can think of it as a sales trap, okay? And what I mean by that is as we're growing, we think, I need more sales, I need more sales, I need more sales. We hear other people talk about all these sales they're making. People love to talk about sales. Look, write this down. Revenue is a vanity number. If somebody says to you, ⁓ I did a million dollars last year in my business, I did a million dollars.
Is that revenue or is that profit? Because they're two different things. They are two different things. And so we don't always need more sales. We think that we need more sales. We want more sales. We want that growth. We want that flex. But at the end of the day, what we have to do is we have to keep stopping, pausing for a minute, reflecting and saying, wait a minute, wait a minute, wait minute. Do I have enough to support the next level up? Let me explain.
You see, sales is the lifeblood of a business. It's the oxygen. It's the oxygen of the business because it generates cash. Anything that brings cash into the business or brings in core assets into the business, that is the lifeblood. That's the oxygen. That's the base level. I talk about it in the Investor's Priority Pyramid. When you have questions like this, you have to ask yourself, do I have enough to support the next level up?
Well, the next level up is profit. So do I have enough sales to support the profitability of the business? And well, clearly you do, because number one, your revenue is up 40%. So you clearly have sales that can support greater profit. And you're not saying that you're not profitable. You're saying you have less money in the bank account. So therefore, what you have is you have a profitability problem.
The rule I apply here is do I have enough sales to support profit? If I do, then I need to focus on profit level issues. And look, for a growing company like yours, what you really have to think about is how margins get deteriorated. Think about that one for a second. You see, when you have a profitability problem, the profitability always comes back down to a couple of things. Number one is margin decline.
Well, there's only two solutions to margin decline. Number one is raise your prices. Number two is to reduce your expenses. Those are the only two options to improve your margins. So I always now start to go to, what expenses can I reduce? You see,
When we take that approach, we avoid the flip side, which says, just need more sales and more sales, even if those sales bring me back incrementally, zero dollars of profit. See, that's the wrong approach. We want profitable sales. So we need to watch our margins. Basically, Jenna, your company needs to go on a financial diet. That's what it needs. And, you know, I think it's a great reminder to everybody because
It's easy for expenses to get bloated. It really is. Okay. That whole thing about, you know, your expenses will grow or expand to the level of your income. It happens in businesses too. And frequently I will just take out, you know, a data dump from my accounting system and I'll take, say, Hey, give me all the credit card transactions and I will go through them and I make it so that it's justifiable. Like I have to read justify it zero budget. Like I have to read justify, is this really needed?
And I'll tell you, I did this a few weeks ago. It was a Sunday afternoon. It was raining and cold outside and I was somewhat bored and I just wanted to play around with some AI stuff. So I took this credit card dump from my accounting system and I put it into AI and I said, hey, here's my credit card expenses for my business. What's reoccurring that I should shut off? Where is potential spend that I'm missing? And help me.
identify how to reduce cost. And I will tell you that the AI came back and it was basically asking me some hard questions like, why are you spending $150 a month with this company? And it was Cloudflare, Cloudflare that powers our web services. And I justified it. said, wow, you know, we use it for this and we use it for that. And it's saying, I think you could do this on the free plan, Scott.
And I said, I don't know. I went into the Cloudflare service, I got the invoice, I submitted it back to ⁓ the AI. And what happened is it came back and I said, you don't need this. We were paying for, and I'm telling you, we were paying this for like three years. Someone on my team set it up. They said, you're paying for this speed system. I think it's called Argo or something. Doesn't really matter.
but they're saying you're paying for this service that better routes the traffic. Where is your traffic coming from? This is my conversation with AI. Where's your traffic coming from? I said, it's coming from the US. I said, well, you don't need this. This is like paying for a jet to go from New York to Philadelphia. This is the words that came back to me. It's like paying a jet to go from New York to Philadelphia.
And I said, hmm, okay, well, let's try it. We can always add it back. So I go onto the Cloudflare site. I remove the service. I get this warning that says, wait, your site load time is gonna go down by 70 milliseconds. You need this. Guys, 70 milliseconds is nothing. It's not even a blink of an eye. Nobody knows. And you would know. Now,
Now that I said that and you go to one of my sites, you're gonna be like, it's slow. Yeah, because now I've tainted the whole well. Okay, but that's the thing is I can always add it back and we reduced it. We eliminated $150 a month of spend just in running through those expenses. So that's what I would think that you would do is like think about it in a different way and how you can apply that. So what I'm saying here is
You don't have a sales problem, you have a margin problem, and you need to go through your financials with a fine-tooth comb and look for that bloat and put your company on a diet, because it's getting heavy, heavy set. All right, go do that, and listen, if you have a question, I want you to submit it. You can go to scottodd.net forward slash ask. You can submit your questions, and I will see you in our next episode.
Welcome to the Fix My Business Show, the show that helps you get unstuck, helps business owners get unstuck. How do we do that? Well, we do that by answering other business owners questions who are stuck. And from their questions, we learn how to unstick ourselves either now or in the future and what we can avoid or what we should be doing. I'm your host, Scott Todd. And our question today comes from Jenna.
and Jenna asked, hey Scott, last year I closed more deals than ever. Like my revenue is up 40%, but I'm looking at my bank account and I honestly have less money than when I was doing half the volume. I don't get it. Where's all the cash going? Am I doing something wrong? Or is this what growth looks like?
Jenna, the challenge here is you can think of it as a sales trap, okay? And what I mean by that is as we're growing, we think, I need more sales, I need more sales, I need more sales. We hear other people talk about all these sales they're making. People love to talk about sales. Look, write this down. Revenue is a vanity number. If somebody says to you, ⁓ I did a million dollars last year in my business, I did a million dollars.
Is that revenue or is that profit? Because they're two different things. They are two different things. And so we don't always need more sales. We think that we need more sales. We want more sales. We want that growth. We want that flex. But at the end of the day, what we have to do is we have to keep stopping, pausing for a minute, reflecting and saying, wait a minute, wait a minute, wait minute. Do I have enough to support the next level up? Let me explain.
You see, sales is the lifeblood of a business. It's the oxygen. It's the oxygen of the business because it generates cash. Anything that brings cash into the business or brings in core assets into the business, that is the lifeblood. That's the oxygen. That's the base level. I talk about it in the Investor's Priority Pyramid. When you have questions like this, you have to ask yourself, do I have enough to support the next level up?
Well, the next level up is profit. So do I have enough sales to support the profitability of the business? And well, clearly you do, because number one, your revenue is up 40%. So you clearly have sales that can support greater profit. And you're not saying that you're not profitable. You're saying you have less money in the bank account. So therefore, what you have is you have a profitability problem.
The rule I apply here is do I have enough sales to support profit? If I do, then I need to focus on profit level issues. And look, for a growing company like yours, what you really have to think about is how margins get deteriorated. Think about that one for a second. You see, when you have a profitability problem, the profitability always comes back down to a couple of things. Number one is margin decline.
Well, there's only two solutions to margin decline. Number one is raise your prices. Number two is to reduce your expenses. Those are the only two options to improve your margins. So I always now start to go to, what expenses can I reduce? You see,
When we take that approach, we avoid the flip side, which says, just need more sales and more sales, even if those sales bring me back incrementally, zero dollars of profit. See, that's the wrong approach. We want profitable sales. So we need to watch our margins. Basically, Jenna, your company needs to go on a financial diet. That's what it needs. And, you know, I think it's a great reminder to everybody because
It's easy for expenses to get bloated. It really is. Okay. That whole thing about, you know, your expenses will grow or expand to the level of your income. It happens in businesses too. And frequently I will just take out, you know, a data dump from my accounting system and I'll take, say, Hey, give me all the credit card transactions and I will go through them and I make it so that it's justifiable. Like I have to read justify it zero budget. Like I have to read justify, is this really needed?
And I'll tell you, I did this a few weeks ago. It was a Sunday afternoon. It was raining and cold outside and I was somewhat bored and I just wanted to play around with some AI stuff. So I took this credit card dump from my accounting system and I put it into AI and I said, hey, here's my credit card expenses for my business. What's reoccurring that I should shut off? Where is potential spend that I'm missing? And help me.
identify how to reduce cost. And I will tell you that the AI came back and it was basically asking me some hard questions like, why are you spending $150 a month with this company? And it was Cloudflare, Cloudflare that powers our web services. And I justified it. said, wow, you know, we use it for this and we use it for that. And it's saying, I think you could do this on the free plan, Scott.
And I said, I don't know. I went into the Cloudflare service, I got the invoice, I submitted it back to ⁓ the AI. And what happened is it came back and I said, you don't need this. We were paying for, and I'm telling you, we were paying this for like three years. Someone on my team set it up. They said, you're paying for this speed system. I think it's called Argo or something. Doesn't really matter.
but they're saying you're paying for this service that better routes the traffic. Where is your traffic coming from? This is my conversation with AI. Where's your traffic coming from? I said, it's coming from the US. I said, well, you don't need this. This is like paying for a jet to go from New York to Philadelphia. This is the words that came back to me. It's like paying a jet to go from New York to Philadelphia.
And I said, hmm, okay, well, let's try it. We can always add it back. So I go onto the Cloudflare site. I remove the service. I get this warning that says, wait, your site load time is gonna go down by 70 milliseconds. You need this. Guys, 70 milliseconds is nothing. It's not even a blink of an eye. Nobody knows. And you would know. Now,
Now that I said that and you go to one of my sites, you're gonna be like, it's slow. Yeah, because now I've tainted the whole well. Okay, but that's the thing is I can always add it back and we reduced it. We eliminated $150 a month of spend just in running through those expenses. So that's what I would think that you would do is like think about it in a different way and how you can apply that. So what I'm saying here is
You don't have a sales problem, you have a margin problem, and you need to go through your financials with a fine-tooth comb and look for that bloat and put your company on a diet, because it's getting heavy, heavy set. All right, go do that, and listen, if you have a question, I want you to submit it. You can go to scottodd.net forward slash ask. You can submit your questions, and I will see you in our next episode.