Show Notes
Hunter (from Episode 36) came back: "You said I didn't have a sales problem, I had a profit issue. How can I tell the difference?"
In this episode, Scott breaks down the two-question diagnostic: (1) Do I have any sales? (2) Do I have enough sales to support profit? If yes to both, you have a profit problem. You'll learn why revenue is a vanity number, the real math on $500K at 20% vs. $1M at 10%, and why knowing your "freedom number" stops the endless sales chase.
The bottom line: Two questions. Do I have sales? Do I have enough to support profit? If yes to both, stop chasing sales—maximize profit first.
Got a business question? Ask Scott here: scotttodd.net/ask
📜 Full Transcript (Click to expand)
Scott Todd (00:00)
Welcome to Fix My Business, the show that helps you fix your business. And the way that we do that is by answering your questions. I'm your host, Scott Todd. And today's question is actually a follow-up, and it comes from Hunter. Now, Hunter was in episode 36. I'm not going to rehash the entire episode. I highly encourage you to go back and listen to it. But I'll give you the fundamental problem that Hunter was experiencing, and that is that he had $80,000 worth of revenue.
He had $13,000 worth of profit and he was still struggling because he couldn't afford to do any marketing. And basically what I told him is he didn't need more customers. He needed to make his existing customers more profitable. And so I told him he didn't have a sales problem. He had a profit issue. And Hunter came back and says this in your answer. You said I didn't have a sales problem. I had a profit issue. How can I tell the difference?
And Hunter, basically, ⁓ the way that I attack that problem is I'm basically asking myself two questions. The first question I'm asking is, do I have any sales? And if the answer is yes, then I move on to the second question. And the second question is, do I have enough sales to support profit? It's two questions together.
Because if you don't have any sales, well, then you have a sales problem. Right? that makes sense. But then when you have sales and you have enough to support profit, then again, you don't have a sales problem, you have a profit problem. See, if you answer no to both of those questions, then in fact, you do have a sales problem. And what if I said, yeah, I have enough sales, but you know what, I don't have enough to support profit yet, then I have a sales problem?
And in your case, you told me that you had $80,000 worth of sales, so you have sales. And you also said that you had $13,000 worth of profit. You are profitable. Okay? Like you are profitable. $13,000 is profitable. So you have yes to both of those answers.
Look, what happens oftentimes with business owners is this, they chase a revenue number. Okay, they get into this concept that bigger is always better and bigger is not always better. You see, revenue is a vanity number. A million dollar business, seven figure business, people love to root about that. I have a seven figure business, I have an eight figure business. But revenue is nothing, revenue is nothing. It's what's left over, it's the profit that's left over.
At the end of the day, what we have to do is we have to make sure that, if we're generating sales and we're generating some profit, we need to maximize that profit before we go get more sales. And I think that the question that every business owner needs to ask themselves is, do I want a $50,000 business where the profit margin is 20 % or do I want a million dollar business where the profit margin is 10 %? See, you're doing double the work. You have probably double the resources to do it.
a million dollar business than you do the half a million dollar business. And so that's the thing is it's not always about more revenue. It's not always about having more. It's about driving more profitability from what you have. See me, I want a million dollar business where the profit margin is 20%. That's what I want. mean, heck, I want it to be 50%. See, that's the thing is the profit margin
Profit margin is where we start to kick in here But it raises another question that I think that a lot of people miss and it comes down to this fundamental issue of knowing what I call your freedom number and Here's the thing about the freedom number I talk about it in the book fix this next for real estate investors again If you're not a real estate investor, you should still read the book Why because I wrote it and it's great. I love it
great feedback ⁓ from the audience as well, from the readers as well. But the very first concept that I teach in that book is this concept of a freedom number. And what the freedom number tells you is it tells you how many sales, units of sales you need in order to support your lifestyle. And that's the most important piece. See, it's not about having all of these sales that are out there. It's about knowing what that freedom number is.
Because when you achieve it, then in fact the business provides you with what you ultimately want, which is freedom. The reason that you started the business, the reason that you're a business owner is because you want to be free from kind of the corporate range. You don't want to be a slave to your business or any business. And if you don't know what that freedom number is, then you will continue to chase sales even when you don't need it.
when in fact what you need is more profitability. Now, when you maximize the profit and you're like, still need more, I still want more, cool. Now go chase sales again, but you're doing it in a much more profitable manner. The real problem comes down to we allow our business expenses to expand as the business grows and we justify it by saying, well, I need more people. I need more
I need more of X, Y, and Z, but at the end of the day, we don't. What we need is a more profitable business.
If you ever try to go sell your business, by the way.
A business broker or whoever you're going to is going to say to you, hey, what's your revenue? And you're going to tell them it's a million dollars or whatever your revenue number is. And they'll say, okay, great. What's left over? What's the profit? And you say, well, profit is $100,000. Well, they're going to give you a multiple on the profit. They're not really going to give you a multiple on the revenue. Nobody's going to pay for years of revenue if you're not keeping it.
So at the end of the day, you want a much more profitable business over a higher revenue number. And that's where the whole concept here comes in. Freedom number kicks in and then not chasing sales when you have a profit problem. And that's how I got to the conclusion that you had a profit problem is just really those two questions. Do you have any sales and do I have enough to support profit? Hunter, thank you for the follow-up.
question. I'm glad that you came back to me. And if you have a question, head over to scottodd.net forward slash ask. And let's get your questions answered so you can keep growing your business. And I will see you in our next episode.
Welcome to Fix My Business, the show that helps you fix your business. And the way that we do that is by answering your questions. I'm your host, Scott Todd. And today's question is actually a follow-up, and it comes from Hunter. Now, Hunter was in episode 36. I'm not going to rehash the entire episode. I highly encourage you to go back and listen to it. But I'll give you the fundamental problem that Hunter was experiencing, and that is that he had $80,000 worth of revenue.
He had $13,000 worth of profit and he was still struggling because he couldn't afford to do any marketing. And basically what I told him is he didn't need more customers. He needed to make his existing customers more profitable. And so I told him he didn't have a sales problem. He had a profit issue. And Hunter came back and says this in your answer. You said I didn't have a sales problem. I had a profit issue. How can I tell the difference?
And Hunter, basically, ⁓ the way that I attack that problem is I'm basically asking myself two questions. The first question I'm asking is, do I have any sales? And if the answer is yes, then I move on to the second question. And the second question is, do I have enough sales to support profit? It's two questions together.
Because if you don't have any sales, well, then you have a sales problem. Right? that makes sense. But then when you have sales and you have enough to support profit, then again, you don't have a sales problem, you have a profit problem. See, if you answer no to both of those questions, then in fact, you do have a sales problem. And what if I said, yeah, I have enough sales, but you know what, I don't have enough to support profit yet, then I have a sales problem?
And in your case, you told me that you had $80,000 worth of sales, so you have sales. And you also said that you had $13,000 worth of profit. You are profitable. Okay? Like you are profitable. $13,000 is profitable. So you have yes to both of those answers.
Look, what happens oftentimes with business owners is this, they chase a revenue number. Okay, they get into this concept that bigger is always better and bigger is not always better. You see, revenue is a vanity number. A million dollar business, seven figure business, people love to root about that. I have a seven figure business, I have an eight figure business. But revenue is nothing, revenue is nothing. It's what's left over, it's the profit that's left over.
At the end of the day, what we have to do is we have to make sure that, if we're generating sales and we're generating some profit, we need to maximize that profit before we go get more sales. And I think that the question that every business owner needs to ask themselves is, do I want a $50,000 business where the profit margin is 20 % or do I want a million dollar business where the profit margin is 10 %? See, you're doing double the work. You have probably double the resources to do it.
a million dollar business than you do the half a million dollar business. And so that's the thing is it's not always about more revenue. It's not always about having more. It's about driving more profitability from what you have. See me, I want a million dollar business where the profit margin is 20%. That's what I want. mean, heck, I want it to be 50%. See, that's the thing is the profit margin
Profit margin is where we start to kick in here But it raises another question that I think that a lot of people miss and it comes down to this fundamental issue of knowing what I call your freedom number and Here's the thing about the freedom number I talk about it in the book fix this next for real estate investors again If you're not a real estate investor, you should still read the book Why because I wrote it and it's great. I love it
great feedback ⁓ from the audience as well, from the readers as well. But the very first concept that I teach in that book is this concept of a freedom number. And what the freedom number tells you is it tells you how many sales, units of sales you need in order to support your lifestyle. And that's the most important piece. See, it's not about having all of these sales that are out there. It's about knowing what that freedom number is.
Because when you achieve it, then in fact the business provides you with what you ultimately want, which is freedom. The reason that you started the business, the reason that you're a business owner is because you want to be free from kind of the corporate range. You don't want to be a slave to your business or any business. And if you don't know what that freedom number is, then you will continue to chase sales even when you don't need it.
when in fact what you need is more profitability. Now, when you maximize the profit and you're like, still need more, I still want more, cool. Now go chase sales again, but you're doing it in a much more profitable manner. The real problem comes down to we allow our business expenses to expand as the business grows and we justify it by saying, well, I need more people. I need more
I need more of X, Y, and Z, but at the end of the day, we don't. What we need is a more profitable business.
If you ever try to go sell your business, by the way.
A business broker or whoever you're going to is going to say to you, hey, what's your revenue? And you're going to tell them it's a million dollars or whatever your revenue number is. And they'll say, okay, great. What's left over? What's the profit? And you say, well, profit is $100,000. Well, they're going to give you a multiple on the profit. They're not really going to give you a multiple on the revenue. Nobody's going to pay for years of revenue if you're not keeping it.
So at the end of the day, you want a much more profitable business over a higher revenue number. And that's where the whole concept here comes in. Freedom number kicks in and then not chasing sales when you have a profit problem. And that's how I got to the conclusion that you had a profit problem is just really those two questions. Do you have any sales and do I have enough to support profit? Hunter, thank you for the follow-up.
question. I'm glad that you came back to me. And if you have a question, head over to scottodd.net forward slash ask. And let's get your questions answered so you can keep growing your business. And I will see you in our next episode.