We hear this more often than you might expect. A business owner comes to us with growing revenue, a full calendar, and a nagging feeling that something is off. They are making more money than ever, but somehow there is never enough in the bank.
The truth is, revenue tells you how much money flows through your business. Profit tells you how much stays.
Revenue Versus Profit: The Critical Distinction
Revenue is every dollar that comes in the door. Profit is what remains after you pay for everything it takes to generate that revenue. Materials, labor, rent, insurance, taxes, software, marketing, that subscription you forgot to cancel.
A business doing $500,000 in revenue with $480,000 in expenses is not a successful business. It is a very expensive hobby.
The Three Numbers That Matter
Gross Profit Margin
Revenue minus cost of goods sold, divided by revenue. This tells you how much you keep from each sale before overhead. If your gross margin is shrinking, you have a pricing problem, a cost problem, or both.Net Profit Margin
Your bottom line after all expenses, including taxes. For most small businesses, a healthy net profit margin is 10-20%. If you are below 10%, your business is fragile. One bad month, one lost client, one unexpected expense, and you are in trouble.Owner Compensation Adjusted Profit
This one gets overlooked constantly. If you are paying yourself $40,000 from a business that shows $50,000 in profit, your real profit is $10,000. Many business owners underpay themselves to make the books look better. That is not sustainable.Signs Your Business Is Not as Profitable as You Think
You cannot take a paycheck regularly. You are always waiting on receivables to cover bills. Your bank balance drops every month even though sales are steady. You cannot afford to hire help even though you are drowning in work.
These are not cash flow problems. These are profitability problems disguised as cash flow problems.
How to Fix It
Price with purpose
Know your true cost to deliver your product or service, then price accordingly. Most business owners underprice because they are afraid of losing customers. But serving customers at a loss is worse than not serving them at all.Track margins by service line
Not everything you sell is equally profitable. We had a client who discovered that 30% of their revenue came from services that actually lost money once they allocated labor costs properly. They eliminated those services and their profit doubled.Review expenses quarterly
Not annually. Quarterly. Costs creep up. Subscriptions multiply. Vendor prices inch higher. A quarterly review catches these before they eat your margin.Know your break-even point
How much do you need to sell each month to cover all your expenses? If you do not know this number, you are navigating without a map.The Profitability Mindset
The most profitable business owners we work with share one trait. They make decisions based on margin, not revenue. They would rather do $300,000 in revenue at 20% margin than $500,000 at 5%. Because $60,000 in profit beats $25,000 every time.