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I’m Bleeding Money

Brief Overview

She flat out said to me “I’m bleeding money… help!” So, let’s talk about profit margins and what these numbers really mean to you and your business.

Big Ideas

What Happened With Anna [1:32]

Anna has built a phenomenally successful business in a very short period of time. She was a teacher for 20 plus years, and over that time, she accumulated a wealth of resources. So,  she started creating lesson plans and selling them off. Anna took her business to a whole other level when she created a membership site, and experienced a ton of success right away.

However, during a recent mastermind meeting, she pulled me aside, looked at me with fear in her eyes and said, “Stu, my business is bleeding money. Please help. What should I do?” I asked why she felt that way, and she said that the monthly expenses are really racking up. I suggested we talk about what’s coming in and what’s going out to see what the profit margin is. When all was said and done, she was left with worst-case scenario, a 65% profit margin — which is off the charts incredible.

A Season of Growth [4:29]

Sometimes in business, we just don’t know what we don’t know. Fortunately, I often bring in an outside guest to my mastermind meetings, and at this particular meeting I have brought Annie Hyman Pratt. Anna specializes in helping fast-growth companies and she’s been advising me and our company.

Every business goes through peaks and valleys, and although our business generated 6 million in the first 10 months, and the profit margins were incredibly high, we had to think about whether we could maintain the pace with the team that we currently had. And the answer was no, we needed to invest in hiring more people to create more capacity.

You go through a season of growth because you don’t have a big team yet and don’t have as much monthly expenses, so there’s more room for profit margins. But it gets more challenging when you start hiring because you’ve got more money going out, and so your profit margins come down.

Annie was explaining to the group that in every business, there are cycles and seasons like this, and it’s important to understand what season you are in. Your revenue may go up a little bit, but it may not go up in a direct ratio as it relates to the increased investment in hiring and bringing on new team members. It takes time to see a return on that kind of an investment, but if it’s giving you more capacity, then it should give you the ability to make a lot more money.

The Types of Profits Margins [7:54]

Annie was also explaining how profit margins can vary widely based on the type of business that you may have. If you have a product-based business or a service-based business, there’s a lot more expense when it comes to producing what you’re delivering. If you have a digital-based business, like a membership site or digital training, then you have a lot more room to work with.

Top-line revenue is not always an indicator of the health of the business. And there are different types of profit margins – 5% to 15% profit margin is good and healthy, 15% to 35% is a sign of a very healthy company, 35% to 50% is really good, and anything over 50% is exceptional, and it also indicates that the business owner could likely look to invest back into the company to create more capacity and get themselves to another level.

So, since Anna had a 65% profit margin, her business is doing phenomenally well.

3 Key Takeaways to Remember [9:55]

Here are the lessons that I want you to take away from this. Number one, we all have seasons in our business and it’s important to understand what season you’re in. If you are trying to get your business going and test concepts, that’s a startup season. Once you get through that, and you find an offer and a message that works, then it’s about generating revenue for the business. And once you ramped that up, you can start investing in your team.

We invested big time – we hired a whole leadership team and created the capacity, so that we could take what we’re offering and who we were serving to a whole other level. As we come into a season of harvest, we’ll start to see the return on that, but in the midst of it, our profit margins have gone down.

Lesson number two is to celebrate the progress that you’re making. Sometimes you may feel like you’re not making the kind of progress that you want, and as entrepreneurs, we all just want the result right here, right now, but you’ve still have to celebrate the progress.

And lesson number three, you have to reflect on where you have come from, because it will give you a far greater sense of appreciation of what you are capable of. Often as entrepreneurs, we’re so forward focused. We’re so dialed into what we want to accomplish that we never take time to reflect on how far we’ve come. This is important because your past successes create the confidence you need in order to accomplish the goals you’ve set in front of you.

Memorable Quotes

“Sometimes you may feel like you’re not making the kind of progress that you want, but you’ve got to celebrate the progress.” – Stu McLaren

“You have to reflect on where you have come from because it will give you a far greater sense of appreciation of what you are capable of.” – Stu McLaren

Resources

Annie Hyman Pratt

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