Bad Revenue and Good Choices

If all revenue is good, then you never have to say No. Every customer is valid target. Every RFP is worth pursuing.   You won’t have to work as hard to find opportunities, because every opportunity is good. You will need more salespeople, more designers, more estimators, more draftspersons. The only dis-qualifier for more revenue is, “We are too busy,” which as every sales manager knows will incite rebellion on the sales team. So, you hire more people.

Revenue grows. Profit doesn’t.

Of course, you therefore manage the business better. You pursue every opportunity, segment, or vertical that crosses your path, because more revenue couldn’t hurt. You hire a larger staff, so you can handle more projects without expensive sub-contractors. You come up with increasingly clever ways to manage to ever-lower margins. You grow the business while cutting costs. Eventually your company is twice its pre-Recession size and earning less money. Living the dream?

The culture of “All (or even Most) Revenue Is Good” is born of inefficient business models. It starts with the desire to be busy more often, which would greatly increase profitability for most companies. However, the business model that typically pursues bad revenue is the one that doesn’t scale well. It rejects sub-contractors or other outside direct resources as too costly. So they hire more inside labor and kid themselves into thinking the lower average hourly cost will make more jobs profitable, which would be true if business was steady all the time, deadlines were flexible, and clients cooperated by spacing demand.

There is no longer a profitable service business model that can scale without outsourcing.

If you believe that all revenue is good, you will make bad business decisions. You will sell on price – because the remaining revenue after all concessions is still good. You will focus on the transaction instead of the customer, because the short-term satisfaction of a completed sale is more important than the long-term relationship. You will start trolling bid lists and kid yourself that you won’t over-deliver this time. You will overstaff permanent employees, because you need resources you can control at the lowest price in order to make your margins appear better.  You will cut costs and eventually corners. The rare high margin client will suffer because low margin work gets more attention. Small, profitable jobs will be rejected because they don’t feed the revenue machine quickly enough.

If I have just described your once profitable, thriving business…take a breath. In the Audiovisual industry, Systems Integration and Rental dealers have perfected the art of diminishing profit in the face of huge demand. First step is admitting the problem. Not all revenue is good.

Tom Stimson MBA, CTS helps owners and management teams rediscover the fun and profit that comes from making better decisions about smarter goals. He is an expert on project-based selling and a thought leader for innovative business processes. Since 2006, Tom has successfully advised over two hundred companies and organizations on business strategy, process, marketing, and sales. Learn More at TRSTIMSON.COM