Optimize Your Revenue Mix for More Profits in 2014

Many small business owners focus on generating more revenue every year,  and that’s a great objective. But not all revenue is created equally. If you sell more than one product or service in your business, then you can benefit from looking at your revenue mix.

Although it’s fun to watch our revenues grow, it’s the profit number that really matters. If your expenses grow faster than your profits, then you have a lot of activity going on, but you don’t get to keep as much of what you make, which is what really matters.

An insightful exercise to try is to take a look at your revenue mix. Then you can ask “what if?” to optimize your profits.

Your Revenue Mix

Let’s say you offer three different services: Services X, Y, and Z. Your revenue pie looks like this:

X: $1.4 million or 70% of the total

Y: $0.3 million or 15% of the total

Z: $0.3 million or 15% of the total

Total: $2.0 million

In this example, Service X is clearly the service making you the most revenue in your business. But is it making you the most profits?

The profit you receive from each of these service lines is as follows:

X: $160K

Y: $20K loss

Z: $60K

Total: $200K

While Service X is generating the most profit volume for your business, it’s actually Service Z that’s the most profitable. Earning $160K on $1.4 million yields 11.4% return on Service X, but earning $60K on $300K yields nearly double the return at 20%. Service Z generates the most return.   And if possible, Service Y may need to be discontinued or turned around.

We hope you’ll spend some time analyzing your revenue mix and having fun asking yourself “what if?”   If we can help you expedite the process or add our perspective, please reach out anytime.