Episode 366: Show Notes
Income reports can be super distracting and set you on a road of comparison, so instead of focusing on the exact dollars, it might be more useful to look at the profit and give you a breakdown of the biggest sources of income as well as the major expenses. Therefore, we are calling it a profit report and we want to ask all of you, even before we start, to DM us feedback – whether this format worked and helped you in your business.
In this episode, you will hear more about our thought processes around profits and expenses, but it is important to keep in mind that there are many different ways in which to approach this, so we are not suggesting that you replicate exactly what we do. For the sake of transparency, we also want to let all of you in instead of just talking about the topic. We believe sharing the truth about our business will be of much greater value to you than simply giving you a blueprint for what it should look like. The focus should be profit and figuring out what your goal is in this regard is more important than being able to say you are a six-figure business. We’re baring it all today, so don’t miss out!
Profit, Margins and What All the Other Buzzwords Mean
Profit is essentially any money left over after all your expenses. We look at it quite conservatively, in other words, the profit is the bottom line, after you have paid yourself and saved for taxes – all those sneaky things that you don’t always account for. If you don’t include these things, you are giving yourself a false representation of what your profit truly is. If we told you what our margin was before paying ourselves, it would be a poor reflection of how the business is doing. How do you figure out the margins? The profit in dollars would be the exact amount left and your profit margin is taking the profit in dollars and dividing it by your total income for the month. Here is a quick breakdown of the terminology: revenue is all of the income in your business, also referred to as net income. If you have not yet created a profit and loss statement for your business, we urge you to work with a bookkeeper or accountant to get it set up. Your gross profit is after cost of goods sold while your net income is what you will see on your profit and loss statement. At the most basic level, you need to know how each dollar is coming in and going out, and this includes fees. We also add advertising and Facebook spending into our cost of goods sold.
Our First and Second Biggest Sources of Income for August
In August, we were promoting our third summit, and we were attempting to recreate the same result we had for our first summit, hoping to get it as big as the first one. But we have started noticing that our audience is shifting to people who have kids and so summer is much busier for them and they have less time to give to our event. We, therefore, had lower participation than we initially expected. In terms of our income, the summit brought in 28% of our revenue. The second runner up is Trello for Business, our most popular program ever, for which we brought in just over $100,000 over the last two years. And now, in any given month, it is bringing in 24% of our income. We changed our ads team over the summer and they have been ramping up ads for our Trello for Business course. Our goal with running ads to Trello is two-fold: we want people in our programs, but because of the low price point, it’s also an easy way for us to grow our list while getting paid for it. On average, we spend $2 to $5 per lead. And while we spend more upfront to bring someone in, it’s more profitable in the long run. Another cool stat we’re seeing with Trello for Business is for every ten people who land on our sales page, one person buys. That is a 10% conversion rate! Now we can reverse engineer the process, looking at the actions the buyer took to get to this point and try to replicate it. The ability to establish where a purchase, a client or a sale comes from gives you so much powerful data!
Other Background Income, Including the Down-Sell to the Summit
Our reduced price for the Boss Vault during the summit was the third runner up to our income in August, making up 19% of our total income. As your business grows, you cannot have all your products out there at once. It takes time to bring out different programs. While we might be focused on only a few things, there are still those steady streams of income that hold our business together. The fourth runner up was our signature program, Strategy Academy, with 16% of our income. Let us quickly point something out. Trello for Business is a $29 program that brought in 24% of our income in August. Strategy Academy is a $2000 program and it brought in 16% - that’s just bananas! So, for every Strategy Academy, we must sell 69 Trello for Business courses. There is a misconception that if you have a higher-priced product, it is going to completely outweigh what you might be doing with a smaller program, but it doesn’t always work that way. It makes sense for us to spend a few dollars to get someone to buy Trello for Business, but of course we could spend much more and make greater effort to sell Strategy Academy. This is because the Trello course has a much smaller profit margin.
Those Miscellaneous Sources of Income
We get affiliate income every month from a variety of partnerships we have. The moment a sponsor pays us, we may have that percentage shoot up a lot in any given month, but then other months it is a lot lower. Sometimes your report on your sales platform and in your actual bank account varies, and you must report that somewhere, so we put it in the “variants” section – where all the income goes that we can’t pinpoint to something specific. We also got some money for our Goal Crusher Club. And then, there are still five of you who pay us $2 a month to support the podcast and we love you guys!
Where the Money Goes Back Out
Expenses can be overwhelming, but it is so important to talk about these too. The three biggest expenses we have every month are advertising, paying our contractors and paying ourselves. Software is only 4.5% of our expenses, so very minimal. For August, because we had this big promo for a public sale, the Summit, we spent 42% of our income on advertising. The general aim is to spend about 30% on marketing and advertising, so we were over. But for the type of business we are, advertising is absolutely crucial, and we felt that spending 42% was right for us for that month. The thing is, you never really know what your return on advertising will be – sometimes you win, other times you lose. There are no guarantees. Before you think the two of us take the largest chunk of the income – we don’t. Most goes to our contractors, which is about six other people or companies. We’ve already had to let a few of our contractors go because the business cannot sustain them consistently at this point. We want to get our business to a place where we have more consistent profit. We spend 25% of our income on our contractors, and we’d like it to be closer to 20%. Sometimes the answer is not cutting expenses. Sometimes the answer is making more revenue to increase your profit. If we are going to cut anything else, we’d be cutting those things that are making us money or saving us by preserving our sanity! Then what remains is the two of us and what we get paid, and that makes up 11% of the expenses. With all of that being said, our profit for this month was 10.5%, which we are happy with, but we’d still like to increase it.
How We Can Increase Our Profits
First off, if we have our advertising and our contractors back in the percentages we want, advertising 30% and contractors 20%, then we make up a 12%, which all by itself would get us to 22.5%. For this particular month of August, we would not have spent our money any differently – which sounds contradictory to what we just said – but you have to be thinking semi long-term. We don’t mean two or five years from now, but the next six to eight months. If you’re not thinking like this, you could be making choices that hurt you long term. While cutting something out might seem like an immediate solution, you must look at what it will mean for the next few months and keep in mind the repercussions of that decision. Play the different scenarios in your head before making rash moves. You might think, for example, that we’re crazy to spend that much on marketing, but there are very few people who can take their business to the next level without paid marketing. Paid marketing is a great tool, regardless of the negative perceptions there might be around it. The only thing is that it is always a gamble.
Profit, Margins and What All the Other Buzzwords Mean. [0:05:33.1]
Our First and Second Biggest Sources of Income for August. [0:10:50.1]
Other Background Income, Including the Down-Sell to the Summit. [0:19:27.1]
Those Miscellaneous Sources of Income. [0:27:50.1]
Where the Money Goes Back Out. [0:30:35.1]
How We Can Increase Our Profits. [0:40:45.1]