February 2021 Profit Report
Episode 524: Show Notes
We feel like the anniversary of the global pandemic that is quickly approaching is hitting us really hard! We just want to remind all of you business owners out there that you have been running a business for the last year in the midst of one of the craziest years any of us will ever go through, especially as a collective. For us, running a business in the midst of all this has been the most surprising thing that has ever happened, because March 2020 was the most afraid we have ever been about the future of our business. A year later though, we are now more confident than ever that we will continue to grow!
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We have spoken a lot about the different areas of our business that we have invested in and how they change over time. We want to spend today’s profit report for February talking about how these decisions have ultimately affected our profit and how we are looking at this side of things. We want to talk about why things are just incredibly different now than they were last year and the place of greater maturity at which we have arrived with regards to the way we cope with the supposed ups and downs.
How We Have Reevaluated Our Profit Goals in Recent Months
For those of you who are new to this podcast, we decided to start sharing more about our profit journey with our listeners in late 2019. Initially, we were working toward our goal of having a 30% profit year. In this process, the conversation changed from us focusing on ‘profit reports', which deal with revenue, toward a mentality of how much we can keep out of what we make. It is easy to get so focused on how much you make but what is the point of making huge amounts if you hardly get to keep any? We had a bunch of checkpoints we wanted to reach during this time but now that we have achieved our goals, we have realized that goals can and should change as situations change. It took us a long time to realize this. Going into 2020, Abagail suggested to Emylee that while it would be amazing to see 30% profit for a year, we might not need to keep that much. Based on the team and the growth we want to see, we don’t need 30% profit, so why put that kind of pressure on ourselves? We have reached the point in our business where we have enough savings to pay our team and run ad campaigns and are far better equipped than we have ever been to manage things if disaster strikes. So as a reevaluated goal, we have decided that we will keep our income the same while taking home less profit. We are doing this as a strategy for building up extra capital to reinvest into growing the Creative Template Shop.
The Gamble of Making Investments That Don’t Pay Off Immediately
If we compare our situation now to 2018, we are spending so much less money on coaching. We had a mentality back then that we didn’t have what it took to take our business to the next level so we spent way more than we could afford on education. Part of this was because we compared ourselves to others in our space but thank goodness we don’t fall prey to that kind of thinking anymore. The sticking point here though is that while we have cut our spending drastically in some areas, we also spend a lot more in others, culminating in us making a loss in February. Part of us feels like we are back where we were a few years ago and are making the same mistakes again. This is not true though because we are purposefully making some big investments and we have the measures in place to cut them if we see they are not working. It is a sticky thing though because at what point do you know to cut investments because they are not working? We all know that some businesses run on a loss for years because of the predictions they make about their investment paying off in the long run. Sometimes the outcomes of gambles just don’t show themselves for years. Emylee lived paycheck to paycheck for many years and she doesn’t want her business to do the same, but the truth is that businesses run out of capital all of the time. We also need to put our own struggles into perspective though because while our business means the world to us, we are tiny compared to some other businesses out there. However, compared to other businesses of our size, only 1.7% make more than us. Furthermore, we are still seeing steady growth overall because while we made our biggest amount of money from a launch over three years ago, our revenue has steadily grown every year since then.
How We Are Measuring Our Investment Decisions Using ROI and ROAS
Abagail has never said this out loud before but last year she became a millionaire. There are still many business headaches she is having to deal with though! The first one that she and Emylee are facing is in regards to advertising. Normally, Abagail and Emylee aim to spend 25-30% of their revenue on ads. But based on the kind of business they want, they realized that they need to start spending more to make more. They decided to up their budget on ads this month and the hard part about this was that there were no guarantees that this decision would work. They waited 30 days and are now in the process of making a new plan for some of the investments that didn’t work. ROAS means ‘return on ad spend’. It is the immediate return you see a month after investing in an ad campaign. ROI refers to ‘return on investment’. It is the long-term return you get based on the investments you make. So the biggest difference between January and February, besides an increase in ad spend, was the ROAS amount. In January, $1 spent on ads generated $1.30. In February, a dollar only brought in $0.40. For many, this would be terrifying but we are in a more mature place with the way we run our business now with systems in place to measure and attack these weak points more quickly when they arise. We also understand that while the ROAS for this campaign has not been immediately successful, the ROI it generates in the long term could still be. In 2018 and 2019 we didn’t know it was important to have these conversations early and often. We are not growing as fast as we could but we are growing more safely. We would rather be earning constant cash even if it means we are less profitable, which is not the typical entrepreneur model, but it works for us.
The Income Generated By The Different Parts of Our Business for February
Our monthly breakdown of income is as follows. The Creative Template shop is in first place with 52% income brought in. With the growth the shop has seen, other sides of the business account for less income. This makes sense because as the shop has grown, so has the time we have spent on it. This is not to say that we don’t still love our Strategy Academy students though. Our recent student call was one of our best and SA brought in 21% of our income. One of the biggest changes we made this year was around our approach to affiliate and sponsorship income. We used to want to partner with people so we didn’t have to pay for their services, and we also used to focus a lot of our time promoting them. This year we have scaled this approach back, but affiliates still brought in 10% for February. Even though we are spending less on affiliates, our business is still growing more. Individual product sales are up 30% from this time last year which makes a great point about the value of focusing internally. Year to date, we are at 95% of what we were at last year in Q4, which points toward huge growth, considering Q4 is usually our best quarter. We mentioned that we made a loss in February but this is only true on paper because one of our promotions done in February is only paying in March. As for Trello, and this shouldn’t be surprising, we saw it bring in 9%.
Expenses For February and Our Goal with Our Profit Reports
Moving onto expenses, our ad cost for February went up, but we expected it to. We only spent half of what we still project to but that doesn’t change the fact that this extra cost stings because it didn’t produce the ROAS even though the ROI was still there. Adspend accounted for 37% which puts our cost of goods sold at 42%. The next biggest category of expenses was for our team. We made big investments in social and SEO in the first quarter and are trying to be patient to see the results of those. SEO is a long game but for social, there was a long ramp-up time; we are trying to be patient and should start seeing some results soon. One team-related expense Abagail did not account for in her projections was the cost of an accountant to do their taxes. This is a once-yearly expense but the lesson here is not to neglect those types of expenses. Software is a big culprit. Try to subscribe to your different software services in different months so you don’t get hit with a yearly bill for them all in the same month. Our third biggest expense was payroll. All in all our loss for February was not large: It was only 4%. We also feel good because this loss was not the product of circumstances that we had no power over. We decided to invest more which is why we ran a loss this month. We are happy to share this with you because part of what we are trying to do with these profit reports is to be transparent with our listeners and share what it means to run a business in real life. As always, if you have any questions, be sure to get in touch!
Quote This
We are not growing as fast as we could but we are doing it safer.
Highlights
How We Have Reevaluated Our Profit Goals in Recent Months. [0:04:22.1]
The Gamble of Making Investments That Don’t Pay Off Immediately. [0:15:10.3]
How We Are Measuring Our Investment Decisions Using ROI and ROAS. [0:29:26.8]
The Income Generated By The Different Parts of Our Business for February. [0:39:38.3]
Expenses For February and Our Goal with Our Profit Reports. [0:45:51.7]
ON TODAY’S SHOW
Abagail & Emylee
The Strategy Hour Podcast
We help overwhelmed and creative entrepreneurs break down their Oprah-sized dreams to create a functioning command center to tame the chaos of their business. Basically, we think you’re totally bomb diggity, we’re about to uplevel the shiz out of your business.
KEY TOPICS
February profits, Expenses, Ad spend, Marketing, Revenue versus profit
