March 2021 Profit Report: Why We Now No Longer Want to Hit Our Profit Goal
Episode 532: Show Notes
We always knew there would be this moment where, after doing these profit reports, we would eventually hit our goal, and then we would have to have the conversation about what’s next for us. We alluded to it a bit last month, where we had our first loss in over a year, but no part of Abagail was concerned. It sounds bizarre, but we really stuck things out, made some subtle shifts, and March went fantastically. What a concept! We had a loss and didn’t let it linger in our brains for months on end, which, in turn, would have impacted our business for months on end.
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Instead, we did a turnaround and saw some amazing stuff happen for us in March. It's funny because it’s not like we did this massive launch or any other big things. We just checked the calendar right before we recorded this to remind ourselves of what happened last month. We planned some stuff; we talked about some stuff; we did a mini-thing, well, someone else did a mini-thing; we invested in some stuff. That's about it! It was lowkey in terms of what was happening behind the scenes. But so much of what we have been doing over the last year has been about building our monthly recurring revenue (MRR).
Q1 2021
Previously, when we spoke about our MRR, we talked about it with regard to Strategy Academy, but this is a false MRR because payment plans have a date when they go away. The shop is a truer MRR, and it now contributes a significant amount to our overall income. Historically, Q1 has been a time we dedicated to planning, and as such, it has not been such a big earner for us. So, what does it mean now that our 2021 Q1 was the same as last year’s Q4? It’s pretty unbelievable. We have worked so hard to get to this point, where we have increased our personal incomes and other things. It seems like we are headed for a growth period! We have been there before, but we know more now than we did in our previous growth periods, so we are not nervous or ill-equipped for this scaling. All of our systems are in place, and we have spent so much time figuring out how we could get our business to scale without putting in more work. This was all very intentional on our part. Many of our counterparts go a long time without paying themselves, and this has specific outcomes. We, on the other hand, believe in paying ourselves good, early, and often. So, yes, we slowed our growth, but we learned some valuable lessons on the way.
Letting Go of Affiliates
So, as things shift, we are excited to see what growth looks like. Scaling is not necessary to sustain the lifestyle we have, and now we want to grow to impact more people. For a long time, we have not been able to attach this desire for growth to a goal or outcome, and having a motivator for us is really important. We weren’t ready to say what it was we wanted, but we are finally there. We love getting signs from the universe, and over the last little while, we have received so many clues about what to do with the extra money we will be making when we grow. We have so many examples of things we have done over the years that have been great by all appearances, but they actually haven’t been that helpful for our business. At the beginning of the year, once we started letting go of all of the affiliates that are no longer serving us, we then had so much more time for what we were making. Don't get us wrong, affiliates are great, but they just don’t work with our business because we have higher operating costs than most.
March Revenue Breakdown
So, what does the breakdown for this month look like? The shop was 53% of our overall revenue, and we think this number will keep growing. Despite what we said about affiliates, they contributed 21% of our revenue. This is a lot, but it came from only three affiliates. Strategy Academy accounted for 15% of the revenue, which to be honest, is pretty low. With SA, you can either pay in full or do a payment plan, so sometimes thousands of dollars can fall off our books. We definitely have learned some lessons about SA launches that we will be taking with us as we go forward. We are not worried about the dip in revenue because we know SA will pick up again. Even though the shop is our priority, we are so excited about where SA can go if we make some tweaks. We look forward to breathing life into it and seeing where that takes us.
March Expense Breakdown
Advertising has been the biggest learning curve for us, even though we have been doing it for so long. Because it is constantly evolving, there is always so much to learn, and yes, sometimes we actually just can’t keep up. Facebook recently made some massive changes that have been really frustrating to us as marketers. We get it from the consumer side, but for marketers it has not been a walk in the park. We had been underspending in ads, so in February, we decided to go all in. And maybe it’s imposter syndrome or just downright fear, but it was not great to have to spend that much. Yes, we know the difference between the return on ad spend and return on investment (which we will explain to you). It is hard to comprehend the fact that sometimes you have to spend more to make more. The math can still lie, so when do you trust it? Our ad expenditure went down from 35% to 18%. No matter how well Abagail knows all the numbers in the business, Facebook spending will always be gambling, and no one can tell her otherwise. We can see that we will need someone to make these Facebook ad spending decisions for us in the future, for sure. Our cost of goods sold was only 22%, which was low and we would like to get it to around 30%. Team has been our largest expense because we have made some major hires, and this expense would usually be our second highest. Payroll, at 18%, is our third biggest expense.
Profit Margins: Why It Is OK to Change Them
Abagail very specifically spoke to Emylee about the ideal profit margin for our business, our savings goals, and what we were trying to accomplish. We decided on 30% as our perfect fit. We know some people who have way higher margins than us and others who, because they pour all their money into the team, have tiny margins. Once you get to a certain stage, it doesn’t really make sense to have a percentage, so we think it is important for us to now look at the dollars. You should set goals, but you have to also realize that they are context-dependent and specific. So, if you have achieved a certain target or outcome, you can move the goalpost. And you know what? This is totally healthy, and it’s what we have done! Changing your goal does not mean you are failing; you are simply responding to the next phase of your business. Bringing in 30% profit for how big our business has become just doesn’t make sense for us at this time. Yes, we both want raises, but we also want to make sure that our team isn’t overworked and they still feel supported. We know what we are shooting for, we are just not sure how to get there yet. After all of our rambling, you might still be wondering what our profit margin for the month was? Funny enough, it was 30%, but if you think about it, we only got there because we didn’t spend enough! Abagail should not have pulled the throttle back so far on Facebook ads, but you live and you learn!
Quote This
We believe in paying ourselves good, early, and often.
Highlights
Q1 2021. [0:04:26.1]
Letting Go of Affiliates. [0:12:54.1]
March Revenue Breakdown. [0:21:48.1]
March Expense Breakdown. [0:31:24.1]
Profit Margins: Why It Is OK to Change Them. [0:42:07.1]
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
Revenue, Expenses, Ad Spending, Fear, Profit Margin, Growth Period, Shifts, Scaling, March
