Most marketing agencies set goals that revolve around increasing revenue, but what they really want is more profit. They hope that by increasing revenue, they will also increase profit.
There’s definitely a connection between profit and revenue, and they are both equally important. But it’s important to understand that they are two different metrics.
Learn more about their relationship, so you can set better goals for your agency and ultimately strengthen your business.
What is Revenue?
Revenue (also called the top line) refers to the money that an agency brings in before expenses are accounted for.
Costs will eventually be deducted from this amount, but revenue is the grand total of money that your business generates over a certain time frame. For our purposes, we’ll refer to it as monthly.
Your monthly revenue can be found on the top line of the income statement.
What is Profit?
Profit is a little more ambiguous than revenue because there are different types of profit. The most common type of profit is net income.
Net income refers to the money an agency is left with after it deducts all of the expenses. Your monthly net income can be found on the bottom line of the income statement.
How do Revenue and Profit Relate?
Both revenue and profit are important metrics because they give you a better picture of your agency’s financial position.
They will also influence your agency’s goals for growth. A lot of businesses will set goals that focus on increasing revenue. Increasing revenue is great, but at the end of the day, increasing revenue is only important if you are also increasing profit.
For example, your agency could have high revenues. At the same time though, you could also have low or negative profit if you are overspending.
Additionally, you should measure profits for each client against the agency as well. Each client takes time and the cost of service can vary. You’ll want to figure out what your profit margin is for each client because you may find that some are lower than expected, meaning you aren’t earning enough for that particular client.
Keeping this in mind and considering profit is derived from revenue, it’s more beneficial to set goals that revolve around your agency’s profits.
Take a closer look below.
How to Get From Revenue to Profit
If you’re trying to calculate your revenue and your profit, start with your gross, or total amount of, sales.
- Take the gross total sales, and then subtract any allowances, discounts, or returns. This simple calculation will give you an accurate picture of your revenue.
- Once you have the revenue, take this number and subtract the cost of services. This is the gross profit.
- Then, subtract your operating expenses from the gross profit. This is the EBIT or operating profit.
- From EBIT, subtract any interest or taxes. This final step gives you the best representation of your profit.
Tips for Increasing Your Marketing Agency’s Profit
If your 2023 goals include increasing profit, review the tips below for some strategies on how to reach your profit goals.
- Offer additional services to existing clients
- If you offer more services to clients that you already have a relationship with, you can gain more revenue without paying the expenses of acquiring a new client. This practice is one of the easiest ways to increase revenue.
- Create videos that customers can buy
- This may take a bit of time upfront, but it becomes a passive revenue stream in the long run. Make an informational/how-to video explaining something like do-it-yourself marketing. Then sell it to a wider audience.
- Don’t do more work than what you are being paid to do
- Be sure to charge for any and all of the goods or services that you provide. Your time and talents are valuable, and your clients should have to pay for these resources. Also, if you start doing small tasks for free, your clients might think these tasks are free all of the time, or they might expect you to do larger jobs free of charge. Be sure to set clear boundaries on this from the beginning.
- Listen to your client’s feedback
- It costs money to add new clients, so you want to do what you can to keep the clients that you have. In order to keep your current clients happy, ask them for their feedback. Then, listen to what your clients have to say, consider their suggestions, and focus on strengthening these relationships.
- Build a lead generation strategy
- You want to have a constant flow of new customers coming in, but reaching out to new customers usually requires a lot of resources. Try to streamline this process. Make sure that you have a strategy in place that allows you to easily generate new leads.
- Make regular adjustments to pricing
- This is essential. The economy is constantly changing, so your prices should be constantly changing, as well. To gain more revenue, you should use best pricing practices and raise your prices to match your value and the economy.
Looking to Put Together a Profit Building Plan for 2023?
If your 2023 goals are aimed at increasing revenue, be sure to take a closer look at your profits, as well. Revenue and profits are intertwined, so they both need attention if you want to reach your goals.
Want some clarification on these topics? Pasquesi Partners can help you better understand these metrics and why they are important to your business operations.
Contact us today to learn how we can help your business grow!