Yesterday I had a fascinating discussion with a new client who shared with me his rate sheet. What he charges his clients and then what he pays his contractors to get the work done. He is left with 48% of the sale to cover overheads and his taxes and his owners pay. I showed him how that would not be enough cash to cover his home expenses. In my opinion we needed to either raise client fees or reduce contractors payouts.
He was shocked. He feels good about paying his team well and he does not feel that his clients will pay more. OK, so then his only choice is to curb his own personal expenses and live on less. This isn’t magic. It is math and the puzzle of putting together the pieces.
What is your reaction? His next idea was to just increase revenue, get more clients. Thankfully we had this discussion before he embarked on that plan as increasing revenue, working harder with more clients will NOT make you more money if you are only keeping 48% of every project. All that will happen is that the wheel will spin faster. It will not spit out any greater rewards.
I showed him clearly on an excel worksheet how at $1million or $3million or $5million in revenue, he would still only take home 20%. Does that work for him? Then perfect, that is not for me to judge but my priority is always making sure clients understand the difference between growing revenue and growing profit. This is the basis on which successful businesses are built. Please make sure you understand yours.