Which do you consider the most important in building a sustainable business?
In terms of building a sustainable business which do you consider most important revenues or margins?
I would say margins, but specifically their reinvestment. Revenue is great to show traction, but that won't keep a business afloat long term. Your profit margins show a healthy business that has demand and larger margins help show your business is growing.
However, it is important to think about the constant pace of change in the business world. You can't expect to make those margins continuously. You must plan for the margins to taper off as your customer, market or product change.
Your margins should be split among several categories such as generating additional new business, supporting the existing business and investment. I want to focus on last point, "investment", for a minute. I don't necessarily mean an investment account for the business (although that isn't a terrible idea). I mean investing in the future of your company. Think of efforts like Research and Development, improving your current product, adapting your product into a line of products, or creating an entirely new product.
Yes, you fund those activities through your margins. Those activities when managed correctly will need to new margins (not always more or better, but possibly) for your company. Diversifying your offering will create multiple streams of business income. These will help even other products as their demand goes up and down in the marketplace.
Margins can be a safety net, but they should also be the coffers to the future of your business. You don't want to focus so much on the margins today that you have no margins down the road. Look at ways to keep your margins consistent regardless of the market.
Customer referring other people who become customers.
I agree with Jef Lippiatt - margins are the most important of the two.
Revenues are, of course, important too, but they only show part of the picture. You could be making millions of dollars in revenue, but if you’re spending millions of dollars as well, it will be unsustainable. After all, you don’t generally go into business just to break even in the long term.
Margins, on the other hand, indicate a healthier business. Sustained profits reveal a business that not only generates revenue but spends less than it makes.
Healthy margins generally indicate a sustainable business alongside cashflow which we wrote about in greater detail here.