What areas 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.
Profit.
Returning customers.
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.
I would suggest a key requirement is creating and maintaining a competitive and strategic advantage over your competitors.
Then you can justify your pricing model, your margins and ensure that your prices and margin are not going to be easily eroded by copycat competitors looking to find an entry into your market.
The primary question you should be asking yourself as a business owner is "Why should my customers buy from me?". If you cannot easily answer this question then you should start looking atr where you can create a point of difference in your market.
@Hatty Bell Many successful companies start off with Me-too offerings. The same service as a competitor or the same product range.
Make your competitive advantage something that customers are needing or wanting but not getting from your competitors. Take The Iconic as an example. You could argue that this companies started out in a heavily saturated market. There were thousands of offline and online clothing retailers that would be considered competition with The Iconic. What the customers of these various online and offline clothing resellers disliked was the time they had to wait for delivery or having to travel to a store only to find no stock in the style and size you needed. The Iconic works on a rapid delivery methodology. Theyc started out with guaranteed same day delivery so you could order an outfit for a party tonight and be reasonably confident it would arrive in time. This made buying from them significantly more appealing than other oline retailers and even gave them some degree of preference over going to a store and choosing an outfit.
So on this one aspect of delivery reliability The Iconic was able to corner a significant market share in an already saturated market.
If you are in a "me-too" business, this doesn't mean you need to do everything the same and resort to continueal price wars to fight for a share of the market. There are often aspects of service or business operations that you can change that your customers will also be happy to pay a little extra to receive if this means they don't experience the same frustrations they are having with your competition.
Thanks @Brian Le Mon super helpful!
Well, both margins and revenues are vital for a business to grow.
Profitable Margins will help businesses to get more resources and motivate the employees to work.
I would recommend getting SAP ( https://rmplevents.com/SAPBone/index.php ) for your business. Big or small SAP is a tool that helps in analyzing all aspects of business outgrowth. You can use it to get data about where your attention is more required.
Getting data about where attention is more required! Tell us more about that, @Jenny Brown ! Do you have a couple of real examples you can share of what might a business discover using SAP?
Hi Neil, while most would look at margins, I think that the ability to scale profit while keeping your cost base low is a better way to look at your business' future potential.
If you have to add more resources in line with scaling (which is the standard way to do it), then you're growing revenue but usually profit growth is low.
Whereas, when you can grow revenue without needing to replicate the same resource to support delivering the revenue, you've got yourself a growth business which certainly will be more sustainable!
Most people scale by adding more staff, or more services. Both of these add more admin burden which increases costs in line with revenue (sometimes even outgrows the revenue growth and it's where many businesses start to struggle!).
Hatty Bell, Executive Assistant at Country Road Group
Great advice @Brian Le Mon ! What should you do if you have a service or product which is quite general or similar to others?