“If you're an entrepreneur, your goal is to make money… so that you can continue to serve your clients, make an impact, and make money. That is the final measure.”

Adam Rundle (13:26-13:41)

Having the right information helps you make the best decisions for growing your agency. But many business owners focus on the wrong things, causing them to waste time, money, and other resources. What do you need to make better decisions? What variables matter most to your business? More importantly, what are you doing to manage those variables better than anyone else? 

“Why do some businesses succeed and why do some businesses fail? Because they have people who understand the variables and make the best possible decisions as often as they can. They win more than they lose.” - Adam Rundle (6:40-7:01)

There are four major variables for agencies.

• Revenue - The money coming into the business.
• Marketing - The mechanisms used to get others to pay for your services or products.
• Labor - The mechanism used to deliver your services or products.
• Overhead - Those things in the background that keep your business going.

The goal is to understand these variables and know how they interact with each other. Always consider your finances. It’s vital to understand the importance of measuring your profit and loss because every single decision you make has a financial impact on your business. The goal in business is to make money so you can serve your clients and make a lasting impact. That’s the ultimate measure of success in any business.

The Value of Profit and Loss Statements

Profit and loss statements give your business a scorecard by which you can measure growth. In the same way that keeping score in a basketball allows each team to measure their performance, your profit and loss statements give you the clarity to know if what you’re doing is working to achieve your goals. 

Profit and loss consist of the money you’re bringing into the business along with the expenses related to the variables that matter. Marketing, labor, and overhead costs can eat away at your profits. When you see the percentage of your revenue that’s going to these and other expenses, you can make the decisions needed to help increase your profit over time. 

Breaking Down the Cost

Your business generates revenue by acquiring leads and converting those leads into paying clients. This is a result of your marketing efforts, which include paid and organic advertising, email marketing, and offline marketing. The cost of your marketing and the labor required to fulfill client orders should not exceed 55% of your revenue at any point in time. 

“If you’re a business owner, you’re on a journey of figuring out how to make the best possible decisions you can make every single day in your business so you succeed.” - Adam Rundle (32:22-32:33)

Overhead costs such as rent, insurance, processing fees, and travel shouldn’t exceed more than 15% of revenue. When combined with marketing and labor costs (55% + 15% = 70%), you’re left with an expected pre-tax profit margin of 30%. Going deeper, business owners can look at the ratios of different variables. Smaller agencies may perform better with a different mix and ratios of their variables. 

Profit and loss statements are often overlooked or ignored by business owners who aren’t comfortable with the financial aspects of running a business. But it’s an essential part of keeping score in the game of business so you can make the decisions that grow your agency. Like growth models, financials help you get from point A to point B while minimizing your costs and maximizing your profit. 

Take some time to look at the big picture of your business to ensure that you achieve long-term growth in your industry. 

How to get involved
If you would like more information about ABR, and the success businesses have gained through their work with the firm, visit their website.

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