Sales are increasing, why am I not making more money?Apr 12, 2023
I had a new client come to me recently with this exact scenario. They were putting a bunch of time, money, and effort into sales and marketing and it seemed like they were getting a big payback. Sales were increasing.
Unfortunately, they weren’t seeing the same payback in their profit line or bank account. All that effort and they were stuck where they were before.
If this sounds familiar, the problem probably lies in your direct expenses. Your direct expenses are those costs that are directly related to the delivery of sales. Typical direct expenses include labor, materials, and software.
Direct expenses typically increase in direct proportion to sales. As you sell more services, you pay more in labor and materials to provide those services.
If the proportion of direct expenses is too high, you’ll struggle to make more money even when you increase sales.
In my client’s case, their commission structure was out of alignment. They were paying too much in commissions and not leaving themselves enough of a gross margin to cover the rest of their costs and still make a profit.
Their previous bookkeeper didn’t have direct expenses organized separately from indirect expenses, so it was difficult for them to easily see what the problem was.
As part of the onboarding process at Peak Financial Wellness, we reorganize our client’s chart of accounts. We make sure that the information is presented appropriately in reports so that we can easily see if there are any issues.
Our priority is making sure that our clients have the clarity and guidance they need to maximize profits.
If you’d like to review your financials to see if expenses are categorized appropriately, we’re here to help.
Use this link to schedule a consultation.
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