Revenue Is Vanity, Profit Is Sanity

Since joining C54 I’ve loved hearing all the revenue growth stories, but the different ways profit is put to use is more reassuring. “Revenue is vanity, profit is sanity” often seen as being trite, but in boutique PS firms, sticking to the mantra is a game-changer.

Profit is the sanity to afford talented people, hold great team events or put hard-earned dollars into personal passions. Profit is the sanity to fund scaling, be the bank in tougher times, and set you up for a successful exit… and if you get anywhere close to Greg Alexander’s $project profit & EBITDA levels at his Pro Serv firm, you’ll be the definition of sanity too.

But 60%+ $gross margins or 40%+ operating profit levels aren’t common… and best-in-class firms have even higher profitability. I’ve been fortunate to have spoken to 20+ C54 members since CMap joined earlier this year, plus have our 500+ Pro Serv clients as context, so have distilled a “Vanity-to-Sanity” process into four high-impact elements.

But first an interesting finding… I’ve dug into our archives, and discovered that Founders very rarely tell us profitability is their primary challenge – it’s actually fourth on the list… growing sales is no.1, managing your team is no.2 and keeping clients happy at no.3 are prioritized more frequently. It’s definitely at odds with how import profit margin should be.

When I delved even deeper, we find very few leaders master the four key operational elements, which we correlate with a Pro Serv profit mastery: 

1. Run deal-desks, 
2. Optimize resourcing & utilization,
3. Obsess over client & project $margin,
4. Build a fly-wheel of profit-centered insights.

So what do you have to do, chronologically would be next question… “Vanity to Sanity” mastery is minutes away: 

• Proposals: 
• Draw upon historical data
• Analyze project successes & failures vs. a 60%+ project margin benchmark
• Highest margin work needs to correlate with your most popular services
• Build templates which 80%+ of your project work is based on
• Price for profit!
• Resourcing:
• Examine your bench, utilization & pipeline weekly. 
• Identify capacity crunches, so your delivery team is optimized. 
• Build a skills matrix for your team to see where supply vs demand runs hot or cold 
• Plan hires on well-qualified pipeline data vs. existing capacity
• Low utilization eats profit!
• Delivery: 
• Once a project or client work starts – have controls to monitor scope creep & over-servicing like a hawk
• Have a standard set of SOW’s (C54 has a great template)
• Incentivise people based on $margin, so there’s innate motivation to keep it on-track 
• Track invoicing & WIP. If revenue is vanity and profit is sanity, then cash is king!
• Out-of-scope delivery eats profit!
• Post-project: 
• Leverage a review process to feed key strategic decisions around service lines, proposition & new business activity.
• Analyse everything from budget-as-sold vs. delivered, to client $ROI and everything in-between. Data is key!
• Repeatable winning formulas drive profit! 

Obviously everyone wants perfection and not following these steps 100% of the time will eat margin… but I don’t believe most C54 firms are starting from zero… so if you’re doing two or three quite well, then committing to all four perfectly, is often about slight process shifts, revealing hidden data & being the strategic priority of a Founder.

If you want sanity this summer, just message me and I’d be happy to share more insight.