Revenue is a Vanity Metric

Jul 12, 2021
 

When people ask me about growing and scaling their company, I hear a lot about growing revenue. In fact, it’s almost always about growing revenue.

How do I efficiently scale sales? What’s my month-on-month revenue growth compared to benchmarks? What’s my CAGR?

And I get it - the media favors companies that can boast quadrillion-digit revenue growth, particularly in the tech startup land. With all the headlines and noise, it’s easy to be swept up into this world where nothing but revenue growth matters. It’s perceived as the sole metric of ‘success’.

But whatever happened to the humble profit margin? You know that guy? The most important yet rarely mentioned aspect of business, sitting patiently in the shadows. Perhaps you haven’t seen him in a while.

Seldom do you hear about companies growing their profitability. Afterall, profit isn’t sexy; revenue is.

Don’t get me wrong, revenue growth is important. But over the long term, what’s a company worth if it only has revenue and not f****g profit? Indeed we can look to tech companies like Uber and Snapchat as examples of highly-valued companies that are still yet to post a profit. Let’s see their market cap a decade from now.

My point is, revenue is important, but it’s only one part of the equation. I think we should be talking more about margins, and less about revenue.

I’m referring to your company’s ability to generate profit.

Irrespective of your size or industry, there are 3 variations of Profit I want you to pay attention to. They are:
Gross Profit
EBIT
Net Profit

In our next video we’ll be deep diving into why you need to be measuring these key metrics and how you can calculate them for yourself.

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