How to Make More (PART 2/2)

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Let’s talk about what you can do tactically to execute on the strategy of increasing revenue with the goal of increasing profit.

Some quick reminders:

Profit = Revenue - Costs

Profit is the difference between Revenue and the Cost of generating that revenue. It’s what you actually take home.

Last week, we broke down why increasing revenue is better than cutting costs, if you want to take home significantly more money as a Creator.

Revenue = Price x Quantity

Revenue is the product of the Price of a good or service and the Quantity sold of that good or service.

In an example where you generate $62,500 in revenue, spend 20% ($12,500) in costs, and keep 80% ($50,000) in profit but want to get to $100,000 in take-home profit:

• You CANNOT get to $100,000 in profit by decreasing your costs from $12,500 to $0 - the maximum you can keep by cutting costs is $62,500 

• You CAN get to $100,000 in profit by increasing your revenue from, for example, $62,500 to $125,000, spending 20%, and keeping $100,000

To grow revenue, you can only:

1. Increase the amount of what you sell (Quantity), or

2. Increase the price of what you sell (Price)

How?

Let’s start with Quantity.

Quantity sold = Potential customers x conversion rate

Potential customers are the people who are considering you / your offering in a given moment. You increase your number of potential customers by getting in front of them as much as possible without making them dislike you. Example tactics include:

• Push more content out to stay in front of and grow your audience 

• Buy ads promoting your offering

• Reach out directly via LinkedIn, email, etc. (best for B2B offers like brand deals)

Here’s a great proof point from Patreon’s 2022 Creator Census:

Your conversion rate is the % of potential customers who end up purchasing from you. You increase your conversion rate by making potential customers like you / your offering more. 

Example tactics include:

• Give away something very high-value for free to build interest and trust

• Make it easier to purchase faster by implementing a simpler payment method

• Make your offering more appealing by adjusting it based on customer feedback

If increasing the Quantity sold is too difficult, you can always increase your Price. 

This is how lots of companies in the economy are managing to report record-breaking profits - by inflating prices.

But I digress.

Price is often a number that you get to define (though for certain offerings, like brand deals, it can be negotiated based on market demand). 

There are two ways to increase your prices while still getting people to pay:

1. Increase the ACTUAL value of your product - for example:

   • Offer more - e.g. more posts in a brand deal

   • Guarantee value - e.g. money back guarantee in a course

   • Improve quality - e.g. Marine Layer base tee instead of Hanes for merch

2. Increase the PERCEIVED value of your product - for example:

   • Improve your reputation - e.g. easy to work with, always on time

   • Build a premium brand - e.g. brand-friendly, high-quality

   • Great marketing - e.g. beautiful design, persuasive copywriting

A third way is to just increase the price for no reason other than that you want to. This might work, or it might not - it depends on a number of factors, such as how your customers currently perceive your pricing.

Now, if you’ve been running your business for a while, you may be thinking:

“Won’t costs go up if I implement some of these?”

Yup!

But that’s OK as long as you are making enough in profit to justify the higher costs.

You CAN cut costs to get to $100,000 in take-home profit - but only if your revenue is ALREADY OVER $100,000.

Just remember that it might make it much harder to earn as much revenue while spending less. 

For example: If you’re earning $110,000 and spending $22,000 to do so, your take-home is $88,000. If you cut $12,000 (55%) of your costs, you’d take home $100,000 and only spend $10,000…

But is that even possible? Is it easier than working to increase your revenue by $15,000, from $110,000 to $125,000?

That’s the kind of strategic decision that only you can make.

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Written by Avi Gandhi, edited by Melody Song,
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