Why Profit Doesn’t Equal Growth: Metrics in South Australia
If you want to scale your South Australian business and see greater success, financial planning and services* could make a valuable difference. With over 25 years of experience, Hood Sweeney financial planners and business advisors work for you, not banks and lenders, to maximise business profitability and growth. One of the questions our South Australian financial planning team often hears is about the connection between profit and growth. Let’s take a closer look at these metrics and what matters most for modern businesses.
What Does Profit Mean?
Profit is the total business revenue after subtracting expenses and taxes. Profit is one of the key indicators of your organisation’s financial health, sustainability and overall operational efficiency. However you measure income and costs, the concept of profit stays the same: if your business isn’t profitable because expenses are higher than revenue, you may have issues staying afloat. Beyond breaking even, profitable companies are most attractive to shareholders and investors, plus offer more opportunities to scale.
What Does Growth Mean?
Business growth refers to improving and/or expanding operations, market share, revenue or profitability. Typically, growth is represented by a quantitative increase, like more staff, a larger consumer base, or higher sales volume. All of these are signs that your business is gaining momentum for sustainable, long-term growth. A Financial Planner* can help you make sense of revenue and profit growth, which can be both organic from within the company and inorganic from external sources like acquisitions and mergers.
Why Are Profit and Growth Different?
Profitability looks at the immediate financial outlook of a company, evaluating current revenue minus expenses to capture sustainability. Growth is based on indicators of market traction, including expansion of revenue, consumers and market share. In other words, profitability is a component of growth, but it’s not the only one. A business can be slightly profitable but not enough so to support growth, especially because it requires upfront investment that may reduce short-term profit.
Which Metrics Should You Focus On?
The metrics that matter most in modern business look at efficiency, retention and quality. The Rule of 40 states revenue growth rate and profit margin should be at least 40%. Customer lifetime value and the cost of acquiring new customers are other metrics of profitability and efficiency. Net revenue retention, revenue per employee, and marketing efficiency ratio are additional key metrics to evaluate, which can be made easier with Hood Sweeney Financial Planning and Services*.
Which Metrics Should You Forget About?
There are some metrics that have their purpose but don’t tell the whole story, and may lead to improper decisions about profit and growth if they are the only things you look at. Vanity metrics like follower counts, raw impressions and click-through rates require further conversion context to be truly valuable. Also, raw lead count only tells the volume of leads, whereas it’s more beneficial to understand the quality of leads linked to actual conversions. Your Hood Sweeney Financial Planner* can talk through more with you.
Discuss SA Business Profitability and Growth With Hood Sweeney
If you’re interested in learning more about business profit and growth, and how to prepare for a bigger, brighter future, advisory services are a worthwhile investment. Hood Sweeney is here to help answer your questions and put you on the path to greater success, whether you are based in Adelaide or regional SA. Contact our financial planning team* to get started today.
*Hood Sweeney Securities Pty Ltd
AFSL No. 220897 | ABN 40 081 455 165
The information in this article contains general advice and is provided by Hood Sweeney Securities Pty Ltd, AFSL No. 220897. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. Please refer to our Financial Services Guide for further information.