How closely tracking our revenue led to our agency earning more

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When we first started Reliable PSD, our web development firm, 3 years ago, we faced many new challenges we’d never experienced before.

How do you run a company with employees (we’d never had employees before)?

How do you keep your projects organized when you grow bigger and bigger?

How do you make sure quality is not sacrificed when you make changes?

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But of all these questions, one of the most challenging for us, not being “numbers people,” was this:

What is the best way to keep track of your sales and expenses? How do you make sure that all the dollars you’re spending are actually spent wisely? How do you use this information to determine the decisions you have to make as your business grows?

Whether you’re a one-man or one-woman-band, or have 22 team members like we do, knowing your numbers inside and out can actually boost your revenue.

First: Know what you make, what you spend.

After looking through a variety of different expense tracking options out there, we settled on a good ol’ google spreadsheet.

Setting it up is super easy, and with some extraordinarily simple clicks of a button it will even do the math for you and add / subtract different numbers.

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It’s one of the most effective tools we’ve used in our business to this day. We use a fresh spreadsheet each month, and it’s broken up into the following categories:

1. Sales

  • Generated from new clients and what source of advertising / blogging / etc. these clients came from
  • Generated from repeat clients

2. Expenses

  • Team member salaries
  • Founder salaries
  • Tools & Services (broken down by tool / service)
  • Advertising (broken down to amount spent on each source)
  • Offices & Supplies (broken down by each office location)
  • Fees (Paypal, Bank, Accounting, Wires)
  • Continued education for team members
  • Team happy hours
  • Taxes

3. Profit

4. Money in Checking Account

5. Money in Savings Account

At the end of each month, we look through all our accounts and fill out and update the spreadsheet. No dollar spent or received is left unaccounted for. We can see a clear picture right then and there of:

  • How much money we earned
  • Where the money we earned came from (new clients vs. repeat, Google vs. referrals, etc.)
  • How much money we spent
  • How we spent it
  • What’s left over when all is said and done.
  • What’s the total in the bank

It’s all in one place, laid out super clearly, and easy to review and gather info from.

Benefit 1 – Spotting the trends

One of the biggest benefits of having this information is being able to see how the money we spent on advertising translated into sales. It’s not only reassuring, but also very useful to know that it’s predictable: “if I spent $X on advertising, I’ll bring in $Y in sales.”

The longer you do this, the more trends you’ll be able to spot.

You’ll be able to predict which months will be slow and plan for those, maybe by introducing a new service. You could also test new venues of advertising and see how those impact your sales.

For example, if you’ve been advertising only on Google, and you try Facebook ads and see in your spreadsheet that those ads generated very little sales, or none at all, you can very quickly adjust your strategy and test again with new ads, or drop it altogether and try something different.

Having the data also takes away the feeling of “shooting in the wind”. You can see the direct impact of what you’re doing in the numbers and adjust accordingly if you need to.

Benefit 2 – Cutting the fat

When you’re in the habit of reviewing your expenses vs. income at the end of each month, it becomes very easy to notice areas where you can cut the fat.

Are there services you’ve stopped using or don’t really need, but are still paying for monthly or yearly?

Are there services that you just get the feeling you’re paying too much for? Maybe it’s time to do some research and find a different and more effective solution.

I do this one almost every month and have replaced a few of the services we’ve been using for ones that not only perform better, but cost less too.

This alone will instantly increase your profits as you simply won’t be spending those dollars anymore. And by staying on the pulse of where your money is going every single month, it’s easy to keep everything up to date and make sure you don’t have a little money leak somewhere you’re simply unaware of.

Benefit 3 – Knowing what to charge

Figuring out your sales, expenses, and profit can also help you figure out what you should be charging.

Let’s say your expenses are $100 per month, and your sales are $110 per month. This leaves you with only $10 dollars to spare. This isn’t very much left over depending on the goals you have for yourself and for your company.

Seeing this data might make you realize you need to raise your prices.

But by how much? Here’s a cool formula you can start with if you currently do not factor your overhead expenses into your prices:

  1. Calculate the % of your income that goes to expenses. So if your income is $100, and expenses are $90, then expenses are 90% of your income.
  2. That means if you raise your prices by 90%, your expenses are totally covered for you in the fee you charge clients. You’d then earn $190, and still have $100 as profit.
  3. If your expenses are so high that you can’t earn a living from the money you make – then ideally you’d want to increase your prices by the full 90%.
  4. If you still etch out a living after expenses, but want more comfort, then figure out a % increase anywhere from 1-90% that you’re comfortable with.

You can also adjust prices to help reach goals. For example, some of our goals at Reliable are:

  • To provide opportunities for continued education for our team members that will make them feel fulfilled both professionally and personally.
  • To provide monthly and yearly team gatherings outside of work to grow the bond with one another

All of these lead to our team members being better and happier at their jobs, and servicing our clients better.

Whatever your goals are, to survive, to be a happy business, your business needs to make a profit. When you know your numbers, your goals, and what they cost, it’s easy to calculate by what percentage you need to raise your prices to reach those goals, because you simply see how much those goals cost, and how much you’d have to profit to reach them.

By keeping track of this monthly, you can constantly be in the process of refining and improving, refining and improving, based on the data that you see.

When we put it all together, we doubled sales. Every year.

In a nutshell: We cut unnecessary spending, spent more on advertising that worked well, and used the formula above to raise our prices.

This resulted in doubling our company’s growth year after year for the three years we’ve been in business.

But it all started with tracking everything.

Do you track your sales and expenses? Or do you have any tips for others?

How has this helped you in your business? Have you used any tools that have worked particularly well for you?

I’d love to hear your thoughts. Leave a comment below and let’s chat!

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About Lou Levit

Lou (Louisa) Levit is the co-founder of creative agency Unexpected Ways, as well as the co-founder of Reliable PSD: a web development partner for freelancers, agencies, and companies in HTML and Wordpress coding. She lives in Portland, Oregon with her lovely husband and biz partner, David Tendrich.

More about Lou’s business: Reliable PSD is what happened when a group of designers got fed up with the available web development and design to code solutions out there…and created their own. Check them out, and see why Hundreds of agencies & freelancers love having Reliable as their partner for HTML & Wordpress coding.

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Comments

  1. Hi Lou,

    Great post! I totally agree with you on tracking everything. It wasn’t until I started doing that and truly looking at my income and expenses that I was able to see how little I was making per hour.

    My revenue if mostly from referrals, but I’ve thought about doing some ads. Any tips you have on where/how to advertise? I do Web Design & SEO.

    Thanks a bunch!

  2. Would you be willing to provide a template?

  3. Man, I’m in the middle of prepping my goals and tasks for my business in 2017, and I thought I was pretty good at tracking my expenses.

    But this! This was incredibly helpful. Let us move forward into a profitable year! Thank you for a well thought out article.

    • Hey Anna!

      Thanks so much for you comment 🙂 I’m so glad that you’ve found this helpful! Let me know if you run into any questions when you’re implementing, I’d be happy to help!

      Good luck,
      Lou