You Probably Don’t Need More Revenue

When a business isn’t producing enough profit, the answer usually seems obvious: we need more revenue.

More customers. More sales. More volume.

And sometimes that’s exactly right.

But if the economics underneath the business aren’t working, more revenue won’t solve the problem. It may simply make the problem larger, busier—and considerably harder to see.

[INTRO MUSIC BEGINS]

Welcome to Things Entrepreneurs Should Know — a podcast about the decisions, tradeoffs, and occasional hard lessons that come with building a business of lasting value. I’m Chip Schweiger. And, I’ve spent more than thirty years working with businesses and the people who run them.

In that time, I’ve learned there are businesses that genuinely need more revenue. They’ve built the capacity, the margins work, and each additional sale makes the company stronger.

But there are also businesses where revenue has become the answer to every problem. Margins are thin? Sell more. Cash is tight? Sell more. Overhead is too high? Sell more.

So, today on the show, I want to talk about how to tell the difference—because before you ask how to grow revenue, it may be worth asking whether more revenue would actually improve the business.

[MUSIC RISES AND FADES]

The First Diagnosis

Welcome back.

Revenue gets a great deal of attention in business, and understandably so. It’s easy to see. It’s easy to compare. And unlike a discussion about pricing, customer mix, labor efficiency, or working capital, saying “we need more sales” usually doesn’t make anyone particularly uncomfortable.

It also has a certain emotional appeal.

Growth feels like momentum. A larger top line looks like progress. And when a business is under pressure, selling more feels a lot better than stopping to ask whether some of what you’re already selling is worth selling at all.

But revenue, by itself, doesn’t tell you whether the business is improving.

I’ve seen companies add millions of dollars in sales and end up with essentially the same operating profit they had before. They needed more people, more inventory, more equipment, and more management attention to support the growth. The company got larger, but not meaningfully better.

In some cases, it became more fragile. There was more money tied up in receivables. More dependence on lenders. More operational strain. And less room for error.

That’s why “we need more revenue” isn’t a strategy. It’s a hypothesis.

And before you commit more money, people, and attention to proving it, you need to know which problem you’re actually trying to solve.

Three Different Problems

The first possibility is the obvious one: the business truly doesn’t have enough revenue.

Maybe it has a healthy gross margin and a sensible cost structure, but there simply isn’t enough volume to cover the fixed costs. The operation has unused capacity. The people and equipment are already in place. And additional sales can be served without adding another layer of expense.

That business may very well need more revenue.

But there’s a second possibility: the business has enough revenue, but the revenue isn’t producing enough margin.

That can happen because prices are too low, discounts have become routine, labor is being underestimated, freight and other direct costs aren’t being recovered, or certain customers and products are much less profitable than the averages suggest.

If that’s the problem, selling more of the same work may only create more of the same disappointing result.

You can work harder, serve more customers, send more invoices—and still wonder why there isn’t much left at the end of the month.

Then there’s a third possibility: the business appears profitable, but doesn’t convert that profit into cash.

Sales are growing. The income statement looks respectable. But receivables grow right along with revenue. Inventory has to be purchased before the customer pays. Deposits, payroll, and vendor obligations come due before the cash arrives.

In that kind of business, growth consumes cash before it produces cash.

The business may eventually benefit from the additional volume, but it has to finance the gap along the way. And if management hasn’t planned for that, a growing company can find itself under more financial pressure than a stagnant one.

These are three very different problems. They shouldn’t all receive the same prescription.

Growth Magnifies What Is Already There

One of the more useful ways to think about growth is that it tends to magnify whatever already exists.

If the business has good pricing, disciplined operations, strong customer selection, and healthy cash conversion, growth can magnify those strengths.

But if the business underprices difficult work, tolerates slow-paying customers, relies on overtime to meet ordinary demand, or loses money on certain products it has never bothered to examine, growth magnifies those things too.

The additional revenue may temporarily hide the problem because everyone is busy and cash is moving through the company. But activity isn’t the same as performance.

Sometimes the strongest evidence that a company needs to stop and look underneath the revenue is a sentence I’ve heard from owners many times:

“We’re busier than we’ve ever been, but we’re not making any more money.”

That sentence is rarely a sales problem.

It’s usually an economics problem.

And economics problems don’t get better simply because you do more of them.

Not Every Dollar of Revenue Is Equal

Another trap is treating every dollar of revenue as if it contributes equally to the business.

It doesn’t.

One customer orders predictable work, accepts standard terms, pays on time, and rarely requires senior management involvement.

Another negotiates every invoice, changes the scope halfway through, expects exceptions, pays sixty days late, and calls the owner whenever something goes wrong.

Those two customers may generate the same reported revenue. They do not generate the same value.

The same is true for products and services. Some move efficiently through the business. Others create rework, special purchasing, scheduling problems, excess inventory, or support demands that never make their way into the standard margin report.

This is where averages can be particularly unhelpful.

A respectable company-wide gross margin can conceal a very good part of the business subsidizing a very poor one. And when management responds by pushing for more revenue across the board, it may grow both at the same time.

The top line rises. The underlying problem remains.

What to Ask Before Chasing Growth

Now, before deciding the business needs more revenue, I’d ask a few harder questions.

Which customers, products, or services actually produce the best contribution after considering the real effort required to serve them?

Where are we creating volume without creating much profit?

How much additional working capital would meaningful growth require?

Can the existing operation handle more volume without immediately adding people, equipment, or overhead?

And if revenue increased by twenty percent next year, would the business actually become stronger—or merely busier?

These questions don’t argue against growth. Growth can be enormously valuable.

But good growth should create more than a larger company. It should improve the economics, strengthen cash generation, reduce risk, or make the business more valuable.

If it doesn’t do any of those things, growth may be serving the owner’s ambition more than it serves the business.

Make the Existing Revenue Work Harder

For some companies, the best next move isn’t another major sales initiative. It’s making the existing revenue work harder.

That might mean correcting prices on work that has quietly become unprofitable. It might mean enforcing scope, changing payment terms, reducing unnecessary product variation, or becoming more selective about the customers the company pursues.

It may mean walking away from revenue that looks good in a sales report but consumes too much labor, cash, or management attention.

None of that is as exciting as announcing a major growth target.

But a company that learns how to earn better returns from the revenue it already has is usually in a much stronger position to grow later.

Because once the economics work, additional revenue has something worthwhile to magnify.

So, if the business isn’t producing the profit or cash you expected, don’t assume the first answer is more sales.

First determine whether you have a revenue problem, a margin problem, or a cash-conversion problem.

Then ask what another dollar of revenue will require—and what it will actually leave behind.

You may discover that the business doesn’t need more revenue nearly as much as it needs better revenue.

And that’s something entrepreneurs should know.

[OUTRO MUSIC BEGINS]

That's all for this episode. Thanks for spending a few minutes with me.

If this episode made you think about your own business a little differently, send it to another owner or business leader who might appreciate it.

You can find the show notes and more episodes at TESKPod.com.

This is Chip Schweiger, reminding you that if you always do what you've always done, you'll always get what you've always gotten. I look forward to seeing ya next time.