Hey Boss!
Let's say your business made $20,000 last month.
This month, it made $30,000. That's a 50% increase in revenue. Pretty exciting, right?
But what if your expenses jumped from $15,000 to $27,000 during that same period? Suddenly, despite generating $10,000 more in revenue, you're actually making $2,000 less in profit.
And that's the tricky thing about revenue growth. It can make your business look healthier than it actually is.
Today, we're breaking down 3 profitability problems that revenue growth can hide, and what you can do to make sure your business is actually becoming more profitable as it grows.
“Small business marketing is spending three hours making an Instagram post that gets 7 likes, four of which are from your family.”
3 profitability problems that revenue growth can hide
More revenue is great. But what really matters is how much of that revenue your business gets to keep.
1: Your Customer Acquisition Costs Are Increasing
Bringing in more customers doesn't necessarily mean your marketing is becoming more effective.
In fact, as you scale, you might find yourself spending increasingly more to acquire each new customer.
What to do:
Calculate your customer acquisition cost (CAC) for each marketing channel. Divide your total acquisition spending by the number of new customers acquired through that channel.
Compare your CAC against the gross profit each customer generates. This helps you understand whether acquiring additional customers is financially worthwhile.
Identify which channels deliver the most profitable customers. Shift more of your marketing budget toward channels that generate stronger returns rather than simply more leads.
2: Your Cost of Delivering Services Is Growing Faster Than Revenue
More customers often mean more work.
But if every new customer requires additional staff, software, support, or administrative time, your margins can quickly shrink.
What to do:
Calculate the total cost of delivering each product or service. Include labor, software, transaction fees, and other expenses directly associated with delivery.
Identify which activities become more expensive as customer volume increases. Look for repetitive tasks, manual processes, and operational bottlenecks.
Standardize or automate the most time-consuming parts of your delivery process. Reducing the cost of serving each customer allows revenue to grow without expenses increasing at the same rate.
3: Your Most Popular Offers Aren't Your Most Profitable
Your best-selling product or service isn't necessarily the one making you the most money.
Sometimes, the offers generating the most revenue also require the most resources, support, and fulfillment costs.
What to do:
Calculate the gross profit margin for each product or service you sell. This reveals which offers generate the most profit after direct delivery costs.
Compare profitability against sales volume. Identify offers that generate impressive revenue but contribute relatively little profit.
Adjust your pricing, packaging, or promotional priorities. Focus on growing the offers that generate the strongest combination of customer demand and profitability.
Speed it up with AI
AI can help you uncover profitability problems hiding behind your revenue numbers:
Upload your monthly revenue and expense data to AI and ask it to identify whether your profit margins are improving or declining.
Provide your marketing spending and customer acquisition numbers, then ask AI to calculate CAC by channel and highlight inefficient spending.
Give AI a breakdown of your products, pricing, and delivery costs to identify which offers generate the strongest margins.
Ask AI to model different growth scenarios showing how changes in acquisition costs, pricing, and delivery expenses would affect your profitability.
Straight from the feed
Knowing your natural strengths can help you choose a role where your energy and abilities are most likely to compound.
Handy resources
Here are some ways to uncover hidden profitability problems:
Catching you up on the latest
Quick recap
Revenue growth is exciting.
More customers, more sales, and bigger numbers can make it feel like everything is moving in the right direction.
But those numbers don't tell the whole story.
If your acquisition costs are rising, your delivery expenses are increasing, or your most popular offers have weak margins, your business might actually be becoming less profitable as it grows.
That's why it's important to look beyond revenue and understand what's happening to your bottom line.
Because the goal isn't just to make more money. It's to keep more of the money you make.
As always, if you need help with anything, just reply to this email :)
~ Justin and the BLAB team
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