It never ceases to amaze me the number of professional services firms that refer to their revenue as cost. I’m a Chartered Accountant, although I like to think I’m a bit unusual for that stereotype, so I understand the difference between revenue and costs. Do you? In school, students studying any form of a business subject learn that revenue is different to cost. Nothing changes throughout university, professional studies, and the real world. So why do professionals call revenue costs?
Lawyers bill their clients for costs. By law they must enter into Costs Agreements with clients. They have cost committees to determine what they should bill their clients or they might get their file costed. Professional firms have used time costing systems to work out what they bill clients. And most alarmingly, professionals make statements to clients like “the job cost more than what I originally thought so I need to increase my costs to you“. I’ve also heard statements like “the job cost me $6,500 but I could only bill my client $5,000 so I lost $1,500 on the job”. What a load of rubbish. You only make a loss when your expenses (costs) are more than your revenue. If your labour cost represented 35% of the value of time spent on the job, or $2,275, then the gross profit you made on the job was $2,725 (55%) instead of $4,225 (65%) if you had charged the client $6,500. In both cases you made a profit not a loss. Your revenue was more than your cost. Pretty simple? Apparently!
The point I’m trying to make here is the price conscious attitude of professionals, and therefore their ability to increase revenue is inhibited every single day by the language they use to describe their revenue. It’s revenue, not cost.
I’m a firm believer in what you think determines how you feel which in turn dictates how you behave.
If you want to grow the revenue in your professional firm, start first by getting your language right. Calling your revenue cost, either externally to your clients, or internally in your business will impact on the perception and therefore the behaviour of you, your team and your clients. Just stop for a moment and think about what you must do to improve profitability…… You must control your costs and increase your revenue. By referring to revenue as costs, your behaviour will naturally be restrictive because your brain is wired to interpret the word cost in this way. By referring to revenue as cost you are simply confusing yourself which changes your behaviour.
Here’s a challenge for you, change your language from cost to sales and think of the different behaviour that this mindset produces. Despite what your view on sales is, the process of signing up a client to engage you to work with them is part of a sales process. If that’s too much of a stretch, just change your language from cost to revenue and see what happens to behaviour. Revenue makes you feel good, doesn’t it?