Why Your Revenue Growth Means Nothing (Without These Numbers)

Revenue is the most talked about metric in business, but the least valuable in determining success. Below, I'll walk you through some examples and why revenue by itself can be deceptive and not a good indicator for business health.

The reason I find this conversation so important is entrepreneurs will ignore their numbers if they have good revenue. They associate it to "money in their bank account" and operate blind to many demands on their cash-flow. Most companies don't fail because they have a bad idea or lack of customers. They fail because they don't understand how to manage their cash-flow.

In my use-cases, two consultants each made $500,000 last year. Same revenue, right? Wrong. Consultant A has $450,000 in cash and growing. Consultant B is $50,000 in debt and struggling. Revenue doesn't tell you if your business is healthy. These numbers do.

The Revenue Trap

Revenue is what you invoice. Cash is what you can spend. The gap between them can kill your business.

New Consultant Reality:

• Invoiced $500,000 in projects

• Spent $350,000 acquiring and delivering those projects

• Payment delays average 45 days

• Cash in bank: $25,000

Established Consultant Reality:

• Invoiced $500,000 in projects

• Spent $150,000 acquiring and delivering those projects

• Payment terms average 15 days (reputation gets faster pay)

• Cash in bank: $200,000

Same revenue. Completely different businesses.

What Actually Matters

1. Cash Conversion Cycle

How long from spending money to collecting it? People who understand cash-flow will negotiate payment terms. It's not a matter of holding money to make daily interest. It's the reality that cash is your life-line to operating your business and even if you have a profitable business, if you don't manage your cash-flow, you'll have to close.

New Consultant:

• Spends $1,200 to get client (Month 1)

• Delivers 3-month project (Months 2-4)

• Gets paid 45 days after completion (Month 6)

• Total cycle: 5 months

Established Consultant:

• Spends $300 to get client (Month 1)

• Delivers 3-month project (Months 2-4)

• Gets paid 15 days after completion (Month 5)

• Total cycle: 4 months

The established consultant gets their money back a full month faster.

As you can see from the above, both are profitable, but both have expenses ahead of collecting revenue and need to operate until being paid.

2. Revenue Quality

Not all revenue is created equal. As we shared in our last post (The 3 Metrics That Predict Your Business Future), the cost to acquire new customers can not be ignored. The ability to turn existing customers into repeat business makes your company significantly more valuable.

Project Revenue vs. Recurring Revenue:

New Consultant Revenue Mix:

• 80% one-time projects

• 20% repeat clients

• Every month starts at zero

Established Consultant Revenue Mix:

• 40% one-time projects

• 60% repeat clients and referrals

• Predictable baseline every month

Recurring revenue from repeat clients is worth 3-5x more than project revenue because there's no acquisition cost.

3. Profit Per Dollar of Revenue

New Consultant:

• Revenue: $500,000

• Total costs: $350,000 (70% for acquisition and delivery)

• Profit: $150,000

• Profit margin: 30%

Established Consultant:

• Revenue: $500,000

• Total costs: $150,000 (30% for acquisition and delivery)

• Profit: $350,000

• Profit margin: 70%

The established consultant makes 2.3x more profit on the same revenue.

Online Store Reality Check

E-commerce has its own revenue traps that can kill profitable businesses.

The Inventory Timing Trap:

The Setup:

• Monthly sales target: $150,000 (needed to cover all costs and generate $5K cash flow)

• Inventory purchased: $200,000 worth (at 60% COGS = $120,000 cost)

Month 1 - Everything Goes Well:

• Hit $150,000 in sales

  • Sold $90,000 worth of inventory (at cost)

• Remaining inventory: $50,000 retail value ($30,000 cost)

• Looks healthy, right?

The Hidden Problem - Resupply Time:

• Best-selling products sold out first

• Need to reorder $90,000 worth of popular inventory

• Supplier lead time: 7 days

• Must pay supplier upfront: $90,000

Month 2 - The Trap Springs:

• Still have $50,000 in inventory, but it's the slow-moving stuff

• Missing your best sellers for 7 days

• Sales drop to $80,000 (can't sell what you don't have)

• Still paying interest on borrowed money for inventory that's stuck in transit

• Cash flow turns negative

The Real Killer:

• You have inventory, but not the RIGHT inventory

• 7-day resupply gap on popular items hurts momentum

• Customers go to competitors who have stock

• You're paying borrowing costs on money tied up in slow-moving inventory

• Fast-moving inventory requires the most frequent cash outlays

Why This Destroys Cash Flow:

• Popular products = frequent reorders = constant cash outflow

• Slow products = tie up cash but don't generate sales velocity

• Timing mismatch between when you pay suppliers and when products arrive

• Miss sales opportunities while paying interest on empty shelves

The Lesson: Even with profitable margins, inventory timing can kill cash flow. You need cash reserves not just for growth, but for the constant cycle of restocking your best sellers.

Better Model:

• Lower COGS (50% or less) mean you recapture cash faster

• Faster inventory turns reduce borrowing time

• Supplier payment terms (Net 30) reduce upfront cash needs

The Numbers That Predict Success

Instead of tracking revenue growth, track these:

1. Operating Cash Flow

Money left after all expenses, before financing.

Target: Positive and growing every quarter

2. Days Sales Outstanding

How long customers take to pay you.

Consulting target: 30 days or less

E-commerce target: Immediate (credit card) to 15 days

3. Gross Profit Trend

Is profit margin improving as you grow?

New businesses: Often declining (learning curve)

Established businesses: Should be improving (efficiency gains)

4. Revenue Concentration

What percentage comes from your top 3 customers?

Danger zone: More than 60%

Healthy: Less than 40%

What This Means for You

If you're just starting:

• Focus on cash flow over revenue growth

• Get paid faster (require deposits, shorter terms)

• Track every dollar in and out

If you're established:

• Build recurring revenue streams

• Improve profit margins through efficiency

• Diversify your customer base

Revenue gets the headlines. Cash flow pays the bills.