Revenue Is a Vanity Metric: The 3 Numbers That Actually Matter | FBO2BO EP4

Welcome to From Burnout to Bought Out, the podcast for business owners who are tired of being the hardest working, lowest paid employee in their own company. I’m Jon, joined as always by Ryan, and together we’ve spent years inside owner-run businesses helping founders go from running on fumes to running a business that actually runs without them.

Every episode, we break down the real problems nobody talks about—the burnout, the bottlenecks, the blind spots—and show you what it looks like to build a business that’s profitable, sellable, and doesn’t need you in the building every day to survive. Whether you’re grinding through a plateau, thinking about an exit, or just trying to take a vacation without your phone blowing up, you’re in the right place.

Let’s get into it.

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Ryan: What’s going on? Just admiring my revenue, Jon.

Jon: Well, that’s very vain of you.

Ryan: Well, revenue is all that matters in life, Jon.

Jon: Wow. I’ve heard that. That might ruffle some feathers a little bit. I’ve heard you say that revenue is a vanity metric.

Ryan: Yes, Jon, it is. And you know why? You want to know why, Jon?

Jon: I have to say yes.

Ryan: Profit. You do. You know, you have no choice—because profit is what we really care about.

Revenue is what we brag about to the boys, to the girls, at the club, during networking events. “Oh, how much do you do?” “Five million.” “Oh yeah, I did $7 million last year in my sleep.” And then everyone’s popping champagne bottles: “Oh my god, we hit the revenue number!”

I mean, your job is to drive sales, right? To get people interested in the product or service. And here we go.

But here’s the kicker, Jon. It’s a lie.

You know what keeps people up at 3:17 a.m. in the dark of the kitchen? It’s not their $6 million in revenue. It’s their negative bank balance. It’s their lack of profitability.

So, if your $3 million gorgeous revenue company pays you less than the regional manager job that you quit, you’re building the world’s biggest identity crisis—except you get a logo.

Jon: Makes total sense. Yeah. But you’re right. Everybody’s out there saying, “Oh, I run a $10 million organization, $15 million organization.” I think it’s difficult to say, “We make a million dollars profit” or “We make $10,000 profit.” Nobody really has that as part of the conversation.

So when somebody comes over to you and says, “I’ve got a $50 million organization,” what’s the first question you ask?

Ryan: What did you take home?

Jon: Right.

Ryan: If profit was good, they’d lead with that. I mean, “I did $10 million in sales” versus “I did $1.5 million EBITDA”—I’d be bragging about the $1.5 million EBITDA, especially on $10 million in sales.

And it’s funny because people will talk about their ROAS too, right? “Hey, I did 847% ROAS on that thing.” But then you pull up the bank account and there’s $20,000 in there, and it hasn’t grown for a decade.

Jon: Oh, hell yeah.

Ryan: It’s not because of owner distributions. It’s because they just don’t have it.

Jon: That ROAS is a marketer’s dream. It’s fantastic to be able to throw these ROAS numbers out, but it doesn’t mean you’re actually making money. You can spend a small marketing budget, turn that over three or four times, and it looks like you’ve got a bunch of success—but the marketing program or the fees may take it away entirely.

So I’m an expert on ROAS and leading yourself down a blind cul-de-sac.

Why do owners get so fixated with topline growth? What’s the psychology behind it?

Ryan: I think it’s because revenue is a socially acceptable number.

We’re always measuring in one way or another—whether it’s on the playground as a 5-year-old or in the locker room later on. It’s keeping up with the Joneses. “Oh, they did $10 million, we’ve got to do $12, we’ve got to do $15.” It’s grow at all costs.

And I think that’s the problem. There is starting to be a switch now where people are looking at EBITDA or SDE because they’re looking at small businesses as an investment, not just a job with overhead.

Not all growth is the same, right? But revenue is the one that gives everybody the status. That’s why there are Ferraris out there, and then someone has to buy a McLaren—because we’re having a measuring contest on the wrong things.

Revenue mostly goes up in most companies. But what’s really underneath? Are the costs outpacing the revenue? Is it falling to the bottom line?

In fact, this is going to shock a lot of people: I don’t even care if it falls to the bottom line. What I care about is: Is it in the bank account, and is the bank account growing?

Because that’s what we talked about in the previous episode—cash versus accounting. It all intertwines. We all want to grow, but everyone forgets the other part: We want to grow profitably.

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Jon: Right. I mean, these are the margins. A lot of people don’t even know their margins, right? And we talked about that in the cash flow episode—accrual-based accounting makes it look like you’re doing great, but you’ve got no cash in the bank.

So a lot of owners don’t know their margins for the business overall, much less by product line or service line. How dangerous is that?

Ryan: Extremely.

When we look at one group of numbers and say, “Hey, we’re making money”—but let’s say we have three restaurants. We lump them all together and the restaurants as a whole are making money. But when we look at Restaurant 1, 2, and 3:

• Two is the bellcow, the cash cow—”Oh man, that just prints money.”
• One is doing okay.
• Three is bringing down the entire ship.

When you start dissecting things, you get a clearer vision.

So when we look at marketing, for example, we want to do CAC by channel. Jon, what does CAC by channel mean?

Jon: CAC by channel sounds like a kitten choking on its food.

CAC by channel is Customer Acquisition Cost. And understanding it by channel means that when you’re spending marketing dollars on a specific channel, you know full well what the cost is for the customer you acquire using that channel. It allows you to make decisions that give you line of sight to whether that channel works for you or not.

If you don’t break it down like that, you don’t know whether you’re spending your marketing dollars on the right thing.

Ryan: Same philosophy applied to business.

And it’s the same thing with owners, too. They like to lump things together or they like to say—with a sense of pride—”I’m really busy. I’m working 80 hours a week. I’m working all the time. I had to miss my kid’s bar mitzvah.”

But busy means busy. Profitable means profitable.

I actually had a discussion with an owner the other day where they said, “Well, look at this guy over here—he’s never even in the business. Yeah, his business makes money, but you’ve got to be there, hardworking, doing those things.”

And the first thing I asked him was: Is that not the dream? Is this not why you bought your business—to be like that guy? To be like that lady? So you can actually be with your family, be present, not be at the kitchen table late at night or early in the morning worrying if you’re going to make payroll?

Just because you worked 15 hours that day doesn’t mean you deserve to make money. The world doesn’t work that way.

That’s why you’ve got to have good data. And one of those things is CAC by channel—or looking at each one of your business units or service lines or product lines and seeing which ones are carrying the company and which ones are not.

Jon: That gives you the detail. That’s where you know where to focus your attention.

Ryan: Exactly.

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Jon: Yeah, then you can make some decisions. We talked about the self-fulfilling prophecy and that need—you just mentioned it again—”Hey, I’ve got to work hard. This is my business. I’ve got to give 110%. I’ve got to be up all night.”

But it doesn’t need to be that way. And I think that’s where chasing revenue comes in. You’ve got to go after the big dollars. You’ve got to go win all the contracts. You’re not making a conscious decision about what business you can actually carry.

Clearly, being able to break things down by line item, product, whatever marketing function you’re running—that makes a bunch of sense for making decisions.

But what challenges do businesses get into if all they ever do is chase topline growth?

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Ryan: So, it’s a vicious cycle. We’ve got to add revenue, then we need to add headcount, add overhead. The floor rises, and then we need more revenue to survive.

It’s called the growth trap.

It’s a vicious cycle. This is a very close cousin to the treadmill. That was an Episode 1 callback, Jon.

Jon: It was. Yeah.

Ryan: People say I don’t pay attention, but I remember Episode 1.

Jon: It’s our podcast, man. You should remember Episode 1. Let’s test our two listeners.

Ryan: Businesses usually get bigger. But what happens is the owners—they get smaller. The owner pay gets smaller.

Let’s take an example. $1.5 million business. Four people. Great take-home pay. They’re at the kids’ games. They know every client.

And then they’re like, “You know what? Let’s grow. I’m going to chase that topline. Sally over here is doing $2 million, and I’m going to do $4 million.”

So we go up. We add revenue. Now we’re at $4 million instead of $1.5 million. And then we add headcount. Well, we’re not at four people anymore. We’re at 22 people.

If you do the math, the math is way off on this one, folks. But it’s for a reason.

And what turns out is that me as the owner, I’m making less money. I’m working 80 hours a week now. And I’m not seeing Timmy’s ball game and Joanie’s gymnastics.

I’ve got HR problems—because guess what? Employees are a problem. No matter how great the employees are, there’s always something. There’s laws. There’s all kinds of stuff. You’ve got to have the best employees in the world, but HR is just a headache.

Spouse is saying, “So, when exactly are we retiring?” And it’s really not a question. It’s a warning shot in disguise.

You can’t scale chaos. You’re just getting bigger chaos when you’re following the growth trap.

You built a monster, and guess what? Tomorrow it’ll be hungry again.

Jon: Constantly just back onto the treadmill again.

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Jon: So if revenue isn’t this number that we should be chasing, what should owners be obsessing over instead?

Ryan: There are three numbers you really should be looking at. Get out a sticky note—or in your case, Jon, under the American flag tattoo, I want you to tattoo these three things.

1. Owner’s Compensation

In the Profit First episode, we have a dedicated bank account, and all we’re doing is funding it before expenses. You’ve got to pay yourself first. You are your own best employee. You’ve got to pay yourself like it.

And if that is the cost of not growing profitably, then that’s fine. Let’s go back to that $1.5 million with four people, seeing the kids play. That’s worth a lot in terms of not growing unprofitably.

Stop taking the leftovers and start being the first one in line to eat.

2. Margin by Service Line

Have your P&L—your profit and loss statement, your income statement, whatever you want to call it—broken down by service line. Have the costs by service line, payroll by service line. And you can start seeing what’s making you money and what’s not making you money.

Then you can make informed decisions on what you’re going to do. If you want to work your 8 hours, fantastic. Fix the problem or get rid of the problem. Grow the cash cow or don’t grow the cash cow. But at least you can make that decision.

Jon: Just quickly—if it’s not services, maybe it’s a client reconciliation. Margin by client as well. Then you can make some decisions about which clients to keep.

Ryan: Right. If I’ve got 15 clients, I need to cost them out, see which ones I’m making money on and which ones I’m not.

And it’s always an 80/20 rule. I’m going to make 80% of my profits on 20% of my services, products, or clients. The other 80%—do I really want to deal with that headache or not? Can I live without it? Chances are you can.

3. Days Cash on Hand

If revenue stops, how many days before you get ugly phone calls? How many days does it take for the sheriff to evict you? That’s the big thing you need to know.

Most owners—I read somewhere like nine out of ten people in the United States are living paycheck to paycheck. There’s no savings. And that’s the American way—we’re not promoting savings. We’re promoting “buy the next car, buy the next house.” And it’s all from marketers, right? Spend, spend, spend.

Most owners are at 7 to 15 days. They can last one to two weeks without getting a spot of revenue. One bad news cycle and you’re done for.

What we need to be driving for—and this will take time—is 60 to 90 days in cash reserves. Two to three months.

Apple has hundreds of billions of dollars in cash waiting to swoop down. They don’t need to sell another iPhone before shuttering their business for years. But if their shareholders see they reported poorly on one quarter, “Oh my god, the sky is falling, the world is ending!”

Revenue tells you how loud the engine is. These three things tell you if there’s gas in your tank and how full or half-empty you are.

Jon: Yeah, that’s gold. That’s gold right there.

So to our listeners—I just want to emphasize this—to Mom and Dad, when you launch your business, you want to measure those three things.

Wake up, Dad. Yeah, you’ve lulled him to sleep again, Ryan.

1. Owner’s comp – How much money are you putting in the bank that you have available on a regular basis? Pay yourself first.
2. Margin by service, product, or client – Whatever is most relevant for your business.
3. Days cash on hand – You should know this number.

And if you can’t get those numbers, you should be talking to your financial people to understand how to calculate them and what you need to do to get them.

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Jon: On revenue though—let’s connect this. Let’s connect revenue to exit. If an owner is thinking about selling, does a buyer care about revenue? Isn’t that the most impressive thing a potential buyer looks at?

Ryan: Oh, absolutely not.

Buyers—a sophisticated buyer—will look at revenue like a home inspector does. “Is it something? Is it not something?”

They really want to know what the SDE is, what the profit foundation is, EBITDA. Yes, you have a sale, but how much of it falls to the bottom line? How much is the owner fairly compensating themselves or not? Are they skimping corners because they have to—because they’ve chased the growth trap?

Everyone wants to see revenue going up in a linear fashion from left to right. But they also want to see that profitability is increasing per revenue dollar. As you’re getting there, you’re getting more efficient. You’re getting better at what you’re providing. You’re getting to provide it cheaper.

That’s what they really care about. They’re going to look at your quality of earnings and they’re going to take a forensic look at it and say: Is the cash flow real? Does it survive after this person leaves? Is there concentration risk for vendors, suppliers?

The pandemic exposed a lot of concentration risk with vendors in the supply chain and how fragile it is.

A sophisticated buyer will look at that and say, “All right, let’s taste test this.” And if it passes the smell test, if it’s real—if you do have sales growth, but it’s profitable sales growth—they’ll be willing to pay far more than if you just have sales going up and you’re not making any money out of it.

Jon: Yeah. Buyers don’t generally want to buy a job. They want to buy cash. They’re looking at what’s the future earnings from this business and what can I do with it. That’s the only reason you’re going to invest your hard-earned money to buy that company.

So the seller—as you work on your business—really needs to be thinking about how to get this into a position to sell cash to somebody versus selling a job to somebody. There’s a big difference. And that’s not revenue-based. That’s EBITDA, SDE. Those are the most important numbers.

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Jon: So if somebody listening has just realized they’ve been chasing the wrong number—that this isn’t all about revenue—what’s the first thing they should do on Monday?

Ryan: They need to pull up their real P&L. Not the one that’s assembled 60 days late. They need to look at the one that’s current, ready to go.

One exercise you could do: If I fired the bottom 20% of my revenue, how would it go? Would I make more money?

And I’m going to tell you something right now: The answer is yes.

I’ve asked a dozen owners this, and the answer has never been no. You’re going to make more money. It’s the 80/20 rule.

And if you can identify that—I mean, if your cousin Ira is part of that 80%, then keep your cousin Ira. But there’s no need to grow unprofitably. Sometimes it’s even better to get smaller on purpose.

What if we flip that scenario? I did $4 million in revenue and I had 22 people. I’m not paying myself. I’m working 80 hours a week. I’m not seeing my kids. The spouse wants to divorce me because it’s just not working out. It’s now a job where I’m making less than minimum wage.

But what if I took a step back, fired 80% of my customers that give me only 20% of my bottom revenue, went back to $1.5 million in sales? I have four people now. I’m making more money than ever, and I’m seeing little Sally’s play.

What’s a better life?

And guess what? That $1.5 million with four people is worth more than the $4 million with 22 people that’s not making any money.

Jon: Yeah. It’s a more efficient business, more attractive to people.

Ryan: Exactly.

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Jon: Let me ask one more question as well, because I think part of that culture of going for revenue is just that willingness to take on more, more, and more. How exactly does that break the operations? What’s the impact on the business that really ends up being so negative?

Ryan: A lot of people operate in silos, Jon.

Sales should always put pressure on operations, and operations should put pressure on sales. So when we go out and get an awesome marketing team like yours, and they’re getting us a ton of sales—funnel coming in, top-notch, world-class…

Jon: Owner’s a bit of a jerk, but you know.

Ryan: Yeah. He’s too polite to say it though.

So if we get a bunch of sales coming in and then operations has to keep up, we have to add the headcount, add the fixed cost, and we get that vicious growth trap again.

But what if we add what I call the Spiderweb Effect?

Sales and operations are in the same room. They’re in cahoots on how to grow reasonably and profitably, with finance looking in, having those discussions with the owners. Everyone is working in tandem.

So we have not only growth from a sales perspective, but our margins expand, our cash builds, we don’t make desperate decisions. Our operations are stabilized because we know what’s coming—not only now through the funnel, but what’s coming in the future—so we can actually grow in a very planned way.

And our teams stop burning out.

And buyers will say, “I want that company. They know how to do this. They know how to scale up profitably.”

Not only did their margins improve—and it went right into their bank account—but they did it in a way that is repeatable and continues to snowball up and take more market share, piece by piece, dollar by dollar, in a way that their competitors are left in awe.

Jon: It’s organized, it’s staged, it’s considered, and it’s thoughtful across the entire organization.

Staged growth. Being able to plan those transition points. Knowing when to say yes to certain types of business. Knowing when to say no to other types of business—or any business whatsoever. Having it all planned and mapped out when the organization works together. That’s how it should work.

Ryan: You got it.

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Jon: Awesome. Okay, so let’s wrap it up. Ryan, what is the takeaway from this episode?

Ryan: So… my profits are beautiful.

Jon: So handsome.

Ryan: I could care less about my revenue, right?

Profits. Owner’s pay. Run the business on what remains.

Prune the bottom 20%. Get the Spiderweb Effect going so you’re not operating in silos—you’re operating in tandem.

Get smaller on purpose. But get richer on purpose.

Jon: Awesome. That’s a wrap. Thanks, Ryan.

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That’ll do it for this episode of From Burnt Out to Bought Out. If anything we talked about today hit home, do us a favor—share this episode with another owner who needs to hear it. And if you’re sitting there thinking, “They’re talking about me,” good. That’s the first step.

Head to the show notes and book a free triage call with our team. No pitch, no pressure, just a real conversation about where you are and what’s possible.

You can also find us on LinkedIn and at wearesynergysolutions.com. New episodes drop every week.

Until next time, stop running the treadmill and start building something you can actually sell.