Do you know how much revenue you need to make to optimise your profit?

Ask your numbers, they will tell you a story.

First off, you need to have a clear understanding of your business’s capacity and revenue potential.

Let’s unpack this a little…

Your firm’s capacity = your revenue potential

How do you know your capacity?
The easiest way to estimate your capacity is to multiply your target billable rate by the number of hours each employee is capable of billing.

Let’s assume that an employee works 46 weeks per year (taking into consideration 4 weeks of annual leave, public holidays, personal leave, etc.).

A normal work week is 38 hours.

This takes us to 1748 hours per annum.

Multiply these hours by your employee’s target billable rate and you will get to your revenue potential.

Also factor in the following:

• You will most probably have different rates per positions
• You as the owner of your business will probably work less IN the business as your job is to work ON your business
• Your admin staff will most likely not have many billable hours

Your total revenue potential is your business’s capacity.

You can also break this down to project level.

What does this mean for your business?

Most businesses operate between 40-60% of their potential. If you’re under that, it means that you are probably not charging enough for your services, or you are over-servicing your clients.

Having a clear picture about your revenue potential will help you heaps with your budgeting. Your aim should be to move your business closer to realising your potential so that you can maximise your profit.

Our example is typically for service-based businesses, for example agencies but it can be tailored to any service-based business.

Let us know if you’d like to find out more on how to prepare your annual budget or how to better understand the story your numbers tell.