How to Set a Revenue Goal Based on Your Profit Goal
Moshe Amsel is the host of the Profit with Law Podcast, the founder of the Law Firm Growth summit, a certified Profit First Professional, and a business coach to many law firms. He’s also a dad of 6, a paramedic, and a former accountant and IT professional.
We truly couldn’t ask for a better guest to talk about revenues, financial numbers, and goals related to finances for law firms. Throughout our discussion on Law Firm Next, Moshe explained all about the problem with goal setting and just leaving it at that. He helped us understand the importance of having a system for making sure we’re on track with our goals and course-correcting.
When you’re building a business, you have to know that 100% of the money coming in won’t come to you. Your business’ revenue does not equal your take-home profit. Understanding this will change, in your mind, what it will take to reach your profit goal.
So, how do we reverse engineer the amount we need to set as our revenue goal to get our goal take-home pay?
1. Identify what you want to take home
Start with your basic needs. Then, figure out what the next things you want to start saving for are. You’ll layer all of this in as you progress in your firm.
2. Take the profit matrix into consideration
This profit matrix applies to any business in any industry. As a starting point, review the following:
In a $0-$250k revenue business, the owner should be taking home 55%. In a $250k-$500k revenue business, the owner should be taking home 45%. In a $500k-$1M revenue business, the owner should be taking home 35%. In a $1M or more revenue business, the owner should be taking home 20%. This all includes the amount you’ll pay in taxes as well.
3. Translate this into a revenue goal
Figuring out your revenue goal based on the profit matrix requires you to do some reverse math. For example, in a $250k revenue firm, you as the owner will take home 55%. Figure out your profit needs, divide that number by .55, and you’ll arrive at your revenue goal.
It will take trial and error to figure this out with the matrix. As you go, you may need to adjust your revenue goal based on your personal needs.
Investing vs. Spending
Another important aspect of all of this is figuring out where to invest your revenue as you’re building and developing your business. When approaching expenses in your business, look at it as investing instead of spending.
When lawyers go to open a practice, they often walk into it with the mindset of doing everything themselves. However, the reality is that you might be a great attorney but you aren’t a great marketer, bookkeeper, receptionist, and salesman.
You need to look at your practice differently, like a doctor opening an office. That doctor would have to invest a lot of money upfront to open their office. You will have to do the same. However, that investment will pay off over time because it will produce a revenue stream.
If you’re not investing in your firm, you’re going about it wrong. You’re not approaching it from a business owner’s lens. On the other hand, if you start leveraging other people’s time, you can really start to grow and scale.
If you want to learn more about figuring out your revenue and profit goals, check out Episode 030: Financial 101: Understanding Revenue vs. Profit – What Are Your Margins? (Part 1/2).