Growth strategy and foundations / Lesson S06

Why sales growth is not the same as business growth

Sales growth measures how much more you sell. Business growth is what you can sustain, which depends on contribution, cash timing and dependable delivery. If sales rise but margins shrink, your team works later and customers wait longer, I'd question whether the business is really moving forward.

By the end, you should be able to

  • Calculate incremental contribution rather than celebrate revenue alone
  • Tell the difference between profit from cash timing
  • Find conditions where selling more is the right decision

Follow the sale beyond the invoice

A sale creates obligations. Someone must deliver, support the customer, resolve errors and collect payment. Those obligations may fall in different weeks and on different teams. Looking only at sales makes their cost easy to miss.

Use a simple distinction: revenue is the value of sales, contribution is revenue less the variable or directly attributable costs you define, and operating profit also accounts for overheads and other relevant costs. Be explicit about your cost definition. Do not compare a contribution figure with another business's net profit as if they were equivalent.

Worked example (illustrative): record sales, weaker economics

A business completes 50 jobs at $1,000 each. Defined direct cost is $600 per job. Revenue is $50,000 and contribution is $20,000 before overheads.

It wins 20 additional jobs at a discounted $900. Because capacity is tight, direct cost on these jobs is $800 each. The additional work creates $18,000 revenue but only $2,000 contribution before extra administration, marketing and overheads. Total revenue rises to $68,000, a 36% increase. Contribution rises to $22,000, a 10% increase before those additional costs.

Neither percentage alone decides whether to accept the work. Perhaps the orders create a useful relationship or utilise otherwise idle capacity. Perhaps they displace better work. Write the rationale rather than silently assuming that more revenue means more value.

Cash can move in the opposite direction

If staff and suppliers must be paid before the customer pays, growth may increase the cash needed to deliver. Profit and cash flow answer different questions. A cash-flow forecast should reflect when money actually moves.

In the example, assume the 20 additional jobs require their $16,000 direct cost to be paid before the $18,000 customer payments arrive. Even though the jobs show positive contribution, the business needs to fund that timing gap. This is illustrative arithmetic, not a recommendation about borrowing or a diagnosis of financial distress.

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