Driving Business Revenue: Can Every Role Do It?

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The Business You Really Want | Business Revenue

Are you hesitating to hire support staff because they will not directly generate business revenue? This mindset could be the very thing holding you back from sustainable growth. In this episode, co-hosts Gwen Bortner and Tonya Kubo tackle the common misconception that every team member needs to be a revenue generator. They discuss how to achieve balance between a revenue center and a cost center, as well as the right time to hire specific roles to maintain a well-rounded team.

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Driving Business Revenue: Can Every Role Do It?

Cost In Revenue Center

Do you feel guilty about hiring support staff because they don’t directly bring in revenue? You’re going to learn why this mindset might actually be holding your business back from sustainable growth. I’m Tonya Kubo, back again with business operations expert extraordinaire Gwen Bortner. We are talking about a super tricky aspect of business growth. It’s something that I call the tension between cost centers and revenue centers, which, if that’s new terminology for you, don’t worry, we got you. Gwen, I want to start us off by giving my definition of the terms, and then I’m going to turn it over to you. I don’t know, bestow us all with brilliance and stuff. Sound good?

No pressure.

No pressure at all. I had never heard of the term cost center and revenue center until I was working at a university, and the university had this, I want to say longstanding, but it wasn’t an everyday conversation, discussion that kept bubbling up over the years related to their childcare center. A lot of universities have childcare centers. It’s a great employee, I don’t know, recruitment tool. It’s a great employee retention tool because finding childcare is hard. Every now and then, say every 3 to 5 years, it would come up on whether the university should keep managing the childcare center or whether they should outsource the management of it. It always came down to money because the childcare center wasn’t making money. In many cases, it wasn’t breaking even.

It wasn’t until they got a director of operations in who spoke about childcare centers. He said, “Any university you go to, there’s cost centers and there’s revenue centers. There are aspects of operations that are going to always run in the red. They’re never going to be self-sustaining. You know that, and you’re okay with that. You build subsidies around it.” In his specific example, he was like, “Catering, conventions, events, and such tend to be revenue centers at universities, where the profit margin is really high. It brings in way more revenue than it costs to operate. A lot of times, if you put the two side by side, you’ll find that your catering revenue more than accounts for any gap in profit on the cost center side of the childcare center.”

That’s how he felt that they balanced each other out. He made this great case for how not every department or division needs to run in the black. That was my first exposure to it. I was just like, okay. What that did in my head as an entrepreneur is make me go, there are going to be times in my business where I’m using profit from one thing to cover the cost of another thing. Because not every line item on the budget is going to completely balance out. How do you view the difference, or tell me where I’m wrong, because sometimes I’m wrong.

You’re not wrong at all. Typically, something like a cost center versus a revenue center, or income center, depending on the terms that people use, generally is going to be for a much larger organization because we don’t think of our businesses as centers when we have less than twenty people, which is who I anticipate the bulk of our listeners are.

Fair enough.

We probably have some corporate people that listen in just because they find it interesting. Our focus really is that smaller business owner. The concept is still the same. Early on, we get very focused on all the things that are bringing in income, revenue, whatever term you want to use. Rightly so, because you can’t keep operating unless you have some other form of subsidy coming in. Whether it be, I’ve got a really nice retirement account that I’m taking money out of, and I just put it in the business, and it lets me do the thing I love. Great for you, but we’re actually talking about sustainable businesses that are businesses that anybody would want to run, not just the folks who can financially support a business that’s running in the red.

That revenue center is where everyone focuses early on. Often what will happen then is when it comes time to put something out that you can’t tie immediately, directly to the revenue, it gets very uncomfortable because what it feels like, because it’s actually what is true, is that cost is taking money out of your pocket as the owner. It’s not quite the same when you’re running a university because we don’t have an owner in the same way.

When you put something out that you cannot tie immediately with your revenue, it gets very uncomfortable. Share on X

I think that’s where the tension comes in. Just making up random numbers, and not saying that any business would be working this way, it could be, I have no idea, but I’m just making up random numbers. If you’ve got a $100,000 business and you don’t have anybody else working in it, there’s still some costs, but you’re probably putting a big chunk of that $100,000 annual income into your pocket. Like I said, you’ve got other costs, you’ve got SaaS subscriptions and some other things and whatnot. There’s a big chunk that’s probably going into your pocket or benefiting you directly in some way.

As soon as you hire someone who is not creating more revenue to pay for themselves, typically that first person is a VA, often what we hear is that they’re probably not creating direct revenue. They may be freeing you up to be able to create more revenue, but usually that doesn’t happen right away either. Even in the best circumstances, that’s usually a 3- to 6-month out kind of thing where that investment of that person is allowing you to grow the business in a different way.

It’s like, I’m paying them X amount. I’m just going to pick a random number. I don’t care what it really is, how little or much you use them. Let’s say I’m paying them $500 a month to do work. All of a sudden, it’s like, that’s $6,000 that’s not going into my pocket. That gets very disheartening because it’s like 10% or 20% of what I was taking out of the business. I’m not getting that money, so where does it pay off? The first thing we think is like, they need to be making sure that I’m making that money, which often they can. This is one of the reasons I’ve made the statement many times of, maybe the first person you hire isn’t a VA.

When Is The Right Time To Hire A VA

We’ve talked about that on the show before. We’ve talked about that on LinkedIn and in various locations. What I would love for you to help us understand, because I think you explain it really well, is why a VA isn’t necessarily the best first hire. I would love to hear you explain it in the frame here of this cost center, revenue center concept.

The problem with hiring a VA, and it’s not that anyone who’s listened to the show for more than a few minutes doesn’t know that I am not about this being the absolute right answer. Lots of right answers. This may or may not be the right answer for you, but a lot of times, when we hire a VA, it is truly a cost center. What we don’t realize is how much that cost is taking away from our pay as usually a solopreneur when we’re pretty early in that stage and saying, is that really the best use of this money at this time? Part of it is because, first off, getting a VA up to speed usually is a multi-month piece. It’s going to be a cost. You’re not going to see benefit right away. You’re just not, unless you happen to stumble across the unicorn, which will happen, but it’s rare.

When you hire a VA, it is a cost center. We do not realize how much it takes away from our pay. Share on X

If you’re a big systems person and you already have ironclad, buttoned-up SOPs, checklists, the whole nine yards, maybe you can get somebody up to speed in three months. I haven’t seen any VA be able to show up today and be at full speed tomorrow.

Even with people who actually have really good systems.

That’s what I’m saying. It’s like the fastest I’ve seen somebody get onboarded with the best systems and the best onboarding process has been three months.

I would say the same. That’s one aspect. There is going to be some runway that they need to get up to speed. That’s one of the issues with it. We often aren’t prepared for that runway, that this is going to cost us money. Truly cost us money. We’re not going to really see the benefit. The other piece of it that’s tied to that is folks always are telling you, get this low-level stuff off your plate, whatever it is, your calendar, your email, whatever you define as the low-level stuff.

My question always is, if you’re not doing that, are those hours actually exchanged for true income-generating hours? When someone is at 50% capacity, hiring a VA is probably not a good idea because they’re trading part of their other 50%, which isn’t making money, for a cost that is taking money. That whole, let’s hire a VA, is like, you need to be closer to 80% to 90% capacity so that giving up some of that time is actually being filled with more income-creating time. I think the issue is, when is it appropriate to allocate the cost center versus the revenue center?

You asked a really good question. How about you answer it?

You’re welcome.

I was like, I had a question, but this one’s better. You should do that.

Cost Center Vs Revenue Center

The reality of that is really looking at how full are you and what are you trading off because if you’re trading off your time that’s not being filled with revenue, that time, for practical purposes, costs you zero. Even if you’re hiring a really inexpensive VA, you’re still paying them something. Whether it’s $10 an hour or $20 an hour or $30, it doesn’t matter. You’re still paying them something. Not only is it not zero, it’s more. It’s costing you more. Back to that 3-to-6-month onboarding time probably is still also taking your chunk of time as well. You aren’t really getting your time back, and it’s costing you money.

That’s the place. Often when folks are really getting to capacity, the first person I actually have them hire is someone who can take on some of the capacity, which is a contrary thought for most people. It’s like, that money’s not in my pocket. You do this for me in some cases as well, where I hire you as a subcontractor consultant working at what I’m going to call an equivalent level. You’ve got different skills, and often that’s the beauty of bringing you in, but I’m paying you for that kind of work. I don’t make as much money on it, but I’m also not paying you the full rate either, which you know, because that’s part of the business model that you just can’t do that. I’m still making some money, but I got that full time back. I got that full hour back to do something else.

Often in our case, it’s because I’m on vacation or attending another event. There’s lots of other things that are happening. It’s not necessarily because I’m at 100%, but maybe I am 100% this week. I’m trading some time for money, and I’m trading at a much higher rate than I would for a VA, but I’m still making some money on it. I’m being very cautious about where that is so that you’re also a revenue center.

Looking at those two places and saying, when does that make sense? It does not currently, where I am in my business model, make sense to bring you on as a revenue center all the time because I’m not at 100% all the time. But we were just talking about it yesterday, that we can see that happening relatively soon. It was like, how do we offboard? It was like, there’s these things that I can do. You were saying this, I can do, and it would make sense to do that, to bring you in as a revenue center. But because of our working relationship, at some points you’re also a cost center, and I’m okay with both. I understand where the two pieces are, and deciding which one makes sense at any given point in time is the bigger picture. If you’ve only been doing revenue center type things, that cost center piece gets very scary.

Expanding A Business

I feel like we’ve done a good job of talking about the balance of a revenue center versus a cost center for the solopreneur. I appreciate that we’ve done that because my heart there is with the solopreneur. I’ve made a bad first hire before. Not that the hire I made was bad. It’s just I didn’t know what I didn’t know at the time, and I made the wrong decision for the business at that given time. I think, however, the problem that I anticipate many of our listeners encountering is that they’re not a solopreneur. They’ve already got, say, a team of three, and they’re looking at expanding. It’s hard because you do have to be very specific. Everybody has to earn their right at the table when it’s a delightfully tiny team of three.

As you start to expand to 4 to 5 to 6 to 7 is where I think you are bringing on one role that might have to shift your thinking. Where everybody else had to earn their right at the table in terms of the revenue or the revenue that they freed up, this next hire, I’m specifically thinking of support people, I’m thinking of operations directors, where a lot of times there’s efficiencies that are cost savings, but they’re hard to identify. Help me understand that. Let’s go to the scenario where we’ve got a team of three and we’re scaling up to five. What does that look like?

This is where we’re actually putting in some management layer. When I say that, I know at least half of our audience went, whoa, because they probably became an entrepreneur because they didn’t want that management layer.

They didn’t want people. They became an entrepreneur because they didn’t want people, and now they have people, right?

Yeah, and that’s also part of the reason why I ask the questions I ask of my clients early on. If they really didn’t want people, let’s make sure we design the business so you really don’t have to have very many. When they say, I want a $10 million business, but I don’t want any people, it’s, I’d love to help you. I have no idea how to do that.

If entrepreneurs do not want people, they have to make sure they design the business to not have many people in the first place. Share on X

Could probably get them to $2.5 million, though.

I could easily get them to early sevens, but I’m not sure I can get them to eight-figure numbers.

I’m there with you. Eight figures is a whole different ball game.

It’s a whole different ball game. That is part of the thing, there’s somebody in there who actually is creating efficiency, but the efficiency isn’t so easy to track one-to-one. Their hour actually saved an hour over here, or their process saved these other pieces, because it can be valuable in lots of different ways. It’s not quite as one-to-one or one-to-possibly-many, but in a particular area.

I’m thinking of one of my clients who has a relatively new operations director. They’ve been there for a bit. The things that she’s bringing in are she’s helping identify HR issues and dealing with those, which are across multiple departments. She’s also actually seeing how much are the actual costs of the service that they’re providing so that she can say, we need to make sure that we’re managing our pricing properly so that we’re staying profitable from that standpoint. She’s also looking at developing systems and consistent behaviors because her entrepreneur, like most entrepreneurs, is highly creative and visionary. Lots and lots of, we just do it the best way every time. It’s like, the best way every time is actually the same way every time.

There’s the customer experience pieces, the customer getting a more consistent service or product, which does affect revenue but is hard to tell sometimes because often when you lose a customer, what they say is the reason that they left and the actual reason that they left aren’t necessarily aligned. I don’t want to say you pissed me off, or you did this thing, and it was just annoying enough times that I said I was done. Not like I’m actually mad, but it’s just not worth my time and effort. All of those things actually are part of the revenue piece, but it’s really hard to tie it to the revenue piece. Her job looks like only a cost.

The Business You Really Want | Business Revenue

I’m also thinking, so the same would be true, I think anybody who’s running an agency, regardless of how many people are in their agency, at some point will have to hire somebody who manages some aspect of the clients. Their whole job is going to be making sure that we do what we say we’re going to do to all of our clients. While you and me would look at that person and go, that person is somebody who is driving revenue, I don’t think it would look like that to anybody else who wanted to itemize salaries.

What are they actually doing? We’re not billing the client for their time, or we’re not billing the client for all of their time. I think that’s the challenge, particularly with smaller organizations, and in my world, smaller organizations is probably ten-ish people, maybe twenty, but in that ten-ish or a little bit under range, often a person who is a cost center also is a revenue center. What people get focused on is how can I make it more revenue-based? Using your agency example, which I love, we might bill for part of their time as customer management or program management, or however you want to call it. We may bill for part of that time. There’s still a whole lot of back-end work that they have to do that probably really isn’t billable, but going back to your very original example, the overall profitability should be covering that expense.

People will know, if they know much about me at all, that I’m going to talk about profit first here, because that’s part of the OpEx expense that you’re expected to have to allocate. There are some expenses that go with it. Although it’s different, it also is not different than paying for a user license for a particular software as a service. It’s part of the expense. You don’t pass that through to your client because you know that that has to be done, but there are always going to be some operational expenses.

Going back to what I was saying early, understanding, do you have the profitability, and are you willing to sacrifice some portion of the profitability for a period of time? Being able to figure out, are things actually getting better? Using the agency example again, when we actually start getting them help, are we seeing that our direct support people in the agency are actually working faster? Are they being more efficient? Are we still able to charge the same amount, but we actually aren’t having to pay our direct person quite as much time because they’re still getting the same result?

Something I know you and I’ve talked about many times is that direct service person isn’t having to go back and forth and say, I need this from you, which is an interruption in their day. They’re not being as efficient with all the rest of their work, where you’ve got someone whose job is to do all the interruptive work. You’re smiling, which means you’re thinking about a concept.

As I was listening to you, part of what I was thinking is, I think this is where, in some cases, software as a service can either replace a potential hire or buy you some time before you need to make a hire. For example, I’m thinking of typical VA/EA roles or duties, say like calendaring. You could get a booking tool like Calendly, or Acuity, or whatever. That could delay your need to hire somebody to book your client appointments for you. Just let a client book on your calendar. That would be one way to buy yourself some time. There are some softwares out there that will give you some measure of workflow management that’s automated. I’m a big believer that you still need to appoint somebody to monitor the workflow to make sure it’s doing its job because automations break.

When To Hire For Management Roles

There’s definitely some ways I can hear in what you’re saying to test the waters before humans are involved because there’s a process to onboarding a human, to finding the right human for the job, and onboarding them and getting them up to speed. There’s also a process of determining if they’re not the right fit and transitioning from one human to another human. Software sometimes is a little bit easier to transition between. I’m curious, aside from that point, can you think of some signs in a business that say, it’s time for me to hire a person whose job is more administrative, more behind the scenes than actually front of house, responsible in some way for adding money into the bank account?

The Business You Really Want | Business Revenue

I think there’s a couple signs. The first is how full, what is your capacity? When I’m saying capacity, I actually mean billable capacity. If there’s things that you really truly weren’t having to do, do you have enough waitlist, whatever that looks like, in the wings, that you would fill that up with billable hours? To me, that’s one of the things that you’re going to look for because, like I said, if you’re at 50%, you probably don’t need to be bringing anybody in.

The other often is about quantity of people. If you’ve got a number of employees or subcontractors, or a combination of both, and usually it’s somewhere in the 5-to-10 range, you’re probably, as CEO, managing, spending a lot of time doing management of those people. That’s probably taking time away because, if you’ve got that number of subcontractors, you probably have enough business. You’re probably losing income because of the time that you’re spending doing that. You’re probably not doing your best, highest-level, unique ability, genius-level, whatever term you want to put to it, work. Unless managing people is your genius and is your unique ability that you really love. That’s almost never true with entrepreneurs because it’s generally not what they love. I’m not saying they can’t be, but back to, is it excellence versus actual genius? Those are the couple places that you normally start seeing it.

Managing people is rarely an entrepreneur’s genius. It is generally what they do not love to do. Share on X

There can be other situations, and it can be because the stuff that I really know has to happen, that is day-to-day stuff, I just avoid like the plague. Even if you’re not full, if you’re not getting that done, then you’re probably never going to get full. Sometimes it’s a personality thing, but I think that’s way more rare on the list. People are like, I hate being in an email. I hate doing my calendar. I hate it. It’s like, how much do you really hate it? Do you not ever actually look at your email? It’s, no, I look at it. I feel like I could use my time better. You might, but it’s not like emails are going unanswered for 3 or 4 weeks at a time. If that was the case, you need someone in there that’s actually managing that for you.

Building A Balanced Team Structure

I have a feeling I know the answer to this, but I’m going to ask it anyway. What I really want is a formula. I’m not going to lie, but I’m going to ask for some strategies that a business owner of any size, but let’s just say 3 to 10 employees or 3 to 10 team members, strategies that a business owner could use to maybe build out a balanced team structure.

That’s going to be another context matters.

I was like, because you know what I want you to say is for every five, bring on one. I know you’re not going to say that, but I want you to say that, Gwen.

I’m not going to say that because it really does, context matters. It has a lot to do with your business model. It has a lot to do with the product or service that you’re offering. It has a lot to do with the type and level of people that you’re bringing in. Are you bringing in folks that are newer in their career path? Are you bringing in folks that are more experienced in their career path? All of those things matter.

I do think, over time, you can be watching and saying, is the person that I bring in that’s really more of a cost center, as opposed to a revenue center person, am I actually seeing a change in my revenue? If you are, without any other change, then they probably actually are making a positive difference in your revenue. I will say there’s a couple of books that actually talk about this to some degree. I’m going to list out three.

If you are not seeing changes in your revenue after hiring some people, they might be making a positive difference. Share on X

Hold on. You have to say them slowly because I have to write them down for the show notes.

First is the The 3.3 Rule: The New Workday Standard of Creating More by Working Less, and I can’t tell you who the author is.

It’s okay, I’ll look it up. It’ll be in the show notes, listeners.

The second is Simple Numbers, Straight Talk, Big Profits!: 4 Keys to Unlock Your Business Potential. The third book is All In: How Great Leaders Build Unstoppable Teams.

I think you gave me more here.

All In: How Great Leaders Build Unstoppable Teams is Mike Michalowicz. The middle book is Greg Crabtree, and like I said, the first one, I can’t remember the author and I can’t see it from where I’m standing. If anyone’s watching, they’re going to see me keep looking over to, like, my bookshelf, which I can’t see.

I wrote down The 3.3 Rule: The New Workday Standard of Creating More by Working Less is one book, Simple Numbers, Straight Talk, Big Profits!: 4 Keys to Unlock Your Business Potential is one book, and then All In: How Great Leaders Build Unstoppable Teams is the third. I was like, is that a subhead? What is that?

They’re all looking at it a little bit differently, but all of them, there are elements where they’re looking at hiring people and making sure that it’s actually a good financial hire.

That’s good. In the show notes, I’m going to put a little plug for the Small Biz Book Club, since we’re talking about books, because that’s where we get together and talk about books like this every single month.

It is.

If you’re just listening and don’t like to look at show notes, because I’ve heard some listeners are like that, it’s SmallBizBookClub.com. Very easy to find. Gwen, we have to stop.

That’s my answer. My answer is, I’m not going to give you an answer.

Episode Wrap-up

I equally love and hate that about you, just so we’re clear. I’m glad we can still be friends, despite my mixed feelings on not getting a concrete answer that I can write in stone and live with and cuddle up with for the rest of my life. Listeners, we have been talking about why not every role in your business needs to drive revenue. In fact, if you want to build a sustainable team structure, you’ve got to come to terms with the fact that not every function in your business can even possibly be a revenue center. Just by the very nature, some will be cost centers, some will be revenue centers. Obviously, we all want more revenue than we have costs. That’s what makes profit. That’s what makes real businesses, but it is a balance.

Sometimes that manifests, like we were talking about in support roles, project management roles at agencies. It’s the person who coordinates all the work of the agency. Those are some easy places. We’ve given you some tips of how to know if you’re at the point where you need to be looking at hiring a person where their whole job isn’t necessarily tied to revenue.

If you’re facing this kind of dilemma in your business, I would say, from me, from Gwen, my first recommendation is breathe. It’s okay. We all get to this bridge. We all have to walk across it one way or the other. The second thing is to really look at your current team structure. Take a look, go back and listen to the beginning of the episode if you need to, but look at your billable capacity. Look at the number of people, is there stuff that needs to be getting done that just isn’t, and it’s getting in the way of your success.

That’s as concrete as it gets. We want to thank you for listening and want to let you know that we have something special that we are doing. It’s going to be starting in 2025. If you’re listening to this at some point in time in 2025 or into the future, it’s already there. If you go to EverydayEffectiveness.com/impact, we have an opportunity for you to engage in our simplest form of accountability with both me and Gwen. Be looking at the show notes for those details, and we will see you next time.

 

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