January 13, 2017

Back To Basics -> Revenue Is A Vanity Metric

As software developers, we tend to discount our time.

And by “discount” I mean “forget about”

Let’s talk about revenue vs profit real quick...

Revenue — the amount of money you receive from your clients.

Profit — your revenue minus your cost.

Mkay, but what is the “cost” in this case?

If you’re a typical lone-wolf software developer, your costs might seem insubstantial:

A laptop
An internet connection
Copious amounts of coffee

That’s about it, right?

Wrong.

You forgot your biggest expense: YOUR TIME!

Think of it like this:

What if you continued to do all the biz dev, marketing, sales, admin, and project management, but PAID SOMEONE ELSE to do your dev work?

Even if your developer was the most amazing ever, and there was no communication latency, and nothing was lost in translation, this developer would certainly be your biggest project expense.

In other words, YOUR DEV WOULD EAT ALMOST ALL OF YOUR PROFITS!

(sorry for all the caps)

Now...

When you are chief, cook, and bottle washer, you tend to forget about counting your dev time as a COST.

But that’s EXACTLY what it is.

I don’t care how much you love coding... every hour you spend doing dev for a client, you are NOT spending an hour:

Building tools to make your job easier
Marketing your business
Creating new products
Contributing to open source
Playing Unreal Tournament with me :)
Hanging out with your friends
Having cocktails with your spouse
Playing with your kids
Writing your memoirs
Finger knitting (yes, it’s a thing)
etc...

Here’s the money quote:

Development work is GREAT for revenue, but SUCKS for profitability.

Revenue is a vanity metric. What you want is profitability.

—J