Today I welcome Greg Crabtree, author of Simple Numbers, Straight Talk, Big Profits, to dive deep into the most common sense financial strategies that I have ever used. Greg shares his straightforward approach to accounting, including focusing on gross margin instead of just revenue, and why achieving a labor efficiency ratio of 2:1 is critical for success. We discuss practical tips on how to measure marketing effectiveness, set profitability targets, and why understanding your financial reports is the key to sustainable growth.
One of the standout takeaways from our conversation is Greg’s advice on profitability and growth strategy. He emphasizes that “sales are for show, but profits are for dough”, and explains how businesses should calculate and monitor gross margins to ensure they're meeting performance goals. Greg also touches on the importance of return on invested capital and why law firms, particularly those in personal injury, need to carefully balance labor and marketing spend to ensure consistent growth. Whether you're running a small firm or looking to scale, Greg’s insights on simple, actionable financial principles are a game-changer for any business owner. Know your numbers!
Key Topics
03:00 How Greg’s firm specializes in helping entrepreneurs and business owners understand their financials.
03:20 The Focus of his practice, which is now a special consulting unit of a top 20 US accounting firm.
03:42 The shift from principles-based to rules-based accounting due to regulatory failures.
04:00 Dislike for traditional accounting and his desire to make it easier.
04:35 The importance of making accounting intuitive and understandable for business owners.
05:04 Studying client data to uncover plain truths about business performance.
06:14 The importance of gross margin over revenue, defining it as revenue minus cost of goods sold.
06:32 The need for $2 of gross margin for every dollar of labor in a business.
07:10 Importance of setting targets and measuring performance against these targets.
08:45 The concept of return on invested capital and its significance in business performance.
10:36 The concept of labor efficiency and the need to maintain a two-to-one gross margin target.
12:01 Pricing strategy and ensuring effective pricing to avoid running out of business.
14:34 The importance of billing quickly and often to speed up cash flow.
16:11 The need for optimized profitability and opportunistic growth.
17:46 The challenges of personal injury firms with less predictable case values.
18:12 The concept of rolling 36-month revenue and labor cost for personal injury firms.
19:03 The importance of marketing effectiveness and the need to try different strategies if current ones are not working.
20:01 Insights on building a stable caseload and the importance of patiently building a base of cases.
22:28 The future of paid search and the role of AI in search results.
22:44 Skepticism about the future of paid search and the importance of standing out in a crowded market.
23:28 Google's efforts to improve AI search results and the importance of providing the best answers to users.
25:09 The balance between free content and paid content in search results.
27:21 The importance of branding and consistency in marketing for law firms.
27:46 The need for firms to pick a unique value proposition and deliver it consistently across all marketing efforts.
28:04 The concept of launch capital and the importance of making significant investments in marketing.
30:14 The need for a 50% return rate on marketing investments to ensure profitability.
34:21 The difference between traditional accounting and the Simple Numbers approach.
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