This is the second article in our Strategic Business Intelligence Series
Read Part 1: Strategic Business Intelligence: Why Experience Beats Theory and
Part 3 Strategic Implementation:
Turning Frameworks Into Market Authority for the complete frameworks.
At a Glance: Every practice runs on five numbers
The five lines are revenue, cost of delivery, cost of finding clients, cost of running the business, and profit. For an independent practice the healthy ranges are delivery 40–60%, finding clients 20–35%, running the business 5–15%, and profit 15–25%, each measured against revenue.
The calculator further down works out your four percentages and points at the line to look at first.
The five lines and their ranges
- Revenue: 100% — the baseline
- Cost of delivery: 40–60%
- Finding clients: 20–35%
- Running the business: 5–15%
- Profit: 15–25%
The five lines
I learned to read a business from a piece of paper with five lines drawn on it. The paper belonged to my long-term mentor, the late Denis Hitchens, and it has guided every pricing and spending decision I've made in the more than twenty years since.
Every business runs on the same five flows: what comes in, what it costs to deliver, what it costs to find clients, what it costs to run, and what's left over.
Pay yourself for delivery first. Profit is the surplus after that, the money that builds reserves and gives you room to decline the wrong clients.
The healthy ranges
The five lines stop being vague once you attach a range to each one.
- Revenue is the baseline, always 100 per cent. The other four lines are measured against it.
- Cost of delivery sits between 40 and 60 per cent. Your time on client work, plus whatever you need to buy to deliver it. In a practice that trades time for money, this is the biggest line and it should be.
- Cost of finding clients sits between 20 and 35 per cent. Website, content, networking, proposals, the unpaid conversations that might become work.
- Running the business sits between 5 and 15 per cent. Accounting, insurance, software, legal, the subscriptions you need to operate.
- Profit sits between 15 and 25 per cent. Below 15 and the practice can't build the reserves that make it resilient. Above 25 is fine too, but 15 to 25 is where most independent practices settle and stay.
These are working ranges for a practice that trades time for money, not accounting rules. If your numbers sit inside them, the practice is doing what it should. If one line is outside, that line is the thing to work on.
How to pull the numbers from your own P&L
Open your profit and loss and sort each cost into one of three lines.
Delivery: your time on the job, contractors, materials. Finding clients: website, content, networking, proposals. Running: accounting, insurance, software, legal, memberships.
Pay yourself for the delivery work before you read the profit line. Profit is what's left after that. If the bottom line on your P&L still has your drawings in it, don't use that figure, separate the two first.
Tax, interest, and anything that doesn't clearly belong to one of the three: leave them out. The four percentages won't add neatly to 100, and they don't need to.
Then divide each line by revenue to get your percentages. The arithmetic takes fifteen minutes. Do it once a month so you know the range your own practice runs in.
Check your numbers with the calculator
If you'd rather not do the division yourself, the calculator below does it. Enter your monthly revenue and the three cost lines, and it works out your percentages and points at the line to look at first.
Five-Line Framework Calculator
Strategic Business Intelligence Tool
Enter Your Monthly Business Numbers
Where it came from
I've run a marketing services company for more than twenty years, and Denis's five lines have guided every pricing and spending decision I've made in that time. They sit inside a bigger picture I've written about before: the three legs every experienced business operator watches at once, the market, the operations, and the capital. The five lines are the practical tool for the capital leg. If you want the full picture, read The Business Triad: a mental model for building sustainable independent practice.
Frequently asked questions
What are the healthy ranges in the five-line framework?
For an independent services practice:
- cost of delivery 40–60%,
- cost of finding clients 20–35%,
- cost of running the business 5–15%, and
- profit 15–25%
All measured against revenue. Revenue is the 100% baseline.
How is profit different from my salary?
Your salary is part of your cost of delivery, you pay yourself for the client work. Profit is the surplus left after that, and it's what builds reserves and gives you room to decline work that doesn't fit. If your P&L's profit line still includes your drawings, separate the two before you read the percentages.
How do I work out my five-line percentages?
Open your profit and loss, sort each cost into delivery, finding clients, or running the business, then divide each line by revenue. Or use the calculator on this page, which does the arithmetic for you.
Where did the five-line framework come from?
Nigel Rawlins learned it from his long-term mentor, the late Denis Hitchens, and has used it for more than twenty years running a marketing services company. It forms the capital leg of the Business Triad mental model written about across the Wisepreneurs site.
Next steps
Run your own numbers through the five lines this month, or use the calculator above. If you want the fuller picture, the Five-Line Business Assessment measures what you understand about each line and gives you a starting point.
I work with two or three clients at a time as their marketing partner. The starting point is the Positioning and Practice Audit; details at wisepreneurs.com.au/marketing-partnership.