Have you ever wondered where your revenue is actually going? You’re making sales, but somehow, your profit isn’t growing the way you expected. Here’s the CFO truth: revenue is only part of the picture. Understanding your expenses — really understanding them, not just glancing at a bank balance — is the missing piece that determines whether your business stays profitable as it grows.

In this post, I’ll break down three essential things every coach and business owner needs to know about expenses:

1️⃣ What they are and how they actually impact your bottom line

2️⃣ The difference between direct costs and operating costs

3️⃣ How to track and analyze your expenses to maintain healthy profit margins

Let’s take control of your numbers once and for all.

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Quick Takeaways

• Revenue growth does not automatically mean profit growth — expenses have to be managed on purpose, not just watched.
• Direct costs and operating costs behave differently, and lumping them together hides where your margin is actually being lost.
• For most service-based businesses, direct costs above 30% of revenue is a signal to reassess pricing or process efficiency.
• Expenses often creep up quietly — year-over-year comparison is what actually catches it.
• A clear spending strategy turns expenses into a growth tool instead of a silent profit drain.

Know What Your Expenses Are — And Why They Matter

One of the most common questions I hear from business owners is: “How much should I be spending on different areas of my business?”

Whether it’s your team, professional development, software, or general operational costs, it’s easy to let expenses creep up as revenue grows — often without a clear plan behind the increase. That creep is where profit quietly disappears.

I once worked with a service provider who saw a major increase in sales. Excited by the growth, they expanded their team, leased a company vehicle, and took on more overhead. When revenue dipped the following year, their expenses stayed flat — or even increased slightly — which resulted in far lower profit and much tighter cash flow than the year before.

The takeaway: revenue growth does not automatically mean profit growth. Without deliberate expense management, your profit can actually shrink even as your business scales.

Related reading: 3 Things You Need to Know About Your Business Revenue

Direct Costs vs. Operating Costs: Why You Need to Separate Them

When thinking about expenses, it helps to categorize them into two distinct types — because they behave very differently in your financials, and treating them the same hides exactly where your margin is being lost.

Direct Costs (Cost of Goods Sold)

These are expenses directly tied to delivering your product or service. Examples include:

• Payment processing fees
• Subcontractor wages
• Shipping costs for physical products

Operating Costs

These are ongoing expenses that exist whether or not you make a single sale. Examples include:

• Software subscriptions
• Rent and utilities
• Business licenses and fees

Why does the distinction matter? Because high direct costs reduce your gross profit margin directly — leaving you with less money to cover operating expenses and, ultimately, less available to pay yourself.

A simple formula to track this:

Revenue – Direct Costs = Gross Profit

💡 Tip: For service-based businesses, direct costs generally shouldn’t exceed 30% of revenue. If they do, it’s time to assess whether your pricing is too low, or whether there are inefficiencies in your delivery process that are quietly inflating cost.

Related reading: Profit vs. Cash Flow vs. Cash on Hand: What Every CEO Needs to Know

Curious how your own direct costs and operating costs compare to these benchmarks? Take the free Lovely Financials Margin Assessment — it takes less than 3 minutes and shows you exactly where your profit stands.

Track Your Expenses Year Over Year to Spot Trends

One of the biggest mistakes business owners make is ignoring how expenses rise over time. Even if revenue increases, if expenses grow at a faster rate, your profit margin shrinks — quietly, month over month, until it shows up as a real problem.

A few questions worth asking on a regular cadence:

• Compare your expenses this year to last year. Are they rising faster than revenue?
• Look at expense categories individually. Which ones saw the biggest increase?
• Evaluate your spending honestly. Are these investments actually driving growth, or have they become unnecessary?

I recently helped a client cut over $300 per month in unnecessary software subscriptions, just by reviewing their expenses and asking one simple question: “Is this actually supporting my business growth?”

How to Stay on Top of Expenses and Protect Your Profit

• Set clear spending guidelines (for example, team expenses should generally stay within 20–25% of revenue)
• Negotiate better rates for software, credit card interest, and recurring services
• Track expenses regularly, not just at tax time, to catch creep before it compounds
• Reinvest strategically in high-ROI activities like coaching, consulting, or legal protections — rather than expenses that simply feel productive

Final Thoughts: Expenses Don’t Have to Be Overwhelming

When you have a clear strategy in place, expenses become a tool for growth rather than a silent drain on your profit. The key is intentionality — knowing exactly where your money is going, and making sure every expense actually aligns with your business goals.

Take Action: Compare your year-over-year or quarter-over-quarter expenses and identify the trends. Did your costs increase or decrease? Are they aligned with your revenue growth? Let me know in the comments, or DM me on Instagram at @harmoniouswealth.

Want a clearer, faster read on where your margin actually stands? Take the free Lovely Financials Margin Assessment — it takes less than 3 minutes.

If you’re ready for a full expense and cash flow strategy built around your specific numbers, that’s exactly what our Profit Planning Intensive is built for.