I’ve been living abroad for a while, as many people are doing these days. A common topic of discussion among expats is the salary you can earn in a certain country.

It is funny to see people who move to countries like the United Kingdom, the Netherlands or Germany to find not only opportunities but higher salaries. Ask them and probably they’ll probably speak highly of the salaries they earn compared to other countries. Now ask them how much they have to pay for rent, public transportation or even health insurance. They might avoid answering or change the topic all of a sudden.

I have been living in Poland for three years working there in some projects. Despite the fact that the average salary there is much lower compared to other European countries, I managed to save more money in the long term than when I was living in England.

The funny thing is that when I explained people that I could save more money in Poland than in England, few did really understand me. Basically, the cost of living was the explanation. In England I couldn’t afford accommodation just for myself. In Poland I could.

Let’s be honest. When it comes to employment you can make more money in some countries than in others, but you need to manage well your finances. Same in business. Some companies generate more revenue than others, but not necessarily higher profits or at least in relative terms if finances aren’t managed correctly or the nature of the business makes it more complicated or risky.

The cost structure of a company plays a major role here. The same as the cost of living for an individual. The higher the costs to survive in a certain country, the higher the needed salary. The higher the costs, the higher the revenue to generate profits.

Companies usually annouce with pride when they reach a certain sales level. Investors know this, and they know for certain that there are other indicators that measures the risk of the business. If a company, to achieve a certain level of sales, needs a high level of expenditure in operational costs, it won’t probably be attractive to investors, especially if most of those costs are fixed, since they don’t allow the business to react quickly and cut down expenses in times of recession.

To increase wealth you need to increase not only the revenue, but also to reduce costs. It seems obvious, but it is surprising to see how many individuals, companies (and even the government) focus their main strategy in reaching new customers and increasing revenue and less in controlling costs. Eliminating costs that don’t help create wealth must be one of the top priorities in any business. However, don’t get too obsessed with this idea, since you might cut down necessary costs that can have a negative impact in your profits.

The entrepeneur should consider all needed costs to achieve a certain level of sales, and control the relationship between these two variables. This is known as gross profit margin, which is calculated by dividing gross profit and revenue. The higher this indicator is, the higher the efficiency of the business in generating profits.

Going back to our example when living abroad, it is perfectly possible that the rent you pay represents 40% of your salary in the Netherlands, and a 25% in a country like Poland, having the same type of job. Probably, at the end of the month, you’ll have more money in your bank account in the Netherlands, but costs might represent a higher percentage of your salary, which means that if you are not careful, it can also be more risky. This comparative can be applied to businesses, especially when revenue is usually not regular as it happens with payslips and as said before, fixed costs can increase the risk in a business if not managed correctly.

Of course, it depends on every case and business in particular. But in general, higher revenue doesn’t necessarily mean higher profits, more stability or more growth or simply, more cash inflows coming in than out in both absolute and relative terms. Therefore, understanding first the nature of your business in order to make better decisions that don’t compromise your hard work and investments is one of the main priorities.