*This is a sneak peak at the first chapter of our new book: SCALE: How freelancers, consultants and single person micro-businesses can scale their business and grow profit*
Growth comes from recurring revenue
Growing businesses are allowed to exist because they generate recurring revenue. It’s as simple as that. If you want your business to grow – you need recurring revenue.
Recurring revenue is a specific type of income that not all businesses can create. It’s not necessarily related to being a product, or service or a craft. It’s about how your customers use your product and how you sell them.
For example, a car manufacturer makes a sale and it’s a large lump sum of income. That’s a one-off sale and chances are that same customer isn’t going to buy again anytime soon. Also, with the manufacturing costs and staff costs, that one off sale probably doesn’t provide much profit.
Manufacturers realised that recurring revenue comes from repeat customers. So servicing, maintenance and check-ups are how most garages and retailers generate recurring revenue.
However, that can only grow with staff and space. If you had 1000 people ask for servicing today, chances are they’d have to wait or you wouldn’t be able to service them at all.
So we also need a scalable product. Things we can sell that can always keep up with demand.
When it comes to your consulting or coaching business. Or if you build websites or one-off solutions for customers, you’re selling the car at the moment.
The job of this book, is to get you to a scalable position with your business. Often as entrepreneurs, we’re trapped in a cycle of project-based income and then months of nothing.
Growth comes from recurring revenue, sold with scalable products and services.
You can either work more hours, or charge more money
When your business needs to generate more income, you can be left with limited choices as a solo, micro or small business.
You have two options. Either increase your fees per project, or increase the number of projects you take on.
Both of these are double-edged swords. In one respect, it makes sense and it’s easy to increase your fees. If you’re working per hour, just increase the number of hours you work.
However, how easy is it to increase your fees? Surely there’s a saturation point? When it comes to adding more hours to your working day, aren’t we trying to work less? Besides, there are only so many hours in the day you can work. You still need to eat, sleep and relax.
This is the fallacy that so many micro and small businesses fall into. That there are only 2 options when it comes to generating more income and revenue.
Surely the answer is just “get more customers”, right?
Your best option is a third choice that hardly any small business goes for. The option to generate recurring and scalable income.
Sure, we could move customers onto retainers and monthly packages. Coaching and consulting is a great way to build recurring revenue. But it’s not scalable. All we’re doing there is guaranteeing our income, not scaling and growing it.
I want to show you how to SCALE and GROW your income, rather than just securing it (and yes, you can do both).
Your market is bigger than you’re servicing
The first mind-shift you have to get over is that you think your market is small, because you’re only able to service a small area.
It becomes a self-fulfilling prophecy. If you’re only able to work with 10 clients a month, it leads you to think that there are only 10 clients a month out there.
If you’re working on project based income, there is a finite and limited number of clients you can service per month.
When we look at scalable and growth based products and services, our market becomes MASSIVE. It becomes so much larger because we’re able to sell, deliver and interact with so many more clients in the exact same space of time.
Think about one on one coaching. If one person wants to hear you talk, why wouldn’t 100? If you could get 100 people to pay the same amount and be in the same room at the same time, doesn’t that sound more profitable?
There’s a myth that if you scale up the number of people listening, you need to drop your prices. This is not true. If one person is willing to pay, then everyone else who attends can pay that too.
If anything, what you’ll find is a select few people want to pay MORE just for the opportunity to sit one on one with you. I know some coaches who keep bumping up their prices for one on one (because they don’t want to do it) but people still keep offering to buy.
In summary, the people that you’re helping now exist all over the world. There are hundreds of people in the exact same position as your current clients that also need help. You’ve got an opportunity to sit with all of them in the same space of time.
It’s easier to scale now as an entrepreneur than ever before
The beauty of the internet, is that it brings technology, power and community to a laptop.
It’s easier to scale as a one person business than ever before. You have access to all the communities out there who can automate and execute for you.
There are powerful and free cloud apps and software that let you create products and content and easily distribute it to people you’ve never met.
Finally, there is an infinite amount of knowledge available from social groups, search engines and blogs. This gives you the power of all those resources, all that research and all that experience right at your fingertips.
Single person businesses can set up a blog and drive 1000’s of visitors to a page in under a day. We can capture leads and email addresses within minutes and automate every single email that gets sent to customers.
PayPal handles payments and WordPress handles pages, memberships and sales.
Google lets us get in touch with dropship businesses, manufacturers and suppliers. We can ask fulfilment companies to deliver goods while all we have to do is drive traffic and write content.
With emails, Slack, Facebook groups and post comments, you can reach out to an enormous audience and put awesome content in front of them. It’s so exciting to me that we have this huge potential for reach with our content.
We can use simple screen capture and writing apps (Google Docs, PowerPoint, Camtasia) to create content and products that last FOREVER. The beauty of those types of sales are that the supply never runs out.
Is it hard work? Of course it is. But it scales and grows so much faster than any other type of business. Even the best bakeries in the world have a queue of people lining up, who can only be serviced one at a time and assuming there is enough supply.
We’re going to build a business that can scale, serve as many people as it needs and be run with just one or very few employees.
Your options are limited
Well. They seem limited.
Whatever you’ve seen as a large scaled business might seem way out of reach for you. You’re only one person and all the ideas and examples that I’ve given or you’ve seen, just look way too massive.
Amazon is a really bad example of a large, scalable and growth focused business. It has 230,800 employees (https://www.statista.com/statistics/234488/number-of-amazon-employees/) and it well known for “growing rapidly and at pace”.
But it could only do that because it had MILLIONS in funding, investments and financial backing. Jeff Bezos has done an outstanding job turning high-street and shop based retailing on its head. But it’s not the model we’re going to follow.
On the other side, it seems hard to imagine a business outside of the type of service that you’re providing now. For example, if you’re building WordPress sites at the moment, and you love doing that, what on earth could you provide?
This ISN’T a book about creating a business from your hobbies. You could do that if it has a market, scalable product and sales process, but we’re not going to suggest that this is your only option.
It helps to be IN the market you’re servicing, but that’s not a requirement. It definitely helps if you enjoy the product or industry you’re in, but that again is not necessary.
For example, I have a friend who makes around £750 a day selling sports drinks bottles and simple sports leisure equipment. He does this entirely through drop-shipping.
However he started as a sports coach. A personal trainer for amateur athletes, but he could only exchange his time for money. He literally could only book 8 clients a day and it was stifling his growth.
However, as soon as he let go of the control of being the only personal trainer his clients would see (or the idea that he’s the only one they see), he realised he could still help them with physical products, workout plans and therapy guides.
Now his full time business is selling foam rollers, skipping ropes and other inexpensive sports products. He doesn’t design, build or ship them. Amazon (sorry to mention them again) ships and delivers all his products.
Here’s the truth. Your options aren’t at all limited. You’ve got a wealth of potential ahead of you and we’re going to discover exactly how to create a profitable, scalable business using everything you’ve got at the moment.
You need to STOP trading time for money.
Business running costs eat into project profit
I noticed something repeatedly happening throughout my business. My revenue was growing every year, I had the cashflow ledgers to prove it.
But I never seemed to have any more money. I never seemed to grow my profit. All my profit, year in year out remained roughly the same (and it wasn’t great amounts either).
I couldn’t figure out why, even though the projects I was getting were bigger. Even though the budgets were better, I had more customers, a had a small team. It seemed that even though everything else was growing, my profits weren’t.
I kept thinking “I just need one more big client, one more big project, that’ll sort it all out”. But whenever that bigger project and bigger client came in – no change.
At first I always blamed the project. Something happened that made it difficult and that eats into the profit.
Then I started to think that because I was growing, I was having to spend more money on tools and team members. I needed those things to deliver the projects. Which kind of made sense. But then how do I get OUT of that cycle?
If I need more tools and team members to make the same amount of profit, what’s the point in having them at all?
I seemed that no matter how much money I had, the universe seemed to know exactly how much to take away from me.
Here’s what happens. If your business relies on one off projects from customers, no matter how large they are, you’re essentially trading time for money. We hope that as time goes on, the projects get larger and we’re earning more per hour.
Remember when we said you had two options? Work more or charge more? Most people hope they can grow to charge more. But instead of those projects turning into profit, they simply pay for the running costs of the business.
As you grow, it costs more per month to keep the business afloat. The projects do grow in size, but so is the cost of keeping the business alive.
This graph displays what MOST single and micro businesses see in their cash flow/profit. The red line represents the running costs of the business. Tools, staff, subscriptions, rent, overheads, loans etc.
These continue to go up and always will. Even the most frugal of business owners can’t escape necessary costs to the business. They have to invest in order to find the very projects that pay for them.
In grey we have the project income. Each new project with progressively larger and larger budgets. Eventually they reach nice big fat project budgets. But all the profit (the grey spike above the red line) ends up being used during the periods under the red line, to pay for the business costs.
How does this look to you? Recognise it? Well we’re going to change this graph (and it’s easier than you think).
You can only ever trade time for money
“You’ve literally just told me that I shouldn’t be trading time for money Mike” I can hear you say.
Let me ask you a question. Have you ever had a job? I have. It was awful.
I’m going to clearly state this – I AM NOT A COMPANY PERSON.
I don’t enjoy being employed. I don’t enjoy having a manager. I don’t enjoy trading time for money.
But the truth is that there are thousands of “businesses” and “entrepreneurs” who claim to run or own businesses who still trade time for money. The still have jobs, but they have 10 managers instead of 1. And their income isn’t guaranteed.
Here’s what most people do. They set up a website or WordPress business or consultation agency and look for customers. Clients sign up and say they want a project delivered in 2 months and they’ll pay throughout the project.
Even if you’re doing all that right*, you’re still trading your time for money. You’re delivering the project. Building and doing whatever it is the client needs, in exchange for money.
This is a first generation profit business. The concept relies on IGNORING the graph we saw in the previous chapter. Expecting larger contracts to build up, but still relying on you, the owner, delivering the goods.
It fails to answer the first rule of profitable, scalable businesses – do I have to do it or can someone else do it?
Social media businesses
These are a few businesses to name a few, that rely on a “time for money” exchange. Typically, 90% won’t even break even. Most just about afford to stay afloat.
Businesses that DO manage to increase prices, still trade time for money. Their situation doesn’t much change.
A second generation profit business knows that exchanging time for money isn’t profitable. They’ll hire other people to deliver the goods and services that they’re selling.
Some people call this outsourcing, or contracting. It doesn’t really matter what you call it. When you’re so busy that you can’t deliver the work yourself, you need to get others to help you. Even if it’s not the same work you do.
For example, a website designer might get someone to build and develop the site. Someone else to do the social and someone else to provide the SEO. This certainly allows for larger projects to be undertaken.
Typically they’re more profitable as you share the work load, and, providing that you’re all able to communicate, larger projects can be delivered. The problem is that you’re essentially still trading time for money. The scale is larger, but working in a team just splits the revenue between more people.
Although we’ve managed to get other people to do some of the work, we can’t scale it.
This second generation of profitable business can’t answer the second rule of profit. Can it scale? I couldn’t get 1000 orders in today, using this method of outsourced work and still handle it.
Finally, a third generation profit business knows that a truly profitable business can be outsourced, scaled and can be repeated.
Some products or services can’t be automated, processed or repeated with the same results. These are typically very hard to build profit from, as the parameters for the project always shift.
Almost everything can be documented. By this, I mean that whatever you deliver to your clients can usually be documented and written up/recorded as a process. That means other people can execute the actions without you.
Often, when running these exercises with consultants and coaches, they believe that what they’re producing can’t be replicated. To an extent they’re correct, but that simply means they might need to look at other options if they want scalable, profitable products.
In summary, we need to develop products and services that aren’t time for money. They need to be executed and sold without you physically being there or doing the work. They need to be able to get 1000 orders in and still get the same results AND they need to be repeatable so you can train other people to deliver.
*I know of many MANY businesses who design, build, develop and deploy entire websites without receiving a penny first. Then they try to send an invoice. If you’re doing this, stop IMMEDIATELY. Ask for 50% upfront for any work you do.