Entrepreneurs have the valuable gift of being able to think outside of box and the ability to generate ideas that seem like a great way to duplicate their revenues. However, for most, focus and execution rarely follow.
When I speak to business owners about my business coaching services, I almost always hear the same story.
“We offer 5 different services and we are an all-in-one solution,” and this is fine. However, it should be the end result, not the immediate focus.
I like to call these individual services (or offerings) clusters. They should all be treated separately as little mini businesses within your company.
I like to follow up with this question, “Ok, how much revenue are you generating for each cluster?” and I always hear the same thing, “Oh, well service ABC is doing OK, but we don’t really focus on service XYZ.”
My advice is to start with one cluster at a time. Offering 5 services and mastering none is the business equivalent of death.
In my opinion, before you move on to the next cluster, it should be generating at least $10,000 per month revenue.
So how do you work towards this goal?
Let me use the example of a marketing agency I have recently bought out called WebLeasing.com.au.
Currently WebLeasing.com.au offer 3 services. However, only 2 services are pitched on the website as the second service has not yet met the $10,000 per month cluster requirement.
One of those services is a Local SEO service. Continuing on, we will use this service as the case study to determine how to reach the $10,000 per month target.
First, let’s do the numbers. WebLeasing sell the SEO packages for $295 per month, so to hit the $10,000 mark they need 34 clients ($295 x 34 = $10,030).
When we look at the profit margins, I always like to work off the following formula as a guide.
If it is a service that, as the business owner, requires your involvement (i.e., my business coaching services) the profit margins should be:
10% GST + 2% Transaction Fee (Credit Card Merchant) + 8% allowable support costs = 80% profit margin
If the service works without the owner’s involvement (as in the case of the SEO service with WebLeasing), the profit margins should be:
10% GST + 2% Transaction Fee (Credit Card Merchant) + 38% allowable support costs = 50% profit margin
While this may seem like half your revenue is gone, the difference is the SEO service can be scaled to service an unlimited amount of clients, whereas the service in which the owner involvement is high is limited to how many hours there are in the day.
So, using the SEO example here as a breakdown of the profit margins for this service:
Base Price: $295.00
Cost of Labour: $108.00
Credit Card Fee: $5.47
Total Profit = $154.71 (52.44% profit margin)
As you can see, this service is priced just above the allowable 50% profit margins for a service without the need for owner involvement.
So the next question is, how do you create a service that requires no owner involvement?
First of all, you need to know your numbers. You need to understand what it costs to service a job/contract/package. Once you understand your costs and your profit margins are above 50%, the next step is to create an onboarding process.
An onboarding process is a step-by-step guide that describes the workflow from the time a client agrees to sign up to your service to the time the job is complete.
Here is the onboarding process for WebLeasing’s SEO service.
As you will see there a few defining features in this on-boarding process.
Each step is basically broken down into three parts.
- The Step description
- Who is responsible in your team to execute
- The Link to System
The “Link to System” goes into deeper detail of the step.
Here is an example showing Step 6 from the onboarding process.
By creating step-by-step systems for each step in the on-boarding process, you are essentially creating a “dummies guide to running your company.”
What is the benefit of this in the long term?
First of all, this makes it much easier to scale. If you have trainable business systems like the above, when you have a new employee come on board, they are already familiar with your standards and procedures.
Secondly, if you decide to sell your business, the systems increase the value that you sell at, for multiple reasons.
- If the owner involvement is minimal for each service to operate, this means the owner can spend less time in the business. It’s always easier to sell a business that requires 10 hours per week than 40 hours per week. Think about it.
- For the same reason people buy franchises. The risk is lowered. A franchise is essentially selling you a product or service range with a system behind it and a proven method of how to sell it. You’re offering the same thing.
So what happens when you hit the $10,000 per month mark?
If you hit the $10,000 mark, then you are doing something right. This doesn’t mean stop, but let the system run the business.
If you decide you would like to offer another cluster (service) then go ahead. Repeat the above process.
If you can add 1 new cluster every 6 months to your business at a 50% profit margin, you will be adding an additional $120,000 each year.
Five years down the track, that turns into $600,000 a year.
Just remember, as the old saying goes, “Which came first, the chicken or the egg?” In business the system always comes first!
Creating business systems is my passion, it’s how I have helped numerous business owners grow their businesses. If you would like to discuss how I might be able to help grow your business, feel free to book in a complimentary business coaching session at the link below:
I currently have two spots available, on a Tuesday Morning & Tuesday Afternoon.
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