Hello ,
Bob The Barber
I want to reveal the business basics using a simple but relatable example. Consider a barber, Bob. Armed with his professional tools, a chair, and a shop, Bob offers a service— cutting hair.
His business model is basic but effective:
- Bob has a service (his product) – haircuts.
- He sells his product in his shop.
- He delivers his product, cutting hair in enough volume to earn a living and cover his expenses.
While this is a simple model, it is the basis of all businesses.
For Bob to succeed, he must earn sufficient revenue to cover all his expenses.
Recall the Five-Line Model:
- Revenue from product/service sales (which must exceed costs)
- Cost to make or buy the product/service (your time, including materials and contractors)
- Cost of selling (Marketing, advertising and selling costs)
- Cost of running the business (rent, insurance, utilities, subscriptions and administration) and
- Profit (the remainder after all the above expenses are met)
I want to focus on the first part—revenue as the essential component for Bob or any other business to thrive. Especially so for the self-employed or freelancer.
Bob, the Barber's simple business model, illustrates the fundamental principle of all businesses—to generate revenue that exceeds costs.
Pricing Your Services
Setting your consultation rates is the first step to maximizing revenue. Market research may help you to set competitive yet profitable hourly project rates. You may also need to be flexible initially.
The Five Line Model shows us that items 2, 3, and 4 are costs that require your time and money to work on. Therefore, allocate about 20 productive hours per week to deliver your services over 46 weeks per year to strike a balance between work and rest. That allows for approximately 1000 billable hours per year.
Setting a rate is crucial, as $100 per hour can earn you $100,000 yearly, but remember, you will still need to fund items 2, 3, and 4.
Diversifying Your Income
It's wise to rely on something other than consulting work for a few large clients. Exploring additional services that align with your existing portfolio or expanding your offerings into new areas, such as online courses, ebooks, or webinars, can help diversify your income. Affiliating with organizations that refer work to consultants in your field can also be helpful.
Managing Cash Flow
Maintaining a cash reserve equal to three to six months of essential expenses can help you manage fluctuations in revenue. Invoicing in advance is also advisable to cover payment delays.
Bob, the Barber's business model, is a fundamental lesson in maximizing revenue. The critical takeaway is to deliver premium value to your clients to justify higher rates. To maximize your revenue, set appropriate consultation rates, diversify your income, manage cash flow efficiently and strive to deliver premium value to your clients.
Cheers
Nigel Rawlins
Podcast, Newsletter & Advisory and Marketing Services
wisepreneurs.com.au
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PS. I publish this newsletter every Tuesday and two newsletters per week on LinkedIn. The first one every Wednesday is a topic I am interested in. The second one on a Friday is an updated version of this newsletter about three weeks later.
