Is your business all about your own personal skills and expertise, where the services offered need you to be the one providing them? This is when you realise that your earning potential is limited by the amount of hours you can actually sell. And no-one who is an owner-operator can sell 100% of their hours, as there is no time left for the indirect activities such as: administration, planning, marketing, chasing up debtors, or creating new services (to name just a few…).
On average most people can probably only sell 60% of their available hours. As in addition to the indirect activities noted above; there are also the direct activities such as travel time, writing reports, or preparation work, which may be required for each revenue earning hour as well.
How many hours a week do you actually want to commit to work? It’s your business so you probably want to ensure the business fits into your lifestyle goals as well. Let’s say you plan to work a 5 day week, 9am to 5pm daily, with an hour for lunch and perhaps another half an hour on breaks. That’s a 6.5 hour day, which makes a 32.5 hour week. You probably want to make the most of family time, and the summer months to attend to your lifestyle goals as well – so let’s assume you want about 5 weeks holiday a year; then there are 12 statutory holidays a year and you’ll probably also have the odd sick day as well. So now, out of a possible 52 weeks a year, that leaves you about 8 weeks that you won’t be working. Of the 44 weeks remaining, only about 60% of your time will be revenue earning, so that means you have: 44 weeks times 5 days a week times 4 hours a day, equals 880 revenue earning hours per annum.
If you have $10,000 per annum of operating expenses, and want (need?) to earn an equivalent salary of $100,000 a year; this equates to $110,000 gross revenue required. Is it plausible to charge yourself out at 110,000 divided by 880 equals $125.00 (+ GST) per hour? (Remember that revenue over $60,000 per annum requires you to be GST registered). Maybe your service offering and your set of skills means that you can charge yourself out at this rate; or maybe you have just priced yourself out of the market and now you need to rethink your business model…
Ideally your business will be a mix of active and passive income streams; i.e. active is where you are selling your personal hours, either as one-to-one or one-to-many (e.g. groups sessions/workshops); and passive is where you might be selling books or other associated products; creating and selling online courses, seminars or webinars as well. Then the opportunity to significantly increase your income is no longer limited by you only having your personal hours to sell.
So when starting out in business, consider your service offerings; what services requires you to be front and centre, and what other products or services you could offer which provide a passive income stream. Many businesses start with the active income streams first then slowly build up their passive services as they see what the market really wants; as well as in response to feedback from clients. Everyone’s business and every business owner is unique, so what works for someone else may not work for you – so try not to be tempted to copy someone else’s business model – by all means get lots of ideas and read about other success stories, but then create a model that works for you and the lifestyle to which you aspire!
Another key point to remember is that it can take time to build up to your capacity client hours, it would be very unusual for you to be at your capacity soon after commencing business; so you may need some reserves of funds to set yourself up in business in the first place and to see you through this initial period of lower sales. However if you are at capacity soon after starting your business then you are definitely onto a winner – congratulations!!
If you want some help to talk through options to increase your revenue streams, then give me a call!