More Clients Memorandum
The original high-leverage business model
Posted by
Ian Brodie on January 23rd, 2022.
This is the second in our short series of posts about building a “life-friendly” business. A business that can stay small and low maintenance, but reward you richly.
I mentioned in last week's post that the first thing you need is to build your business around a high-leverage business model.
In other words, a business that is set up to give you the highest return on your time rather than the highest return on investment or overall returns.
Let's look at some of your different options…
Perhaps the easiest and fastest way of getting leverage is simply to charge more.
You often hear people with limited real-world experience of professional services castigating others for falling into the trap of “exchanging time for money”.
But if you're exchanging your time for a heck of a lot of money it's rarely a problem. In essence, it's the business model that ultra high paid sportspeople, film stars and rockstars use.
It's the simplest business model. It doesn't need a big staff or complex technology or mass online marketing.
But you can't just decide to charge rockstar level fees and suddenly expect high-paying clients to come rolling in. Well, not unless the stars align and you happen to be in the right place at just the right time.
In the real world, if you want to charge super high fees then your clients have to see you as the very best or only way they can get what they're looking for. And that thing has to be urgent and high value to them.
That means you have to be smart about the area you focus your services on. And you need to invest time in becoming seen as a real leader and expert in that field.
Being seen as a leading expert means just that. You have to both be a leading expert, and be seen as one. It means you need to publish, speak, come up with fresh ideas, appear on podcasts or engage in any one of a myriad of ways of getting your expertise visible.
Years ago the Hinge Research Institute studied the impact of perceived expertise on the fee rates professionals were able to charge and how in demand they were.
They found that being well-known for your expertise in a region or an industry was enough to get you 4-8x the fee level of a typical professional. And you would get 2-3x the demand for your services.
The impact of that on income and quality of life is huge.
For example, a “low leverage” consultant might try to bill 5 days a week but only get an average fee rate because they're not particularly known for anything outside their client base. And they might well not manage to get booked up for all those days anyway.
On the other hand, a “high leverage” consultant might spend 2 days a week working on marketing to increase their visibility and only 2 days a week billing. But that marketing means they become known as a leading expert and they can charge 5x the fee rate of the “low leverage” consultant. Net net they work less and earn more.
That's a hypothetical example, of course, but very much achievable. If you invest time in marketing to become seen as a leading expert or authority.
And that's the thing most people miss. Authorities don't appear out of nowhere. You've got to work at becoming seen as an expert.
Skip that marketing work and you'll find yourself forever frustrated by the feeling you deserve much higher fees, but rarely getting them.
Next time we'll look at the second high-leverage business model: leveraging other people.