£83,333.33, the magic number.
Strange title for a blog. But I would guess that the vast majority of founders know exactly why this number is relevant.
For early stage founders it’s the day dream. For long suffering founders it may be the one that got away. And for the luckiest founders it’s a distant memory.
£83,333.33 is the monthly revenue required to hit the holy grail of business start ups. £1m annual turnover.
The best thing about £83,333.33 is that is seems much more obtainable than £1m. That’s the beauty of thinking in monthly increments rather than the more daunting total amounts. The same can be said when you’re considering hiring someone on £100k per year salary. Seems huge, but actually it’s just around £8.5k a month when you break it down.
In this blog, I list a few strategies I would get in place if I was to try and start a new £1m business tomorrow with no funding and very little start up costs.
De La Soul obviously hadn't heard that £83,333.33 is actually the magic number
I’m going to assume you’re like me and want to get to £1m turnover quickly. And the quickest company you can start is a service business. You don’t want to have to buy physical products or spend months creating a tech product.
You just need to determine a service offering you can deliver on, create a sales narrative around it and identify a target audience.
No need for a fancy website or sales deck. They’re expensive and you will find that your product and narrative changes a bit (or a lot!) every time you speak to a potential client.
For the sake of this example, let’s assume you currently work in HR so you decide to create an HR related service business.
Now, as an HR service business you have two large groups of people you could support. You could work on behalf of employers, or you could work on behalf of employees.
Both options give you huge potential markets to go after. But only one of those groups would allow you to charge large fees. £3,000, £10,000, £50,000. You’re going to struggle to get those kind of fees from employees, so employers becomes our target market.
Link offering to high value
Now listen carefully because this is where so many service businesses get it wrong and struggle to grow beyond the founders’ network and a lifestyle business.
You need to link your service offer and supporting sales narrative to some kind of high value for the client.
I see so many businesses with these kinds of messages…
“Full service HR support for your business”
“We’ll take care of your HR and recruitment”
“The HR digital transformation company”
“The HR company that really cares”
Waffle. Waffle, waffle, waffle.
Instead, let’s think about our HR company message. In that industry, where are there currently huge amounts of money being made or wasted?
Recruitment fees are significant. It’s quite possible that even smaller employers could be spending 6 figures per year in recruitment costs. Also, employee sick days will cost larger companies millions.
So, for our HR business, we could design our offering to solve those problems for employers. And if we can, then our sales messaging shouldn’t mention that we do loads of different things, or that we’re really nice people. It should simply tell the target client what problem we’re going to solve for them.
“We will reduce your staff churn and save on recruitment costs”
“We will improve your employee wellness and reduce sick days”
Clearly, I’m not an HR expert so these aren’t great examples, but you can see the general idea.
When I ran an Amazon marketing agency, I would never pitch to a potential client that I would support them with Amazon transformation. I clearly said that I would help them grow their sales.
So, let’s make sure that our service business has a clear value driver for clients.
In order to get to our £83,333.33 monthly revenue target, we need to sign some clients. And let’s be really honest, signing clients is tough. We want to design our new business so that every time we sign a new client, we are adding incremental revenue rather than just replacing existing income.
The answer is recurring revenue. It’s a beautiful thing.
We need to design our service offering and sales narrative so that we’re charging clients every month for our support, rather than one off project fees. It will mean you’re charging clients much lower sums of money initially, but it means that you avoid starting each month back at zero.
We’re getting a bit ahead of ourselves, but if you ever want to sell your business then recurring revenue would likely be much more appealing to an acquirer as well.
So, for our HR business, instead of saying we will come in and fix their retention issues as a project for £20k, we’ll say that we will help them manage the situation ongoing for £3k per month. As long as we can keep the client happy for at least 7 months, then we’ve ended up making more than the £20k project fee would have made us.
Plus, £3k/month is often much easier for a business to sign off than a £20k one off fee. Even if it means you end up charging them far more than that over the term of the contract.
So now we have our service offering, a clear sales narrative that links our service to a financial KPI and a monthly retainer pricing model. Now we just need to work out how many clients we need to sign to hit the big £1m.
Pretty simple calculation. £83,333.33 divided by our £3k per month retainer.
OK, let me double check the maths.
Yep, 28 clients.
So, we have a service that we can sell to thousands of businesses, that clearly saves them significant money, and only costs them £3k per month.
And if we just sign 28 clients, then we’ll have a business doing £1m per year.
It doesn’t sound too daunting does it.
Of course, you wouldn’t be able to handle 28 clients yourself and would need to start to hire people along the way. But by doing this financial plan you can get an idea of what your end goal is, and you can decide on the timescale you want to get there in.
If you want a £1m business within 3 years, then you just need to sign roughly one client each month. And of course, make sure the clients you have already signed continue to be happy.
I think you can do it.
And if you fall short and ‘just’ create a £500k business. That’s still pretty good and would likely provide far more income than regular employment.
I should probably end this blog with a short disclaimer. The above is a highly simplified, rose-tinted example. Of course, it takes a lot of hard work and there will be as many lows as there are highs. But at the same time, it’s not rocket science. If you spend the time to actually plan the business model for what you want the outcome to be, then you’ll save yourself a lot of time pivoting in the future.