Summary: Your business model is your plan
for how you will generate sufficient revenue to meet your expenses and earn a profit.
Unfortunately, many independent professionals don't actually have a profit-making plan.
The real solution may be to choose a new business model.
If you have enough clients to keep you busy, you must be
making a good living, right? Well, not necessarily. Some of the busiest professionals
around aren't earning enough to pay their bills. On the other hand, there are some
consultants, coaches and other service providers who have plenty of time on their hands
but also earn quite a bit of money.
The difference between the income levels of these two
groups isn't just because one group is better at marketing than the other. The difference
is in their business models.
Simply put, your business model is the answer to the
question "How do you intend to make money?" It's your plan for how you will
generate sufficient revenue to meet your expenses and earn a profit. Unfortunately, many
independent professionals don't actually have a profit-making plan. And some of those who
think they have one are relying a bit more on magic than they are on statistics.
For example, when you first hang out your professional
shingle, charging $100 per hour may seem like quite a lot. After all, if you earned as
much as $100,000 per year at your last job working a 40-hour week, you were still only
making $48 per hour. So perhaps you think that doubling your former hourly rate should be
more than adequate to keep your net earnings at their former level.
Let's do some quick math. If your business model is based
on working intensively for one major client for weeks or months at a time, such as many
corporate consultants do, an hourly rate of $100 could indeed generate $100,000 per year.
All you would have to do is keep busy approximately half of the time. $100 per hour times
20 billable hours per week times 50 weeks per year equals $100,000.
But what if your business model is based on working only
two to four hours per month for each client, like many coaches, therapists, or healing
professionals? Now if you want to earn $100,000 per year, in order to bill those same 20
hours per week, you'll need 20 clients at once if you see them for an hour per week and 40
or more if you see them for less time or meet less often.
In the first example above, you only need a handful of
clients each year and have large blocks of time left over to market yourself. That's a
sensible and realistic business model. In the second example, you need a constant stream
of new clients coming in and the time you have available for marketing is likely to be
broken into small chunks between appointments. That sort of model is more likely to lead
to stress and struggle than it is to success.
The first place you might look in order to fix model number
two is raising your hourly rate. You could charge $150 per hour, $200 per hour, or more,
if your target market will pay it. But rates like these may be out of reach for many
potential clients, and difficult for you to justify.
But rate increases aren't the only way to fix a broken
business model. Both of the models we've been examining are fee-for-service models, based
on an hourly rate. Instead, you could choose a different type of model altogether. Here
are some examples:
Fee for Service Models
Day Rate - Instead of charging by the hour, you can charge
by the day or half-day. This imposes a minimum on your clients, avoiding short
appointments that fragment your work schedule. Examples: An on-site massage therapist
calling on corporate clients; a professional organizer serving home-based businesses.
Project Fee - Charging a flat fee for each project allows
you to bill for time you spend planning, researching, or just thinking about your client's
issues. Clients often prefer flat fees because they can budget their funds more
accurately. Examples: A graphic designer creating a logo; a communications consultant
writing a company newsletter.
Monthly Retainer - When you ask clients to pay by the month
in advance, you can charge for your availability, not just service delivered. Your
retainer can guarantee you a fixed number of hours. If the client uses less, you still get
paid. If they use more, you can charge extra. Examples: A career coach offering as-needed
calls and e-mails in between sessions; a virtual assistant providing on-call customer
service for a small business.
Product-Based Models
Flat Fee - A wide variety of items can be sold for a flat
fee to increase revenue to your business. "Products" can also include services
delivered in a defined package. Your buyers may be either existing clients, or others who
can't afford to hire you individually. Examples: A conflict resolution consultant offering
public seminars; an executive coach providing personality assessments; an image consultant
selling a wardrobe design kit.
Subscription - Providing products or services by
subscription can provide a steady source of income and reduce marketing time. A sale made
only once can continue to provide revenue. Examples: A sales trainer selling an
educational CD series by monthly subscription; a life coach hosting a membership-based
online community.
Bait and Hook - Also called the "razor and
blades" model, Examples: A time management consultant offering a training program
including day planners that must be re-ordered; a web designer providing proprietary
modules under a license that must be renewed annually.
Any one of these models can be used to build an entire
business, or you can combine different models together. For example, a consultant could
charge a flat fee for assessments, then a day rate to deliver services. A coach could
charge a subscription fee for group clients and a monthly retainer for clients worked with
individually.
If your business isn't earning as much as you would like,
look beyond your marketing or the rate you're charging. The real solution may be to choose
a new business model. |
