There are two levers which control every business. It’s the only two levers that matter when it comes to cash flow. Most people don’t think of cash flow when it comes to their business. They think about making more money. Unfortunately, making more money usually comes with extra expenses. People tend to raise their expenses to their income level.
If you can understand these two levers, your stress levels will diminish and you will be able to make your business sustainable.
The first of these levers is Making More Money. Every business is concerned with making more money. It’s the basis for our capitalist system. However, very few businesses know what they need to do to make more money.
For my business, I make more money whenever I release a new product to my mailing list or go to a live show. Those two ways to generate revenue account for 90% of by business. When I release a new product, my existing fans buy the product and share the product on their social feeds driving in a massive amount new clients.
Since my business relies on one to one interaction with fans, the other way I can make more money is to attend more shows. And if I’m already maxed out on shows I can make more money by attending bigger shows.
So I know if I need a cash infusion then I must go to more (or bigger live shows) or release a Kickstarter. I have other ways that are long tail items (like Amazon and my existing courses) but those don’t give me immediate cash flow.
One other way to look at this is by conversion percentage. If you own a service based business and you know that for every 100 people you talk to 10 walk through your door and 1 becomes a client, you can always add more revenue to your business by talking to more people, or increasing how many of those people walk through the door, or increasing how many people walk through your door become clients.
The math looks like this:
100 PEOPLE = 10 WALK INS = 1 CLIENT = $
So if you want to double revenue, you can either talk to 200 people:
200 PEOPLE = 20 WALK INS = 2 CLIENT = $$
Or you can get double the amount of people to walk in:
100 PEOPLE = 20 WALK INS = 2 CLIENTS = $$
Or you can get double the amount of people to become clients:
100 PEOPLE = 10 WALK INS = 2 CLIENTS = $$
In each scenario, you are doubling your revenue. However, you are only doubling that revenue because you understood those levers that control your business. For me, I know that every show I go to with 1000 attendees will lead to 10 sales.
So for me either I can go to shows with 2,000 attendees and make 20 sales, or offer more products so I can make 20 sales from the same 1,000 attendees.
Knowing this lever can vastly increase your ability to make money and decrease your stress level. And if your levers aren’t enough to get you to where you want to go, you know you need to introduce another line of revenue, like a better distributor, or becoming a speaker, or opening a new business.
Making more money is the most common way have more money. However, there is another way that most people ignore. That way is to spend less money.
That’s right. If you have $1,000 in extra expenses you can cut back on, then you now have $12,000 more cash flow a year. For my situation, we currently have two car loans and PMI on our house, all adding up to over $1,000 of extra expenses per month. For a company that’s just getting on its feet, $1,000 a month is the difference between losing money and making money.
There are always expenses to cut. Sometimes you can add up 10 little cuts to equal one big cut. Other times you can cut something big (like a car payment) and do as well as finding $1,000 more in revenue a month.
It’s important to look at both of these factors and understand they both lead to a successful business. If I can cut $1,000 extra of expenses easier than I can find $1,000 in extra revenue, then that is a worthy thing to pursue.
A huge amount of my day is figuring out how I can spend less while making more. That’s the golden ticket right there. If I can spend $1,000 less a month and make $1,000 more, I’ve just won so hard it’s not funny.
And this is something you can bring to your own business. If you need $500 to start a business, you can either get a part time job or you can cut out frivolous spending, or both. If you do both then you’ll be at your goal in half the time.
Share this post