Not every dollar is worth a dollar to you.
Some dollars are worth more to your business, and some are worth less because they come with unattractive direct or indirect costs to you.
In the late 90's, I worked as a Microsoft Certified Trainer (MCT). It was a baller job for me back then, and it paid pretty well.
One of the "costs" of that job was that every time I taught a class, I needed to come in to work the weekend before the class and set up a lab computer for every person who was going to be in the class.
Back then, that meant booting every computer from 3.5" floppy and either installing Windows NT from CDROM or from a disk image that Ghost downloaded from a Pentium II computer over an un-swtitched 10 megabit network. It was 6 hours or more of babysitting a process that would now all be handled with virtual machines and maybe 30 minutes of setup.
At first, this cost was attractive to me. I enjoyed the geeky, technical aspect of it, and the learning curve was really fun.
Over time, it became an unattractive cost to me. I wasn't learning anything new, and it felt like low value work.
As you become a self-made expert, dollars that come with unattractive costs attached to them will become less valuable to you than other kinds of dollars. And as part of the virtuous cycle, dollars with costs you don't mind bearing will become more accessible to you.
As your business is currently configured, think about the cost you bear in the following tags:
- Time: how much time do you need to use to deliver results for your clients?
- Emotional Labor: How much of your work is of an emotional nature? This isn't easy to define, but anything where you need to care on behalf of your clients has at least a component of emotional labor.
- Stress: How much of your work causes you stress for any reason, even if it seems unavoidable?
- Opportunity Cost: What more valuable things--even if they have a delayed payoff--could you be doing if it took less time to produce value for your clients? Where could you invest your own time to produce future value?
- Direct Financial Cost: Software tools and subcontractors might be direct costs to you, but since they're project-related or not ongoing, they're not overhead.
- Financial Overhead: And then there are financial costs that are ongoing, like a fancy office to impress clients.
Every one of these factors is a potential cost.
For some people, the cost of stress is nearly intolerable, and so dollars that come with a lot of stress cost attached to them are very unprofitable dollars. For others, those dollars might be relatively profitable because the personal cost of stress is minimal.
A lot of developers avoid managing people or interacting with customers because the dollars they would earn for that work come with a lot of emotional labor cost attached to them, and that would be a very unattractive cost for them to bear.
So I can't generalize much about what kinds of dollars you will personally find most profitable.
But I can generally say that as I see people accumulate valuable expertise (and I do interview a ton of these people on my podcast: http://consultingpipelinepodcast.com), I see the following trends:
- They work to reduce their time cost because writing and thinking generate tons of future value for their business and they can free up time for these value-generating activities by reducing the time they spend on delivering for current clients.
- They seize opportunities to reduce their stress cost by investing in deeper expertise that will help them produce positive results more reliably.
In short, if you're cultivating self-made expertise, you will want to find ways to increase profitability as soon as possible because that profitability will feed back into your ability to develop deeper expertise.
There are several ways you can increase profitability:
- Digital products
- Productized services
- Group events, or leveraged time
- Advice-only retainers
Each of these routes to greater profitability has a different profile in terms of up-front cost to you, cost of delivering the service, ongoing maintenance cost, and the cost of marketing and selling. Here I’m using the word cost as a way to express the time, effort, and accumulated expertise you need to have available to you in order to successfully sell that kind of service. Here’s a quick overview of what these costs tend to look like.
Digital products are a category of products that are distributed digitally. The usual suspects here include self-published books, training videos or courses, and software components like libraries, templates, themes, and other write-once-use-many pieces of code. Less usual suspects might include less-than-book-length informational products like quick reference guides, cheat sheets, paid newsletters, and the like.
Digital products are often--but not exclusively--sold to individuals rather than to the company. This is almost automatically a less complex sale that requires less of you. Less sales and marketing sophistication, and less lead time to close the sale. Many digital products are priced at “impulse buy” levels, which also lowers the demands on your marketing and sales skills.
From the perspective of developing new business for your services, your digital product(s) can function as an emissary that helps pave the way for bigger and better things (your services) down the road. Someone at WidgetCo buys your book, is impressed by your ideas or expertise, and that paves the way for selling services to WidgetCo at some future date. Another way to express this same idea is to think of digital products as inbound marketing, except you actually get paid each time you get a new lead.
What if you could lower the cost of selling your services and simultaneously lower the cost of delivering those services? All else being equal, you would increase profitability for those services. This is the core benefit of productized services, and the main reason you might consider them a route to greater profitability.
The simplest definition of a productized service is one where the price, scope, and delivery method are fixed and those vary little or not at all from client to client.
The cost-savings benefits of productized services are driven by the following factors:
- Marketing and Sales Benefits
- You largely eliminate the work of creating a custom proposal.
- You gain greater insight into what makes a prospect a good fit and incrementally reduce the cost of dealing with bad-fit clients.
- (If you are a less experienced or confident marketer) You have “a thing” (the productized service) to market, so you no longer feel like you are “selling yourself”. Instead you are selling something that feels substantive, and this increases your confidence in selling and marketing your services, which increases the effectiveness of your efforts.
- Fulfillment Benefits
- You gain experience with the basics of delivering the service, which makes you better, faster, and more efficient. This may manifest as reduced errors and less re-work.
- You add processes and systems that simplify service delivery. Automation replaces some of the manual effort.
- You gain insight into what moves the needle for your clients’ business, and this helps you improve the core service offering.
- If staff are involved, you may find improvements there.
- Other Benefits
- If all the above works as it should, you may increase the volume of clients you deal with in a given timeframe, which accelerates your accumulation of marketing proof you can use with future prospects.
Let's talk about offering training services.
I have to confess that I have a soft spot for training, which renders me a bit over-enthusiastic at times in promoting it as a route to greater profitability. I worked as a Microsoft Certified Trainer from 1996 until about 2004 and in addition to allowing me to fully pay off my private school loans within 4 years of graduation, that experience gave me significant confidence in public speaking that has benefitted me throughout my career.
I understand completely that training is not a great fit for everyone. It can drain introverts quicker than a buggy smartphone OS drains the battery, and it subjects anyone's ego to more than a few potential scrapes and bruises.
From a profitability perspective, training is very attractive because of how deterministic the pricing can be. Strictly productized services aside, training is priced more like a product than almost any other service I can think of except for services like massages, haircuts, etc. Pricing is usually set on a per student per day basis. For example, you might charge $300 per student per day, and collect $9,000 for a 3-day class with 10 students attending.
Compared to a software project that might just as easily take 9 months to complete as 3, that is highly predictable revenue once the sale is made, and that predictability has a beneficial effect in planning your other revenue-generating activities. To be completely realistic, I have to acknowledge that there are occasional surprises, even with the predictable pricing of training. Classes may not fill, travel plans can be disrupted, and other minor "black swan" events can gum up the works. Even with those occasional glitches, I'd still characterize training revenue as more predictable than other types of services revenue.
Group Events, or Leveraged Time
Training is one specific form of leveraged time. Instead of spending three 8-hour days with 10 people individually (30 days), you do it with the whole group at once (3 days). There are other ways to leverage time in a similar fashion to increase profitability:
- Group mentoring or coaching: Kind of like training, but with less structure and more customization. Coaching is a "push" model while mentoring is a "pull" model.
- Workshops: Kind of like training, but with less lecturing and more doing.
- Seminars: Kind of like training, but with less doing and more lecturing.
- Paid speaking: Kind of like seminars, but with less specific information and more broad information or motivation.
The shared characteristic of all of the above is that they are group events. They leverage your time in the same way that group training does, and they can make very attractive effective hourly rates available to you. Imagine selling a 2-day blockchain workshop or seminar priced at $300 per student per day. With 10 students, that works out to $6,000, or $375/hour (assuming 8 hours days and no other costs to you, and ignoring the upfront development cost for making the curriculum and marketing & selling the service). Bump the price to $500/student/day, and your effective hourly rate climbs to $625/hr.
Finally, we reach what may be the "crown jewel" of routes to higher profitability: advice-only retainers. They are pretty much what you'd think. To paraphrase Alan Weiss, in an advice-only retainer you sell "access to your smarts". Access to your thinking; not access to your doing.
I'm forced to refer to this type of service as "advice-only retainer" because of the widespread confusion around the meaning of the word "retainer". Does retainer mean pre-payment for access to services that are billed separately from the retainer fee, pre-payment for a block of time, access to your smarts, or something else? The term advice-only retainer eliminates this confusion.
Advice-only retainers can provide real value--even to smaller clients--in numerous ways:
- Offering guidance or reducing uncertainty during a risky change, which acts as a sort of insurance policy on the change.
- Offering ongoing guidance during a lengthy change, like integrating or learning to maintain a new system.
- Answering unpredictable questions that occur at unpredictable points in time.
- Acting as a "sounding board", an expert point of view, or an outside point of view on company decision-making.
- Providing a company leader with access to expertise they personally lack or do have in-house but don't trust.
- Acting as a "resident expert" on some particular issue for the client.
- Using your research or direct experience to help your client understand what competitors or the market in general is doing so your client makes better decisions.
It's possible we could reduce the incomplete list above down to 1 simple definition. Advice-only retainers are valuable because you're helping your client make better decisions.
The stories you might have heard about selling advice-only retainers at nosebleed prices (ex: $10k/mo for 24/7 access that actually only turns into a few 30-minute phone calls per month) are probably with F500 clients where the consultant has built up quite a bit of trust over time. That doesn't mean that SMBs won't pay what amount to very profitable prices for access to your smarts. The numbers may be smaller, but can still profitable for you to provide.
There's a category of expertise-made-tangible that I find particularly enchanting: intellectual property (IP).
IP is not always a guaranteed outcome of deep expertise, but it is a possible outcome, and I'm going to talk more tomorrow about the role IP can play for consultants.
Talk to you then,-P