Peaceful Profits Podcast Ep. 14 - What Your P&L Should Look Like At 7 Figures
Synopsis:
In this episode of Peaceful Profits, Mike Shreeve dives deep into the powerful strategy of using lead magnets to scale your business. Learn how to attract high-quality leads effortlessly and turn them into long-term clients with effective, value-driven content. Mike shares his proven methods for crafting lead magnets that not only generate interest but also build trust and authority in your niche.
Transcript:
Peaceful Profits Podcast: What Your P&L Should Look Like At 7 Figures
[00:00:00] Hello my friends. Hope you're doing well. Thank you so very much for listening to today's episode. We're gonna be talking about the secrets of profit and revenue, and I'm speaking specifically to those of you who are in the help industry. So your freelancer, uh, a coach, a consultant, an agency owner. You help people with your knowledge, your expertise, your skills to get some kind of result or transformation.
And the reason that I'm calling you out specifically is because this. Episode is not gonna be relevant at all for people who are selling widgets, e-commerce, people who are in manufacturing or restaurants or clothing, or any other business. And that's because the numbers, the margin, the expectation of what your p and l should look like in a help industry business is significantly different than if you own a restaurant.
Okay, so it's very important if you have based your current performance on p and [00:01:00] l models of other businesses because other businesses are way more transparent. Like, I'll give you an example, a little side note here. I find it very frustrating and I found it very frustrating when I was first starting out, and I find it frustrating now as I am.
Helping other people to come up is that there's not a lot of transparency in the help industry of what margins should be. Whereas you can go find massive studies of what is the average profit margin in the restaurant industry. And there are, there is data. There have been people who've talked about it, who've analyzed it.
It's talked about in colleges that's not the same and that's not the case for the help industry, even though the help industry, just the coaching segment. Of the help business is more than a billion dollars a year. So what I wanna do today is help to shine light on transparency. The numbers I'm gonna be [00:02:00] giving you are from my own personal experience, working behind the scenes of many of the biggest companies in the world in this help AR area, help industry, help business.
Um, and then my own personal, so is that since, since 2007, so it's anecdotal data since 2007. More anecdotal data of my own businesses that I've started, and then anecdotal data from clients and what we try to help them to achieve. So this is not an official study. I have not, you know, sat down and surveyed thousands and thousands of people.
But when I work with clients, these are the realistic expectations that we go into, assuming will be. The. Essentially the lag result of our efforts together when it comes to looking at the p and l. Okay, so with all that aside, I'm just going to make sure that you and I are [00:03:00] on the same page, and then we'll break down the number.
Specifically, I am assuming that you are following. Our model, which is the most powerful, oldest, most proven model in all of the help industry. Major companies have been doing this for decades. I didn't invent it. I just got really good at it, and now I help other people to do it. And it's this simple of a model.
You have an offer in your business that offsets advertising costs, so I'm gonna assume that, that you're either working with us to get that done or you're working on it yourself, or that is the model that you have. That offer then goes into a core offer, some sort of central offer that's in your business that represents the majority of the clients and the customers that you work with.
And then from that core offer, you have optional upgrades available to those core people. So it's three core offers in your business. Again, I didn't invent that. It's been around for decades. Smarter people than I have have come up with that, but I'm assuming that that is the [00:04:00] operating model that you're using because if you aren't using that operating model, then your numbers are gonna be very different, okay?
So don't judge your business off these numbers if this isn't the model that you're looking for. I have found personally that this three offer model is the most efficient for maximizing profit. Now, I am personally a big fan of focus on what you keep, not what you make. Okay? I am not in business to run myself for the people that I know and love and care about into the ground.
I'm in business to maximize my wealth. Which means I'm much more interested in figuring out how to maximize how much I earn per dollar than just focusing on how many dollars I can make. Okay? So in my experience is since 2007 tried so many different models. This three offer model is the best at maximizing [00:05:00] profit per dollar earned.
In the help industry. Okay, so it doesn't work for restaurants, doesn't work for et cetera. It may or may not. I haven't really tried it, but all I know is for the help industry, this is what works the best. Okay, so I'm assuming that you're following that, and I'm assuming that because you're following that you're receiving an average, a minimum average of at least three x return on all of your advertising costs.
Every dollar you put in, you make at least $3 back in collected cash, not deferred. I don't count. Uh, ROAS when it comes to deferred, because not everybody makes their payments. The future is the future. If you live too much off of future cash, you're gonna accrue unnecessary debt today, et cetera, et cetera.
Dave Ramsey, blah, blah, blah, all that kind of stuff, right? So I'm not a fan of counting, uh, future deferred revenue as ro as we only talk about collected [00:06:00] cash. So I'm, I'm expecting you, uh, that I'm assuming that you would. Be at that level. It would be preferred if you were at a four to six X ROAS level.
That's typically what we try to get our clients at, but let's just for sake of these exercises, three x is our minimum. Next we have, uh, I'm assuming that you're also out of those first few months of piecing this business model together, because in those first few months things are crazy. You don't have a consistent roas, you don't have all of your offers set up.
There's a lot of things that you don't have. So we're assuming you've gone through the building of the offers. And the sort of figuring it out and you're, you have strong core offers that you don't need to change every three months. You're not doing the launch model psychosis. You're not jumping around from shiny object to shiny object.
You have three offers in your business. You've turned those offers on, and now you're, you have like an actual business, right? You're not necessarily in the building [00:07:00] stage. The building stage is impossible to predict what your margins will be. Because there are so many variables during that process that no one can realistically tell you, you will achieve X profit margin.
Because who knows, you may have accidentally overspent on ads for two and a half weeks in a row, right? Well, how does that count? How are you gonna measure it? And, and you just, it just gets too crazy. So what we're talking about is a business that is set up, built and running. So that's another assumption just to make sure that we're all clear here.
Um, and then I'm gonna ask you to factor in your own taxes here, because one, this is an international audience that's listening to this podcast and two. My taxes are very different than other people's taxes because I use a very, um, uh, uh, I try to minimize taxes by, uh, pushing cash into investments rather than taking cash out of the [00:08:00] business.
And I also live in a very, um, low tax. State. Okay. In fact, my state has no state income tax. That said, if you're looking for a general rule of thumb, a minimum of 30%, just take that out of your profit just to help you make basic. Sort of calculations. However, consult A CPA as quickly as possible. 'cause I am definitely not one of those.
Okay. And then how we're gonna run these numbers, I'm gonna give you two checkpoints. We're gonna do checkpoint One is I'm assuming that your business is making a million dollars. I. A year and what your numbers should look like, what your life should be like, what the operations are gonna be at a million dollars a year.
And then we're going to take a look at $5 million a year. And those are the two different checkpoints that we're going to look at. I'm gonna break down all of the expenses. I'm gonna break down your how many units you'll need to sell. This is gonna be as full and [00:09:00] complete a breakdown of these two things as I can give you within an episode of a podcast.
There is a third level, which is the big old, you know, eight figure. Look at me. I'm the big boy in the room kind of level. There's a, I would need to do a separate episode to break down the financials for a $10 million per year business. They are very different, very different than a 1 million or a 5 million.
I'll just give you an example, just a half decent leadership team. At, at, at a, in an eight figure company, you're looking at at least a million dollars a year for expenses. Okay. That's just a kind of like semi competent, very small leadership team. Okay, so that, again, that's for a whole nother episode.
We're just gonna talk about 1 million and 5 million. I'm not even going to talk about six figures because in my opinion, if you can make [00:10:00] a six figure business with just a little extra intelligence and a little bit more strategy, you can make it a million dollars and it will, in many cases, actually be easier for you to run.
And again, this is in the help industry. I'm not talking about manufacturing or restaurants or anything like that, but in the help industry, if you can get to six, you might as well get to seven just because of what you're able to do with that extra revenue to make your life easier. So again, probably could make a whole nother episode on how it's easier to run a slightly bigger business than it is a very small one.
Okay, so here we go. First million dollars. What should your numbers look like? What's going on? So first off, at a million dollars a year, you should still be doing pretty much everything. Okay? A million dollars a year is, is, you know, no offense to anyone. It's it's beginner level and, and I don't mean that in a derogatory way.
What [00:11:00] I mean is it might feel like a lot of money, but it isn't as much money as you think it is. So don't overextend your expenditures. Right. That's really kind of the message here. A million dollars isn't enough per year for you to go crazy and start spending, and I'm not even talking about, you know, buying fancy cars and houses and things like that.
I'm talking about don't start buying things in your business just because it seems like the money is there. Because it probably actually isn't. And for those of you who are at the million dollar a year level, and you hearing me talk about this, you know what I'm talking about, it seems like there's money forever, but there actually isn't because it can get eaten up really, really quickly.
Uh, because at the million dollar a year level, because you are still doing most of the things right? So you're still probably running the ads and doing the majority of the selling. The majority of the marketing because you [00:12:00] are still the one in charge of creating the offers, running the offers very likely fulfilling most of the offers.
You may have juniors here and there, um, assisting you, but you still give final input. You still do oversight, uh, because, uh, you know, you're running all of the fulfillment. Um, especially if you haven't restructured your offers to make it easier to fulfill on, because you are still so integral to so many core areas of the business.
The next level of expenditures for you at a million dollars is very expensive. You are expensive to replace. One of my early mentors, he, he told me, he straight out told me, he's like, it's gonna be very expensive to replace you. Stop thinking you can replace all these skills that you've built up off of, you know, a $5 an hour virtual assistant.
If you were only worth a $5 an hour virtual [00:13:00] assistant, you'd only be making $5 an hour. So at at a million dollars a year, you don't have enough money to afford to outsource all of you. Okay. Now you can outsource some of it, and we're gonna talk a little bit about that here, but that's a huge message I want people to take is that at a million dollars, you're at this weird spot where your business is humming, you're very busy, but you're not actually making enough to fully replace yourself.
You can buy help, but you can't yet afford to replace yourself. And we'll, we'll walk through the numbers now so you can see that. Okay? So to make a million dollars a year. Let's just assume $84,000 per month in revenue. That gets us a little over a million, uh, we'll call it that. So how much you're gonna need to spend on advertising is likely around $33,000.
Now, I calculated three, $3,000 even though we talked about having a three x [00:14:00] roas. That actually isn't three x, right? So 33,000 times three is more than $84,000, but we need to account for some refunds. We need to account for fluctuation in the market. We need to account for having just a bad week of sales because maybe it was Black Friday at the same time you're trying to run your offer and et cetera.
Okay, so again, whenever I'm doing financials, I'm always looking at worst case scenario so that when things turn out well, which they very rarely do in business, right, most of the time you have expectations. Everything falls short. Any opportunity I can, I try to make it so that I. If something good happens, it's way good, right?
It's, oh my gosh, I can't believe it only costs us 20 grand this year in ad or this month in ad spend because we got a four x and I didn't anticipate that. That's just mentally a, a way better way to keep yourself sane in growing a business. So we're gonna say $33,000. [00:15:00] All of that should actually be covered by the first offer in your business, and this is why I like the three offer model.
So for us, if we spend $33,000 on advertising, we're actually spending nothing on advertising. And the reason we're spending nothing on advertising is because every dollar of that $33,000 is offset by the sale of a book, right? So yes, $33,000 does come out of our bank account, but every single one of those dollars returns to us because we sold a book.
Now we have a bunch of customers, and then those customers we sell into our core offer. At a million dollars a year. Again, with this business model, we spend about $2,000 per month in support. So whether that is, uh, you know, your customer support in your support inbox or some [00:16:00] kind of community manager, you know, part-time community manager in your group, because at a million dollars a year, you don't need a full-time community manager yet.
There's not 40 hours a week of work in your group unless you've completely re structured your offer incorrectly, right? So part of these numbers is for you to look at, not just how do they compare to your current numbers, but also how do they compare to the efficiency of the design of your business.
Because if it takes you a lot more money to earn. A million dollars a year. Then it does say for me to earn a million dollars a year. Then what that is, it's not. About me being smarter or me even being better. That's about me being more efficient in delivering a million dollars a year of value to the market.
So this is also an efficiency check, but about $2,000 per month. In customer [00:17:00] support, client support, again with you, very involved in the day to day. Now, this should get, you know, you should never be in the inbox. Your customer support person should only be sending you, you know, uh, very special cases where only you can answer it.
It's not, don't hire a support person that just sends you. Every email they ever get and makes you answer it. And they're just an in between person, right? So actually get somebody capable. And then also, this is assuming that your other offers don't need additional fulfillment or support. Okay. And then we have software, which is about a thousand dollars or less at the million dollar a year level.
If you're spending more than that on software, you need to take a very serious look at what the heck are you using all this software for? It's very likely unnecessary. Okay, so how, what are we talking in terms of volume of clients? What's our workload looking like? And [00:18:00] then what's our margin and how can we compare that?
So let's assume that you are selling only. So you have your first offer, which is say a book or a low ticket funnel, and then you, uh, sell that into a $5,000 high ticket. Something, something. Uh, so coaching, whatever you'll need about 10 of those. Per month. So ten five thousand dollars offers per month, plus the revenue from the book gets you to the $84,000 a month that we need for a million dollar a year business.
I. And then of course if you have a 10 K offer, you only need five of those per month on top of your book sales. So people buy the book. Some of those book sales turn into $10,000 offers, and you have a million dollar a year business. If you have all three offers in your business, then maybe you have. Your upgrade offer is say, $3,000 a month.
Maybe it's a mastermind. Maybe [00:19:00] it's one-on-one. Maybe it's some done for you elements, and it's $3,000 a month. Well, you only need to have 10 of those going at a time, and then you can sell four, five Ks a month or just two 10 Ks a month. Okay, $10,000 offers a month, so this is all very, very manageable. And if you have 10 people in a mastermind and then you only have to sell two to four of your group coaching per month, that's a very manageable small group of people to get to a million dollars a month.
And if you do it correctly, so you have a low ticket front end offer that's constantly putting leads into your sales system, and then you have a process. So I like using a book to weed out potential leads so you're not wasting your time. Again, this is about efficiency. You're not wasting your time talking to people who aren't qualified, ready, or willing to buy from you.
Then this is all very doable for you to do by [00:20:00] yourself, a virtual assistant or two. And that's it. Okay. And you should not be working 90 hours a week under this model. You might be working 40, you might be working 50 or so, but not 90. Not every single day of the week. You should be able to take vacations.
Uh, you should be able to, you know, it, it's, it's not really a business because it's entirely reliant upon you. You can't take a six week vacation, right. Six weeks of nobody taking sales calls, gone. Your customer support person probably isn't ready to take six weeks of unguided customer support. Your clients probably need you for six weeks.
So it's, it is a business technically, but it's more of a job at a million dollars a year. But it's a very, very well paid job because if you take a look at the numbers, then our profit, our monthly profit margin. If we're making [00:21:00] $84,000 a month with these calculations, which again, I would say are standard, this would be a measure to see how efficient you are is about $48,000 per month, or about $576,000 a year is what you would be looking at off of a million dollar per year revenue business.
And so you're looking at about 58% pre-tax profit margin. So for every dollar you make, you get to keep 58 cents. That's, I mean, I don't know what experience you have in other companies, but that's insane, right? Restaurants are five to 10% maybe, which is why so many of them shut down. In fact, the number one cause of companies shutting down.
Can be directly tied. It isn't always the root of the cause, but every, every problem that ends up killing a business can be tied back to its margin. So if you are running around with [00:22:00] 58% of every dollar you make, you get to keep, you are running a very safe business. The stress might be there, right? 'cause you're working with people, so you've got coaching you have to do, you gotta fulfill in a mastermind.
You know, don't, don't get it twisted. I'm not saying there isn't stress. You're, you're handling most of it yourself. If Facebook goes down, you're like, ah, what am I gonna do? If you have three bad sales calls in a row, that's unpleasant. But what you're not experiencing at 58% margin is, oh crap. How am I gonna make payroll?
Because when you add things like that where you don't have as much wiggle room. And you're thinking, how am I gonna pay all my expenses? And Facebook went down and we had three bad sales calls in a row, and all the normal things of running a business, this is where a lot of your stress can come, right?
And there's all [00:23:00] sorts of financial advice on what to do with that 58% margin. And maybe someday I'll do an episode on that. But the point is, look at your business right now. Are you hitting 58% margin? If you aren't, if you aren't, you need to make some changes because even at nearly 60% margin business is hard.
It it, it's gonna take work. It's not bright and shiny, sunshine and rainbows every day. I would be scared to run a business that has margin less than that. Okay, but this is what you should be looking at at a million dollars a year, and this is after all your expenses. This is after you pay advertisements.
This is after you pay your support and your virtual assistants. This is after you pay software. This is what you should have left over. Pay your taxes on top of that. Keep the government happy and off your back. That's another way to reduce stress and. This is what you should expect. Now there's a little catch here, [00:24:00] and the catch is that at about a million dollars a year, that's probably the limitation for a one person job, right?
So, like I said, in in at a million a year, you're doing it all. You're doing the advertising, you're doing the sales, you're doing everything. In my experience personally. And in working with clients, I would say that's your limit. You start getting to 1 50, 200, 2 50 per month, $250,000 per month. You're gonna start to break as an individual.
So what that means is that at a million dollars a year, you have to start making choices about what you want from your business. Okay. Because at with these margins, I'm going to guess that's more money than you thought you were going to make. And you're gonna spend the first six months, year, year and a half, two years buying everything you possibly can, thinking it's gonna bring you all sorts of happiness.
Some of it will. Right? I remember the first time I bought property [00:25:00] that brought me. More happiness than I had even anticipated, right? 'cause I grew up, I was moving every six months. I never had any sort of stability. I was homeless at one point. So for me, actually having a place to live that I owned outright in cash, that fixed a lot of my Maslow hierarchy of needs, stuff that was going on in my head.
So some things you'll buy, they will be make you happy. Most of the stuff you buy won't make you happy, and so you'll reach a conclusion. Rather quickly, what do I do next? Because now you remember, you're in a job, a very well paid job, but it's not like you can be free from it. So the next thing you have to do is say, well, what do I want?
Most people when they hit this, this level, they realize I don't want a job. Um, they realize how smart they are, how accomplished they are, what that, there's a way big difference between being a business owner and having a job inside of a business you created. And they say, I wanna be a business owner. I wanna transition to [00:26:00] ownership.
I want to get outta the day to day. I wanna stay in the areas that I appreciate, but they make this one mistake. They say, I'm gonna do that on the current monies that I'm already making. And that's the first mistake. Because what happens is that margin, it gets eaten up real quick. Okay. Again, it seems like, wow, I'm making $48,000 a month.
I'm never going to ever worry about money again. That's just not true. When you start hiring, that money goes away fast, faster than you can possibly imagine. So if you want to work yourself out of the business, you have to accept that you need more money to do so. You just have to accept that as a reality.
Because as I said earlier, you are very expensive, right? It's very expensive, all of the skills that you have developed. So we need to start replacing those with other people who have also developed those skills, [00:27:00] and those people are not cheap because those skills are highly valuable. So now we go to what I call the comfortable $5 million a year business.
This is my favorite place to be. I've been in all sorts of places. I've been at the scrambling to get my first, you know, $10,000 a month. I've been, uh, you know, the one person show at a million dollars a year. I've run more than one eight figure company. I. Both somebody else's eight figure company and my own, this is for me, the sweet spot.
It's around $5 million a year, four to $5 million a year. Uh, things are sunny here because, because this is where you're building a team, but you're not building a corporate team. Okay, so at the $10 million a year in higher business, again, this is, we, we can have a whole different discussion about this. At eight figures a year, you're going corporate, okay?
You need [00:28:00] corporate leadership, you need hr, you need full-time employees. You probably need office space of some kind. You need lawyers, et cetera, et cetera. At $5 million a year, you don't need a lot of that stuff. You can create a small, intimate, flexible team, and you still get to be involved in the fun parts, and you can get rid of all the other parts.
At 10 million. You start. Acquiring corporate responsibility, you actually start being held accountable by other people. You, you almost start to have bosses at 10 million a year or higher at five. That's not, you're still in that fun freedom. Entrepreneurial, creative, let's have fun mode. You're still connecting with the people that you care about.
The people that you enjoy serving. For me, it's a really fun place to be. Okay, so that's the $5 million a year level. What we're trying to do though is get you out of daily fulfillment. And we're getting you out of selling. And most marketing, not all marketing. 'cause what are you doing right [00:29:00] now? You're listening to a what?
A podcast from me and I am, I'm marketing to you. Right, so you're not out of all of your marketing. You can't remove your face from it entirely at $5 million a year. In the help business. It's very difficult to do. So you still kind of need to be involved in some form of content creation, but it doesn't have to take a long time.
These audios that I create, I literally just have an idea and ramble on. If I worked a little harder, I could probably make 'em shorter, but I, I'm too lazy. Uh, but I am out of sales, so I don't do any selling myself. Uh, you're still going to be needed for decisions, but they're much higher level decisions, so I don't really deal with drama anymore.
I don't deal with the support inbox at all, but if we're thinking about taking a company a new direction, I'm involved. If we're thinking about, uh, some sort of new innovation or some sort of new offer or some sort of new whatever, I will be involved in that. I don't [00:30:00] need an office at 5 million. We're a fully remote team.
Um. A lot of our team is made up of contractors. Again, you, you do have some need for full-time workers, but a lot of what you can do can be, uh, contracted out. So that's always nice. That's a lot of flexibility. If you, those of you who are like, I'm excited to hire my first employee, it's like having a kit.
I mean, when you commit to an employee. There are laws that protect the employee from you and your wishy-washy this, I mean, it's, it's a really serious commitment. So being able to have flexibility even at 5 million a year is always a smart thing to do. Um, and then, uh, this is, this is a really, you at 5 million a year, you still have really healthy margins, which is not the case at 10 'cause things get very expensive.
So again, I found this to be my sweet spot. So let's go ahead and run down the numbers for you here. Okay, so to make 5 million a year, you need to make $417,000 [00:31:00] per month. And this is how the costs break down on average. To do that, you're going to need to spend about $140,000 per month in advertising, and as you begin to scale your advertising, it gets more expensive, so you actually get less per dollar spent as you spend more.
Okay, so this is one of the trade-offs of scale. Anytime you're scaling a business, you start having trade-offs. This is one of them. So instead of that frontend offer that book or that low ticket offer, instead of it necessarily being able to cover a hundred percent of your cost. This is where sometimes it dips below.
Sometimes you can only cover 75% of your costs or 50% of your costs. It's still better than covering 0% of your costs, but this is one of the trade-offs as you begin to scale. Personally, I'm [00:32:00] totally fine with it because you know, having to cash flow a 75%. Uh, you know, offset means that for every dollar I spend, I I have to carry 25 cents until somebody upgrades to the backend, which in our case is only about seven days.
So, can I carry 25 cents for seven days? Yes, I can. In a VSL model or webinar model, you have to cover a dollar of every dollar until they go through your funnel and, uh, you know, buy your thing, which is why I prefer. This three model, uh, three offer model with a low ticket in the front end, specifically a book.
Okay? So that's important to know. Your, your, uh, your ad costs will get more expensive and at $140,000 or more in ad spend, you should not be doing it yourself. So there's a couple of ways to outsource. You can hire media buying agencies. You can hire internally, you can train a junior, et cetera. So I'm just going to give you.
A [00:33:00] general number that you can expect to spend for somebody decent to manage that 140 grand a month, and it's probably about $5,000 per month, plus a percentage of your ad spend. So you pay five KA month and then it's a percentage of the ad spend on top of that, depending on the deal that's made. And then you're also gonna very likely hire other marketing expenses individuals, whether it's a PR company or you're hiring some other kind of, maybe a marketing assistant.
Maybe you're hiring an email copywriter, et cetera. So let's just factor for $10,000 plus a percentage. Okay? So we now have people on the team who are getting performance percentages because we need them to be able to perform. Again, this is where I said your skills, one of [00:34:00] your skills as an entrepreneur is that you care about your performance.
Okay? That is something you need to incentivize for. Not everybody comes with. An attitude of giving a rats behind about whether or not the business does well or not. So adding a piece of percentage is how you can increase the likelihood that they will bring that skill to the table as well. Okay, so that's your marketing and that's your media buying.
You're gonna have to have a sales team to be able to handle the volume of sales calls to give you the volume of closed units to get to $417,000 per month. Uh, that will typically be 15% of all sales generated revenue. So it's not the revenue from the front end offer, it's just the revenue from sales closed plus performance bonuses.
Why? Same thing I said before. You need to, again, one of the hardest things to replace is your ability to care about doing [00:35:00] well. That's very, very hard. The, the actual skills that you have, I mean, I hate to break it to you, but it's, that's actually easier to replace, uh, because lots of people have those skills.
Probably lots of people are better at you than you think you are at that skill. But what turns your skill, whatever level it is into a superpower, is the fact that you, you know, your life is on the line, right? Like you have to make it work to pay your bills. Uh, and so. You have to incentivize that same, uh, urgency.
Okay, so that's 15% of all the revenue that's coming in. It's all top line. So things are getting expensive now, right? Support costs. We are, we can't just have a virtual assistant now because our volume has increased. In fact, our customer support costs will likely double at least. So that's just for incoming support.
So it was $2,000 a month. So we're now probably looking at a minimum of $4,000 a month. And then we [00:36:00] have. On the low end again for, I'm assuming that you're following our models and that you're in the help industry for things like coaching assistance, um, help on high level support. If you offer, you know, junior coaches doing one-on-one sessions, or if you have other coaches in your company, you're looking at a minimum of about $10,000 per month just in qualified coaches being.
Part of your thing. It can be more expensive than that depending on how much you're trying to, um, give in your offers. Uh, it could be less, it just totally depends. But we're looking at a minimum of $10,000 per month. You're going to need at least an operations manager slash business manager to handle all of these different moving pieces.
Trust me when I say you probably shouldn't be the one. Managing the day-to-day [00:37:00] people of your business for your sake, but honestly more importantly, for their sake. Okay. If this is the first time you've ever managed people, if this is the first time you've ever been at this level of your business, you can become a real pain in the backside.
Sometimes when you start worrying and freaking out and you're thinking about the business and you don't know. So it's just to have the buffer for your team to survive having a good, strong business operations manager. It's about $7,000 a month plus performance, plus some kind of special, extra kind of benefits.
That's what you're looking for, okay? Uh, now this is assuming that your business manager, operations manager is someone that's actually getting you to $5 million a year and et cetera, okay? But they should have the opportunity within your organization to get themselves to six figures a year through [00:38:00] incentives and bonuses and et cetera, when you're making 5 million a year.
Okay. As a company, right? Uh, so just keep that in mind in terms of who you hire. Sometimes you can hire sort of a lower on the S-curve. Well, I'm kind of getting sidetracked here. I could have a whole conversation on this. This is to get to 5 million. In my opinion, this is the most important hire. Is, who are you going to position yourself with?
This is often called the Integrator. Um, there's a really good book called Traction and I can't think of the author's name right now. This is, I highly recommend you go read that I. The idea of entrepreneurs essentially partnering with integrators or having integrators on their team. You need that person.
Okay? Don't even think you can get to 5 million without it. Okay, next we have software costs. That's definitely going up. It's probably gonna be about $3,000 a month. You have all sorts of software costs associated with running a $5 million business. You've got your marketing softwares, [00:39:00] tracking softwares, your CRMs for sales teams, and please, you guys don't skimp on that.
Give your sales teams good CRMs, track everything that you're doing, make sure you're not wasting money on leads. Make sure you can measure everyone's performance, et cetera. So at least $3,000 a month from them. So let's go ahead and. Break down, how many units of stuff are we gonna have to sell in order to hit those numbers?
And let's assume that only 75% of our ad cost is covered. Okay, so let's assume we scaled and our ads got really expensive. 75% of our ad costs are covered. We have $312,000 per month in backend revenue. So we have to sell 300 grand of stuff to the people who bought our book. In order to hit our goal for $5 million a year.
So not too bad. That's very, very doable. So you can be absolutely insane [00:40:00] and, and overwork yourself and try to sell 62 units of a $5,000 offer, right? That's not sustainable. You could try it and you could probably do it for a little while, but 60 people a month at $5,000. You're gonna lose people, people get lost, they'll, they'll not get the attention they deserve, et cetera, et cetera.
Um, you could try to sell 32 $10,000 things that's a little bit more manageable if you have very strong systems in place. And then if you have. A little bit more of a budget to bring on additional coaches, and you want to train them and hire them and bring them into your world and teach them your systems and things like that.
Okay. But that would be, I would say, either one of those attempts to fill that 300 grand a month we have to come up with, that's a, that's a kind of the, the hard way to do it. An easier way to do it. And the more likely way that you'll be able to get it to happen is if you [00:41:00] have that upgrade offer that's something around $3,000 a month.
Uh, and there's all different ways to set that up. You have about 35 of those people in that particular offer. Which gets you your $105,000 a month, and that's a nice recurring, very predictable income. Then after that, you only need, say, 45 Ks, or if you're priced at $10,000, you only need about 20 of those or so.
Okay. Now this, that's still a lot. Like, let's not downplay the fact that this is a lot, and if you're currently the only person in your business doing anything, that number probably seems impossible, right? So if you're at the six figure level, or you're at that seven figure level where I told you you're still doing everything, this is why, this is why, you know, the, you have to make a choice about what you're doing and be purposeful because.[00:42:00]
This right here, these numbers, so 2010 Ks and 35 by three KA month. Those numbers in my business don't feel like anything. They actually feel less than when I was at a million doing it all myself, and not just a little bit less, but significantly less. And that's because I knew. To replace myself so that I could actually do less myself.
The business had to do more. Does that make sense? So not only do we have to make more, the business actually has to, in order to make money, you have to deliver value to the marketplace. So it means you have to actually do something in exchange for that value. So I did less and the company does more. Okay, so you're, you at this point, your, your business is moving and grooving.
You have new problems, you have problems with team and [00:43:00] staff, and you have problems with, no one will ever do it as good as you do it. But 85% gets the job done. Things like that. Okay, so, uh, it's a, it's a new set of problems at 5 million. Some people aren't comfortable graduating to those new problems and they revert back to a million dollar a year business.
That's totally fine. There's nothing wrong with that. At this particular level though, I work less than, significantly less than a part-time job. Okay, so significantly less than a part-time job because I have a very good team to be able to implement and do all of these things. And then the revenue is significantly higher in order to pay for them to be able to do those things.
Alright, so let's do a breakdown now of the profit. If you add all that up and take, take, take it from, so all those expenditures, take it from the top line revenue number that we said we needed to hit $5 million a year. You'll see [00:44:00] that our total monthly profit is about $226,000. Per month. This is pre-tax profit.
It's about $2.7 million a year off of a $5 million a year business. So even at 5 million, you're still looking at a 54% margin. Okay. That's really, this is, you know, I, as I said before, I don't understand why this isn't talked about more often. Um. Because again, you can go study just about every other industry and what their normal numbers are.
I would consider this about a 50, 55% margin on 5 million a year. I would consider that average. I would say this is somebody who was strategic about the strategies that they implemented for hiring, for measuring [00:45:00] efficiency in their. Deliverables and their fulfillment. And if I were you and you're working yourself up to this business, this is, these are the numbers that I would look at to compare how efficient you are.
Now, there's a couple of things here. The same in the same way where I say, you know, to go from zero to a million, there's gonna be a bunch of sort of space in there where things are unpredictable. The same is true to go from one to five. Okay. Anytime you grow and you shift your normal way of doing things, your margin's going to fluctuate.
That's why I'm so obsessed with reducing the chaos in people's business, right? It's actually not about you. I mean, you are the benefactor of it. I want you to live a wonderfully peaceful life and, and be happy, but it's actually because. Uh, to grow and scale. The more you can reduce chaos, the more likely you'll actually be able to scale, because there's already inherent chaos in shifting to a new [00:46:00] way of operating.
So to go from one to five, it's not just that you hire a bunch of people, it's also that you have to be able to cover their expenses. You have to learn how to manage people. You have to learn how to hire, so you're not gonna be very good at it at first, which means you're not gonna be very efficient when things aren't very efficient, they're very expensive, and et cetera, and et cetera.
Okay. So that's the first thing I wanna say on that number. And then the second thing I wanna say at that number is that at $2.7 million per year in, uh, pre-tax profit taxes are a nightmare. Taxes are, um, absolutely brutal. Um, so it's at this level that you really need to start developing the skill of investment.
Of investment and I would be cautious to, to follow any advice that says, just pour that money back into the business because, not because I don't think it's a good idea. It absolutely is a good [00:47:00] idea to put the majority of that money back into the business. But what can happen is that people, business owners hear that advice and they feel like, okay, what I should do is find a reason to spend the money.
And my advice to you is you got that money because you weren't looking for reasons to spend money, so don't just go spending it for the sake of spending it. Again, this goes back to the original sort of idea we talked about, which is why are you even doing this business and. And we'll talk about this point here a little bit later, but there, there becomes a diminishing return in, in money very, very quickly, which we'll talk about, which also affects what you decide to do with it.
But, uh, if we're looking at $226,000 a month in profit, 50 for 4% margin. That's what I would look at. That's what I would look for at a $5 million a year business. Okay. Now, what is life like here? So you're still very involved, especially in marketing and sales, but you're not doing the marketing and sales.
There's a [00:48:00] difference between being involved and doing okay. At $5 million a year, you should have a team capable of figuring out how to implement your innovative ideas. If you're very lucky at $5 million a year, your team can even contribute innovative ideas. It's rare, it's difficult. It comes down to culture, it comes down to right hire, right fit, paying people what they're worth, et cetera.
But you are still very much involved. There's still a lot of approvals coming your way, decisions to be made, et cetera. You often are positioning yourself more into a creative role rather than a management role. If you have a good operations manager, they should be able to take care of the day to day, so you can just create things, which means you should be spending time on improving and creating all sorts of different things, your offers, your marketing, et cetera.
But the implementation, the majority of the implementation should be done on a team level, [00:49:00] fulfillment, measurement, and tracking, et cetera. Uh, and, and some examples. As I said earlier, me making this podcast episode and sending it out, I'm still very much involved in marketing, okay? But my total hours devoted to marketing is, is very, very small, like ridiculously small.
All of these podcast episodes are, uh, batch recorded. Okay? So I did two before this. As soon as I close this one, I'm gonna be doing two more. And that's, that's it for the whole month. Okay, so now there's, there's another decision that you have to make here, and this comes back to the, to the money idea. At $5 million a year, there's another decision you have to make, and that is your exit strategy.
Okay, your exit strategy. Now, one of my very, very early mentors told me that the truly wealthy don't [00:50:00] ever fully exit the things that they've built or own. They just figure out how to partially exit. And I have found that to be true. I don't actually ever want to sell my businesses. Why would I sell it if I can design it to a point where it runs itself and I get to keep 58% margins?
Right. For somebody to pay me enough money to get rid of 58% margins, that could last 10, 15, 20 years, and they're gonna have to gimme a lot of money. And I don't know if I can make a business valuable enough for somebody to give me the money that I would need in order to actually make that worth it. But at $5 million a year, you have to start asking yourself, well, what's next?
What are you gonna do? What does exit look like for you? And the real big problem with this decision is there very quickly will become a point in your business growth where making a hundred thousand dollars a month in profit versus making [00:51:00] $200,000 a month in profit doesn't actually matter. It, it doesn't, there's no measurable to you difference between taking home another a hundred or taking home another 200.
Money very genuinely loses its power. Its meaning its significance when it's coming in like this. Okay. Now that's important. I know it sounds, you know, there's very few people in the world who will ever be able to experience this, but it is important because once you get to this point, I've seen many business owners purposefully create chaos just to create meaning because they got to this point.
So when you get to this point, the first thing you have to do is ask, should I stick around? Is there anything here for me to do or should I exit? And I can tell you for me, my answer to this question is always exit. So for example, the [00:52:00] business that you are, know me through from this podcast by February 1st, I'll be fully exited.
Uh, from the business and all you'll hear from me are the podcast and, and that type of thing. Uh, we might have an offer where I'll show up for a couple hours a week, but otherwise that's, that's sort of the next stage. Again, you could decide that you want to be more involved. For you, that might be it's time to go to the next stage.
It's time to get to $10 million a year. Uh, it, it is just another, once you reach it, it's just another plateau. And then after that there's a plateau, and after that and after that, and after that and after that. So knowing what you want, knowing where you're trying to get to, is incredibly important. It's more important than what your actual specific margins are.
And that's kind of what I wanted to get the point across to you in today's podcast is. Margins are wonderful. You can use them to measure your [00:53:00] efficiency. You can use them to measure against your business and see where there might be areas that you can work on. But at the end of the day, the margin is meaningless.
If you don't put the meaning in it. The meaning is up to you What fit, what 54% margin on a half a million dollar a month business is, is entirely up to you what that actually means. So just some things to think about. That's it for this episode, my friends. In my next episode, I'm going to be telling you, which I'm actually gonna record right after this one.
I'm gonna be telling you what to do. Three things I think. Three things to do if your margins are not like these. So if you heard these numbers and you're like, holy cow, my business is way off from this, have no fear. In the next episode, I will break down a couple of ideas for you that you can use. Hope you enjoy them, and I'll talk to you in the next episode.
