Lights On Strategy

#5

Revenue and expenses never track together. Some expenses like buying inventory land far before revenue.

Others, like keeping the lights on, are consistent year round.

Some months you might know are going to be a loss. Having the stress of “where will the money come from?” hanging over your head is huge.

You can eliminate that by launching a service where the aim is just to keep the lights on.

Why it matters.

Consider your personal life. You have consistent expenses and variable ones.

• Consistent - Mortgage, grocery bills, electricity, car payment

• Variable - Buying a new car, clothing, dinners out, going to the movies

Consistent expenses stay the same month after month. My mortgage payment hasn’t changed in 4 years.

Variable expenses can be adjusted. If we need to be frugal, we can postpone these to a time when cash is higher. We don’t necessarily get stressed out about not having cash to cover variable expenses like getting a new bag or going to the movies.

But what if you knew for a fact that next month you wouldn’t have enough to cover your mortgage? And that you had to pay for it on credit?

Stress through the roof. 😩

Often businesses use cash reserves to cover monthly losses and replenish cash later when revenue is higher. Somehow this has become common practice in business, but it’s like recommending to your friend that they use their year end bonus to pay their mortgage and then count on getting another the next year. That feels wildly risky.

I would never recommend that to you.

Instead, I’d recommend a service that keeps the lights on.

How it Works

To illustrate why this is important I dug through my archive and found some data from a real e-commerce company. I’ve changed it and you don’t know the company, but it’s a very good example.

The chart below is yearly revenue and expenses for a 7 figure business.

Blue bars are monthly revenue, or income.

Red bars are monthly expenses (salary, software, rent, ads). These are the consistent monthly expenses.

Yellow bars are COGS. These track with revenue, even though they would have been bought earlier in the year.

The floating numbers are Net Income (or profit), where COGS and Expenses are subtracted from income.

A couple of things to look at here.

1. The majority of Revenue happens in November. Black Friday and Cyber Monday baby.

2. 6 months are net losses. COGS and Expenses for the month are greater than income. As an entrepreneur, I can’t tell you how bad this feels.

3. Expenses are fairly consistent. They bump up on some months, but I bet that’s ad spend. The lowest month is February.

The Red bars are what we want to focus on, the consistent monthly expenses. If something beyond our control happened (like a pandemic or major supply chain disruption) that consistent expenses is enough to make this business go under.

We can’t eliminate those expenses. Yes you can get more efficient, but you can never eliminate them entirely.

But what if you could offset them each month, like you have a salary offset a mortgage?

Peace of mind

For this product business, if we were to add a service, that has no inventory cost and sell $20,000 per month, it would almost entirely offset consistent expenses.

There would be just one month that was negative. Can you imagine a business that had no negative months?

No question if it was going to make payroll?

This kind of peace of mind opens hidden opportunities.

It allows for the ideas that founders have for new products, or ways to serve customers that they’ve had to put on hold in order to focus on finding money for the next month.

How to apply it.

Now how do you launch a service that pulls in $20k a month? I would bet that a company of this size has an email list of ~10,000 people.

Here are some reasonable ideas for an audience of that size:

• 4,000 monthly product drop subscribers at $5 a month.

• 1,350 community subscribers at $15.

• 150 attendees for an “Etsy to Storefront” workshop.

• 100 billable hours of design at $200 per hour

None of these are going to be blockbuster services. And they’re contrary to the advice that tells you to focus on your one thing. But they’ll help cover expenses with a high margin service so that this product business is ready to roll in it’s big month of November.

The end.

It’s stressful enough being an entrepreneur. I don’t want you to have to stress over where the money will come from to keep the lights on. Consider launching a keep the lights on service to eliminate that stress.

Build slow, build on purpose, build for the long run.

You got this.

Catch you next week!

-Nate

Whenever you’re ready, I help entrepreneurs increase their profit in two ways.

1. If you want specific ideas on how to create a “keep the lights on” service for your business, the 1-hour, 1-on-1 might be right for you. These are best for businesses in the launch stage, usually under $200k in revenue. It’s amazing how much we can get done in an hour.

   Book your call here.

2. Our structured 3-month program, to help you sustainably increase profits. It focuses on foundational growth, strategic direction, and actionable plans. A cross between coaching and consulting, it includes 2 major deliverables; a financial analysis and a strategic plan that you can actually use. This program is best for slightly complicated businesses that are scaling, usually between $200k and $1.5M.

   Book a call here.