If you missed part 1 of this series, the link is here. Part 2 can be found here.
A business with a strong niche isn’t trying to be “better” than the competition. They’re trying to differentiate themselves out of competition altogether.
And one of the ways that a purpose-driven, solution-providing, small business is different from others is the way they think about money.
Profit
If you’re running an honest business, profit is the measure of value your customers get from you.
Some people will tell you that too much profit is bad. But, all other things remaining equal, your profits are justified when customers keep coming back.
So what hurts my heart? When revenue-focused agents build their business around price competition and grinding leads.
To grow, you need to invest. Better talent, better marketing, better skills, maybe a better location.
That’s going to cost some money, of which your business provides 3 types:
- the money that you use to pay to operate and pay taxes
- the money that you use to pay yourself
- the money that’s left over
#3 is what you use to grow your business: profit. Optimizing it is your job as CEO.
Better margins are a great place to start meaningful growth. And that kind of business looks different from a top-line-obsessed business. But adding revenue to a high-margin business is just glorious. It means you can make massive reinvestment in growth.
Investment
Most small businesses look at outgoing money as an expense. It’s right there in your P&L statement, right?
But if you want to have a great business worthy of dominating a niche, you need to think in terms of assets.
Minimize expenses; maximize assets.
Most notably, if you think of labor as an expense, you’re not investing. You’re just spending. But talent is an asset. That means you can leverage it. The more you empower them, the more value they can produce. They’re more likely to have a strong sense of ownership over their results. And they’re more likely to take initiative to make things better.
Speaking for myself, many times I’ve made individual decisions or recommendations that were worth more than my annual salary. And I’ve had many employees do the same.
You cannot get those results if you think in terms of labor expense. Cheap labor costs a fortune in rework, lost value, bad team morale, and frustrated customers.
Hire great talent, pay them well, and turn them loose.
The other great place to invest is in yourself. Freeing yourself to work on your highest-value activities is the greatest liberation you can experience as a business owner.
That means learning how to delegate and outsource. Hiring an assistant. Saying no to low-value requests. Cultivating a culture of self-management within your team.
And if it means spending money to make yourself free? Do it. When has investing in yourself ever been a bad bet?
Customer Lifetime Value
Take all the money you spent on sales and marketing last year. Divide it by the number of new customers you won.
That’s your Customer Acquisition Cost. We’ll call it $300 for the sake of discussion.
Now suppose you acquire a customer who generates $150 of commissions annually and stays with you for 3 years.
You made $150 of profit, or a 50% ROI.
Now let’s say you acquired a customer who generates an average of $400 per year for 20 years. That’s $7700 of profit, or a 2500% ROI.
That’s the same as acquiring 51 of the first customer.
And if you’re trying to dominate a niche, you have to think about keeping customers forever. Burning through customers in a niche is like draining the oxygen from the room.
Knowing How You Get Paid
The number of agents I talk to who don’t know how their compensation plan works is staggering.
For starters, if you’re working on a 25% net margin, and you can move your commissions from 8% to 10% without increasing expenses, you’ll double your profits. Here’s an example using round numbers and a hypothetical comp plan:
Sales: $3,000,000
Commission: 8%
Income: $240,000
Expenses: $180,000
Net Income: $60,000
Sales $3,000,000
Commission: 10%
Income: $300,000
Expenses: $180,000
Net Income: $120,000
That’s without increasing revenue. But in reality, you’ll increase revenue to get that 10% commission. And you’ll probably score better incentives, which might actually triple the money you put in your pocket and reinvest for growth.
That’s why it makes my heart hurt to see agents grinding away on low-yield leads. Work smarter before you work harder.
And owning a niche is about working smarter than everyone else. And it involves working hard, but it’s a different kind of hard work.
Conclusion
As an agent, if you can take over a niche (or two), you can make massive upside. You’ll have to be worthy of it, and you’ll have to be smart about it. But it beats the grind. More money, more impact, more fulfillment, and more predictability. All good things.
If you’ve already got a strong niche, I’d love to hear from you.