How awesome would it be to be able to predict how much money you think your small business or freelance practice will earn each month, quarter or year? Pretty awesome, right? You're thinking, "But Paco, my business is totally seasonal. There is no way I can predict it." And my response is, "You can. But have to be willing to look at other data points you might not have been looking at before." In other words, if what you've been doing hasn't been working, you should change your methods.
Let's dig in.
First: Be Good at Marketing or Be Really Good at the Service You're Providing or Both
These are the first basic assumptions that you need understand and master in order to create predictable income. The income is a result of marketing or being fucking amazing at what you do or both. That's a given, right?
So, if you're really good at what you do, you might build a service business through word of mouth. I see this all the time. The marketing is done by your awesome work and other people who are so stoked on it that they can't help but tell other people about how awesome you are. So if you suck right now, do what you need to do to stop sucking.
If you aren't going to be the best, understand marketing and do that part well. Marketing fucking works, but if you can't deliver after you land the client, in the long run there is a good chance you won't have a solid, successful business.
In my opinion, predictable income in a service business first hinges on a solid service and good marketing. Once you stop sucking at both the service you're providing and at marketing, here are some things you can do to create consistent revenue so you can chill the fuck out about money.
Smooth Out Lumpy Cashflow with a Solid Billing Method
One of my biggest problems in life is my desire to avoid conflict. It's so pervasive, that I used to let clients pay me late or get creative with their payment schedules for my annual retainer. And guess what? I had to take on a bigger portfolio of clients because my cash flow timing was crap. Taking on more clients meant more work. And more work meant the quality suffered. It sucked for everyone involved.
I've since had my come-to-Jesus moment and now, I have a straight-forward billing methodology for all my long-term projects that makes sure I'm compensated on a schedule that works for my cashflow.
If you're a service provider, what is your current billing method and is it serving your cash flow needs? If not are there tweaks you can begin to implement with each new client? For example, requesting a 50% deposit for the fee upon signing. Not only does this help with your cashflow, but it ensures that you'll only work with clients who are serious about working with you.
Create a Pipeline by Understanding Your Conversion Rate
How many clients go from potential clients to paying clients? That's your conversion rate. For example, if 1 out of every 4 prospects becomes a client, that's a 25% conversion rate. If you have an understanding of what your conversion rate is, you'll know how many potential clients you need to get in front of or sell to or have visit your website to hit your goals.
Let's say Yusef the designer has been falling short of his income goals by $2,000 each month. And he has the bandwidth to work more. So Yusef started to examine his conversion rate. He noticed that 50% of his potential clients converted to clients. He also realized that $2,000 is the deposit required for new clients based on the packages he was offering.
Yusef's plan now is to get in front of two more potential clients a month (or more!) in order to close the gap in his income goals. Yusef has to come up with a marketing plan to meet more potential clients. Eventually his efforts pay off and now he has more new clients than he can serve. When this happens a pipeline of future clients is created.
A pipeline allows Yusef and you to have predictable income. He knows that he's booked solid over the next three months, so he can stop freaking out about money. If you can master this, your service business will have predictable revenue.
Decrease Your Risk with Various Revenue Streams
Once your service business is humming along with a full pipeline and a solid billing method, it's time to consider other revenue streams.
Various revenue streams is a way to hedge your risk. Here's what I mean: I met someone who had a lucrative practice of creating a certain type of advertisement using a certain type of technology. One year he was commissioned to make a shit ton of ads and he ended up making a shit ton of money. Unfortunately, the next year everything changed. The technology he was using became totally outdated, business dried up and he had to close up shop. He relied solely on one revenue stream and when it dried up, his business couldn't adapt quickly enough to survive.
What could you do to create at least one other revenue stream? What you choose to do will depend a lot on what you're willing to do, what skills you have and how you want to leverage your skills.
Here are a few examples of multiple revenue streams:
Another service. You can provide a different service. For example, a designer that does branding, logo design and website design. One client may want all service while another client may only need website design. A photographer who does portraits, weddings and lifestyle photography. My personal example is the fact that I have a consulting firm and a bookkeeping agency.
Leveraging Labor. The designer in the example above can you bring on a junior designer to run point on smaller projects the way I bring on bookkeepers to do the bookkeeping. The big question here is would you want do to that? By doing this, you are definitely going from solo freelancer to small business owner. You have to manage people. You own the work and you own the business. So you get to participate in all the upside when business is doing well, but you're also totally in charge and totally responsible when things are bad. You take on all the risk.
Referral Fees + Affiliate Marketing + Advertising. If managing people isn't something you want to do, then providing more services isn't a way for you to create a varied revenue stream. You could set up referral fee relationships. This means you get a fee when you refer business to someone. In the online world there is affiliate marketing. So a photographer who has a blog and recommends certain apps and software might get a fee each time someone buys the app. And we're all familiar with the Instagram influencer, right? They post #ads on their 'gram for a fee.
Selling a Product. A thought leader can write a book. A consultant can sell an online course. A band can sell apparel. A design agency can sell dad hats.
The List Goes On. If you sell your knowledge, you can host a workshop or earn revenue by speaking at conferences. Designers can sell templates or ready-made designs to a DIY consumer who can't afford to hire them. If you sell art you can get royalties for your photographs or songs you've recorded. If you're a connector of people, you can create a conference or a membership club type of thingy. If you create content or you're a blogger, you forge content partnerships with other companies or create branded content for large corporations that need to constantly churn out arti cles. You can sell one product or service directly to consumers, but then sell the process to other businesses. Yes, all of this takes work up front and on going. Remember kids, there is no free lunch.
The Cost + Benefits of Splitting Focus
Putting effort into another line of business means you might have to shift focus from your current business. Writing a book or developing a new line of service will take a lot of upfront work. But the benefits will help the business across all lines with overall business growth. The different revenue streams can help stabilize the business, especially if your industry is seasonal. Once you start having some predictable income, it gets easier to map out how you'd like to grow and expand.