This post was originally published November 2012. I still hate the term “6 figures”, and this post has been updated with 2014 numbers to reflect current information. The sign up box at the bottom? Totally legit. Put in your email for cool stuff.
You know all those business coaching schools/projects/courses out there? The ones that hit those pain points by promising “6 — even 7– figure income!”
I used to roll my eyes at that stuff. Now it just pisses me off.
Why? Because I’ve had too many people tell me about these offers, and it’s evident that they don’t understand exactly the trick that’s being pulled here.
Innumeracy is a growing problem…
…and I’ll bet you’ve never heard of it.
It’s one thing when at the grocery store you buy the big bag of flour instead of the small bag, assuming that it will be cheaper per pound (not always true– make sure you check). It’s even a little funny when a store runs a “buy one, get one half off” sale one week and the next week they run a 30% off sale and the checkout clerk tells you that “BOGO” is a better deal (…for her…).
But when people shout “6 figure business” it makes me want to scream.
The term “6 figures” is as utterly meaningless and banal as the term “all-natural” (What isn’t natural, asshole?)
6 figures what? Gross? Net? What’s your margin? 6 figures means absolutely zilch without meaningful content.
That’s why Amazon can make $74.5 BILLION in revenue, and only show $274 million in net income. (for those without calculators, that’s a .4% profit margin) Sure, Amazon is taking a loss in certain sectors in order to capture market share, it’s got massive overheads, it’s investing heavily in R&D and infrastructure. But I’ll bet those numbers surprised you.
Why There’s a Gulf In Business Knowledge
Most people look at those numbers, and their eyes kind of glaze over. Not only are the numbers not meaningful, they don’t know anything about the reasoning for getting to the numbers. Why does a Kindle sell for 79$? (Because you’re worth more in ad revenue than you are for a one-time purchase for hardware, plus, the information about what you buy to read and how far you actually get in the book is marketing gold. They’ll be giving personal electronics away before long, but they have to pay for the R&D first.)
But when you’re talking micro enterprise, we work from the opposite end. We start from poverty numbers. What’s the bare minimum you need to survive? When people achieve that, then they start looking at other things like “What’s the most you have the gall to ask for?”
It’s very hard to price things, because unlike a Kindle, which has known variables (and accountants to parse them) like the cost of the hardware, the cost of the R&D, the cost of the overhead— with services and info products, you’re basically looking at “What do I need to make to pay my bills every month, and is it possible I might make a little extra? Please? On a good month?”
But when you look at things from that angle, you are FUNDAMENTALLY unable to scale. FUNDAMENTALLY.
Because it’s a completely different mentality between “I charge enough to make a living wage” to “I run a business and I have commitments to meet, and you’re not just paying for my product or my time, you’re paying for my employees, their bonuses, and the time I have to take off every year to come back refreshed and rejuvenated with more ideas about ways to serve you.”
If you can feel your diaphragm tightening up and if the shadow of the word ‘selfish’ even flits across your mind as you read that second sentence, YOU’RE NOT READY TO MAKE MONEY. Not the the business scale. You can’t just announce that you’re ready to level up. Your MINDSET has to level up first. (Don’t worry. We’ll get you there.)
Now, the micro-enterprise view is to “charge what the market will bear.” Look. The “market” is so vast and you are so small that unless you are fully invested in serving people with no money, the market will bear anything you want it. Real talk here.
When you look at things from a subsistence angle you are fundamentally unable to scale.
And you can be fully invested in selling to people with very little money. Naomi and Dave at Ittybiz have a suite of products at entry-level prices for struggling entrepreneurs. Jenny Bones at Up Your Impact Factor, (in an act of incredible alignment and personal integrity) offers a combination of paid and pro-bono work in order to serve the under-privileged.
But in each example, they leveled up their mindset before choosing to go small.
“What the market will bear” is the strawman. The beast behind it is called “marketing”. The market will bear whatever you want it to once you have sufficiently educated your market to the value of what you are offering.
And that’s what freaks people out.
They don’t know what to offer. They don’t know how to add value, and the definitely don’t understand how to transmit value. Those are the problems they know they have.
But they also have other problems– like the basic innumeracy and lack of business fundamentals that I mentioned earlier. And not for lack of aptitude. It’s just that nobody ever explained it to them. And business books are almost all targeted to BIG business. (Even “small” business can have up to 500 employees, depending on whose definition you’re using so that’s no help.)
I was one of the lucky ones. I remember being 14 years old, selling knickknacks I’d bought from Michael’s and painted. When I was pricing them, my dad told me “Don’t forget, the mark-up on retail is at least 100%.”
I was like “What? Why is it 100%?” He’s like “Well, you have to pay for your time, your overheads, like your paint and your brushes and your rent, and the money for that’s got to come from somewhere.”
And like many a newb entrepreneur, I said, “Get real. There’s no way anyone will pay 16 bucks for a crappy hand-painted resin fairy. They might pay $10.”
It takes a long time to learn those kinds of lessons on your own.
Not Everyone Who Runs A Business Went to Business School
And in fact, with the way the barriers to entry keep getting lower, more and more people are getting into business without having a grasp of the fundamentals.
It’s no one’s fault. They were “trained” from infancy to become workers, not business owners, so that’s the skillset they’ve got. It’s not that the knowledge is mystical or hard to understand. It’s just buried under mountains and mountains of other stuff, because micro-enterprise has been the red-headed stepchild of business advice for most of the last century.
One of the things that my students loved about my Quick and Dirty Bookkeeping was the fact that it cleared up the whole concept of “net profit.” Net profit is a confusing concept because it depends what sorts of things you’re subtracting out of the gross revenue. Costs? Sure. Overheads? Probably. Taxes? Maybe. So you have to be very very particular about the details when people start throwing numbers like ‘profit’ and ‘net.’ Another one of the many things that piss me off about the ‘6 figures’ people.
Note: I don’t actually think it’s unethical to market 6-figures to people who evidently don’t know what having a 6-figure business means. Because in fact, some people do know what 6-figures means (generally, it means gross revenue, which is not all that hard to achieve. The hard part is maintaining your profit margin). But it certainly speaks to a certain cynicism on their part when every year they enroll a bunch of starry-eyed newbs who don’t know the difference between revenue and profit— even if they meant it for established business people who are ready to level up. It’s not strictly unethical if you fulfill your promise (and most do) but it’s not exactly principle-centered, either.
Intentions matter, but so do outcomes.It’s best if both square up.