Why I Hate The Term “6 Figures” and What I’m Going To Do About It

There’s something that I’ve had to rant about three times in the last 24 hours. When that happens, I know I need to write a post about it.

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.

Innumercy 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 $12 BILLION in revenue, and only show $7 million in net income. (for those without calculators, that’s a 5% 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. It reported a 96% quarter-over-quarter loss to its investors, which is not nearly the same thing as hiding revenues in tax shelters to keep it from Uncle Sam.

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

One of my clients yesterday suggested that I do a Q&A call for people on business topics. So if I get enough interest — say, 20 comments or emails saying they’d be interested, I’ll set up a call for December. (I know you’re probably busy in December, but if you’re interested in the concept, register your interest anyway). If there’s an interest, I’ll probably continue with monthly calls until the questions get too repetitive and I get bored. #tbh

So what do you think? Interested in Office Hours with your favorite foul-mouthed pedagogue? Leave a note with the things you’d most love explained.

[ssbp]

17 thoughts on “Why I Hate The Term “6 Figures” and What I’m Going To Do About It”

  1. Freaking yes, I am interested! Tell me when and I will be there.
     
    Regarding the rest of this post, I can totally tell it’s an especially button-pressing topic for you. It’s so refreshing to hear someone call out those 6-figure promise-makers. It reminds me of something @joeyjoejoe  says in Start Investing with $100 about rates of return on investments and how you have to find out what factors are taken into account instead of blindly accepting the advertised rates as fact.
     
    Our culture really seems to like flashy statements that don’t have much backing them up. More and more, we seem to believe what people claim without questioning the math or context or agenda or the like at all. I’m far less business…numerate(?) than I’d like to be. I’m one of the ones Quick & Dirty Bookkeeping helped a lot in that respect, among many others. But I know enough to know I’m innumerate, which I think is a good starting point!

    1. @remadebyhand  Marketing is an ethical grey area for me. On one hand, I believe that if you make something valuable, you have a duty to get out there and pimp it, because people aren’t just going to go looking for it. And you have to catch their attention. But of course, soon you’ve got people who are better marketers than they are value-providers, so quality marketing stops being an arbiter of value– but you can’t stop marketing, because marketing has become the new sea level. If you drop below it, you just suffocate. 
       
      So marketing becomes not only about differentiating your product from the rest, but also differentiating yourself from the bad marketers. And on that point, I think Seth Godin has it right– build a community or a network that trusts you and your work is half done. Look at the way Ramit Sethi has levelled up his marketing this year. I see his Adsense ads EVERYWHERE because now he’s finally got a community big enough to fight back against the combined skeeviness of his whole industry. 
       
      But still people fail at it. Remember the 10-minute orgasm in 4-Hour Body? Every interview he did mentioned that chapter. Turns out the chapter was about *bringing* a woman to orgasm in 10 minutes or less. Not nearly the same thing (or nearly as big a selling point, IMO). So you have to be very, very careful about making sure you live up to the promises you make. Not just the letter, but the spirit. It’s not unethical if you just do it to the letter, but it still leaves people feeling burned, so that ought to be enough to keep you on the straight and narrow, *I* would think.
       
      What was I talking about ? 🙂

      1. @Shanna Mann “Marketing has become the new sea level.” Perfect! (Also, post topic? 🙂
         
        Marketing + substance sounds like the ideal combo. I HATE it when I click on a post with an amazing headline and end up skimming through the same crap everyone else has already rehashed to death. I hesitate to buy information products and the like for the same reason. You’re absolutely right — I have to know and trust you, be sure your stuff is good and that you deliver what you promise, before I’m willing to buy from (or even give much time to) you!

    2. @remadebyhand Yep, you gotta always know – or at the very least, be aware of or try to find out – what assumptions or biases people have when they give you something. One of the few blog posts I’m proud of from my pre-Value of Simple days talked about rankings – Google, US News and World, or otherwise – and the amazing bias that goes into them that isn’t disclosed (and can’t be found out).
       
       @Shanna Mann I totally agree innumeracy is a huge problem or I wouldn’t have sent you that article in The Economist about it. But I don’t agree using the phrase “six-figures” is a problem. “Six-figures” isn’t about innumeracy. It’s about creating a general sensation of aspiration and impressiveness in most people’s mind. That’s why I mention leaving my “six-figure” corporate job in the “My Story” page on Value of Simple and a couple of other places on the site (I do qualify the statement that this was total compensation and not raw salary of course).
       
      I want people to aspire to do big things outside of reaching for a six-figure job. I want people to be impressed that someone like me was willing to give up a six-figure job for a shot – just a shot – at self-sufficiency and generating a kind of value the world truly needs. You don’t really expect me to disclose my federal and state income tax filings, along with all my life/business costs, plus factoring in inflation when I type “six-figures,” do you?

      1. @joeyjoejoe  Of course not. When you’re using it in your about page, it’s a figure of speech. Even sometimes in marketing it’s a figure of speech. But when it’s included in the marketing as a specific promise they’re making to you, I find that to be problematic. 
         
        Sort of like when Paypal has a promotion “Enter for a chance to win $1000”. They’re not giving you enough information to decide whether that’s really worth it to you because you don’t know the odds. 
         
        Similarly, if someone promises me six figures in income, I know enough to realize that my take-home income will be much smaller than that, and in fact, I will probably have a lower margin than I currently have because of certain overheads I’ll have to take onto to scale. 
         
        Innumeracy is looking at ‘6 figures’ and thinking ‘Oh, good. Next year I’ll be making enough money to send my kids to private school’ when that will almost certainly not be the case.

  2. Heck yes… I think part of the problem for business owners is that they don’t know these are things they need to think about until they’re in way over their heads. I know someone who was making 6-figures and then the whole thing basically collapsed because she had no systems and wasn’t running the business like a business… she had no sense of what the real numbers were. Now figuring out how to set this up from the get-go is where I’m a bit unsure… Can we address that in the class? Like – what do you need to know starting out to make sure you’re ready later? and how do you come up with projections so you have numbers to work with when you’re brand new and have nothing to base them on? (without basing them on “This is how much I need to live.”

    1. @sarahemily One thing that people never know is their margin; what percentage of their wages doesn’t go to the upkeep of the business. Internet service businesses typically have very high margins, but the overheads also tend to be underestimated– people budget only as much as is necessary to keep the lights on, add what they need for take home wages, and go with that, without looking at things like professional development, building a cushion, paying for technical help and other upfront development (even if it’s an investment that will pay off later).
       
      But that’s just the math side. There’s also the emotional side, where you address confidence, and if necessary, plan to scale in. This would absolutely be a great topic.

  3. Aiming low is a great way to keep yourself from achieving very much. I struggle with this concept. I want to keep my goals moderate, so I box myself in to a very small mentality. 
     
    Surrounding myself with other bloggers and folks of real ambition is one of the best ways that I’ve found to help expose those narrow-minded ideas. It snaps me out of the “just enough to get by” mindset.
     
    Thanks for the reminder!

  4. Oh, yeah!
    Curves n Angles (et al) is the quintessential “micro-hobby-business” with little-to-no foundation under/behind it.
    Generally, I can justify charging the “actual hours” – the hands-on stuff. But OMG there’s so much sitting-and-staring at it time, and sourcing of materials, and revaluing my Mother’s fabric stash, and like that – how does one price out that? …before we even get down to the nuts-an-bolts of “being in business”, let alone “making money”…
    I know! That’s the cart before the horse, isn’t it?
     
    I’ll be there!

  5. Great rant! It really crystalizes the idea that small can be profitable and sustainable, as long as profit margins are high.  I knew Amazon had tight profit margins… but damn! 
     
    In my own experience, I have this same trouble when pricing one hour of my time. I think I do the same thing you did with the paint brushes! I’d be all about a business Q&A call!

    1. @ethanwaldman Exactly. You really have to watch those margins. I’m sure Amazon has a plan in mind– and remember Jeff Bezos and everyone else has already taken their salary out of that, so it’s not like they’re poor relations. 🙂
       
      Pricing is so difficult, because it can’t be about the time. It has to be about the value. Unless you’re a lawyer or consultant, no one is ever going to swallow the idea that your time is worth several times what theirs is.

      1. @Shanna Mann  @ethanwaldman It’s about *your value*  to *them* – So true!
        IF what’s Fast, Easy and/or Fun for you is screaming-headache inducing for them (or whatever measure of “worth paying somebody else to do” they choose), then you have a believable, sell-able basis for your rates.
        Mark Silver at Heart of Business has many good posts too (and at least one product) about finding your “heart’s – as well as your wallet’s – right rate”. Reading him has really helped prepare the ground for Shanna’s info to take root in the ole Karen-brain. 😉
         
        Bright Holiday Blessings ~

  6. Hey, Shanna! This one showed up in your “Related Topics” section this evening. Obviously, I read it when it was new, and re-reading it a year later, it makes even more sense. 
    Would you consider doing Another get-together on this topic? We’re all *down the road* a fair piece, but the problems still hang on…

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