My New Startup is Wasting $35,550/month


The-Money-Leak-Finder

I recently became a partner with a start-up design agency as an investor/advisor.

The guys I partnered with are smart. They make incredible website designs that convert substantially better than other designers. However, they’re young, and inexperienced in business. They’re both 22 years old, with lots of great ideas, but struggle to accomplish big goals because of the way they work.

They were struggling to bring in very much revenue, so I dug into the business to figure out why they weren’t making any money.

Turns out some very simple fixes will help them bring in 5-10x as much money.

I decided to write a post about it, because a lot of smart entrepreneurs are BLEEDING money the same way, by not being able to mathematically calculate where their inefficiencies are. Once you figure out where they are, it’s often relatively easy to plug them. Once fixed, the money stops leaking out and you can start piling up money.

sinkingboat

Here is the conversation that led to these discoveries:

Me: How’s the ‘XYZ’ deal going?

Mason: It’s good, I think we’ll close it, but we already have three projects for January. Should we try to book them for January, then just figure out a way to outsource some stuff?

Wooahhh, something’s wrong here, I thought. How the heck could we be booked up for January when the only jobs we have lined up are small jobs, that have already been going on for a while.

I was a bit frustrated, I’d already spent five figures on this company and we were barely bringing in any revenue! The numbers didn’t make any sense for them to be booked up. We clearly weren’t at the stage where outsourcing made sense. All outsourcing meant was me spending more money writing checks. That wasn’t the solution. We needed to get this thing on the right track.

I try to be as hands off as possible when it comes to management. I don’t want to tell people how to do their job, but something was off and needed to be fixed. My job is to make sure these guys make a lot of money. That’s why I’m involved in the deal. Other than that, my job is to stay out of the way, write some checks, and give advice whenever needed.

This was a time I needed to step in and figure out what was wrong, and break down a plan to fix what was going on before things went down the wrong road.

Me: Guys, send me the bids you’ve quoted people at so far. Let me know the specifics of why you priced the deals the way you did. Tell me exactly how you came up with the quotes.

Mason: Okay

Me: It’ll make everything clear and should be an easy fix.

Mike (when explaining how they priced it): I don’t want to base it off of an hourly rate because I think that’s ridiculous. Hourly rewards shitty work. I work fast, so each project is generally going to be less hours.

Me: While it’s fine not to base things off hourly for a client, in this type of business you have to know internally exactly what your hourly rate is, or you could be pricing horribly wrong. If you were working faster than you were quoting, and pricing the jobs right, we’d be in the opposite position—We’d be swimming in money, and/or we wouldn’t have enough work. That’s obviously not what’s happening.

I told them I was going to review the quotes, and we’d hop on a call in a little bit.

When we got on the call I told them I wanted to go line by line through their quotes.

I asked them what their goal was to charge hourly. They were persistent that they didn’t want to make decisions based on hourly rates. I told them just to humor me.

“$100/hr”, they said.

This sounded reasonable for firms I’ve hired in the past.

The first quote was a very small job, for $1.5k. Yet, this job had already been going on for close to a month.

Me: So, ideally this job would have just taken you guys 15 hours. How is this job running into January and one of three small jobs that would keep us from being able to take on new projects without outsourcing?

I ran through some specific questions with them from their quotes:

How long did the wireframe mockup take?

How long did the full mockup take?

How long did the web design section run?

What was the transfer time on this job?

When we broke down the hours on the job, they estimated that once completed it might take them a total of 46 hours.

I asked them if they realized they were working on that job at a rate of $32.61/hour. They seemed taken aback— that got their attention.

Now that we had an idea of how many hours it took, we could dive deeper and figure out what was happening.

Me: Why will this job take 46 hours but you quoted them for 15?

They both agreed they guestimated very low on the hours, so ending up pricing much lower than they should have. Once they calculated the hours out, they realized they should have charged at least double. They also said some tasks they thought would be simple on the job turned out to be harder than they thought, which added additional time.

They realized how important it was to take extra time upfront to correctly estimate the hours on projects.

We agreed that even if we didn’t quote clients out per hour, that we should absolutely know internally what the estimated hourly rate we’re charging will be. This will help us not only be able to bill correctly, but to plan efficiently when taking on work and making it possible to outsource.

It’d be extremely hard to outsource if we just charged any random price and then paid the contractor their hourly rate for however long it took them to finish. We’d never even know if we’d make a profit. That’s insanity.

So, we knew that was a hole we could plug. We set a system in place to review all bids in the near future together to make sure we didn’t run into that same problem again.

The problem seemed deeper than just some mispricing though. The numbers would help tell me if I was correct.

We went through each of the 3 individual jobs they had booked in January. They were all very small deals: $1.5k, $2.5k and $3k

“$7,000 in jobs, that doesn’t seem too bad for a business that just started.”

Well, not so fast.

A lot of people would have just assumed they plugged the hole with a pricing fix. That’s why it’s always important to do full due diligence, and run the full math.

They had already been working on some of these jobs for a bit, so they weren’t doing the full $7k worth of work in that month.

I asked them to tell me the percentage of each job they had left to complete in January. They discussed it a bit, gave me the estimates, and I calculated out the estimated remaining billable dollar amount.

$1.5k(30%)= $450
$2.5k(100%) = $2,500
$3k(50%) = $1,500

So, they had $4,450 worth of work booked up in January.

Me: Okay, there’s two of you. That means each of you is only billing $2,225 in work for the entire month of January, and you’re saying you’re going to be too booked up to do more work. If you were billing at $100/hour, you’d only be working about 5 hours/week.

We had already established the pricing needed to be corrected, but there was clearly still WAYYY too big of a gap for that to be the only issue. Something else was drastically wrong.

After going line-by-line through their quotes with them, there was a total of 154 estimated hours on the three jobs. I took the percentage left to complete that they estimated and calculated out how much time they had left on each remaining job.

It ended up breaking down like this:

$1.5k: 46 hours(30%)= 13.8 hours left
$2.5k: 62 hours(100%)= 62 hours left
$3k: 46 hours(50%)= 23 hours left

So in total, they had 98.8 hours left.

Me: That’s an average of less than 50 hours for each of you in the month of January.

I pulled up my calendar on my phone

Me: There’s five weeks in that month. So, if you guys are saying you’re booked up for January, you’re telling me you plan on working less than 10 hours/week.

They quickly realized they weren’t being very efficient with their time, and agreed to work with me on mapping out a plan to become more efficient.

I just happened to be working on a new post on that subject.

They now use the PDF from this post to help set/achieve goals: https://foreverjobless.com/the-definitive-guide-to-accomplishing-your-goals/

It’s helping them be more efficient. (Most specifically the priority goal, mind mapping and task order sections of the PDF)

They are going to dedicate X hours per week strictly on design work so we can do more billable work and grow the business.

A lot of times people get caught up doing the ‘other stuff’ that seems like work, but really doesn’t accomplish anything. Reading lots of blogs or articles and ‘networking’, while beneficial, can often be a time suck and is usually a substantially worse use of time than doing actual work. Yet, if you aren’t tracking it, you won’t even realize you’re only doing 10 hours of real work per week. You’ll feel ‘busy’, but be doing everything BUT the things that make you money.

In a long month like January there are five full weeks. Assuming a full 40 hours worth of billing each week, each guy should have been able to bill for 200 hours. So two guys, that’s 400 hours. At $100/hour, that’s $40,000 billable at 100% efficiency.

So in January we were literally leaving $35,500 on the table!

Even in a short month like February there’s still four full work weeks, so $32,000 in billable at 100% efficiency.

Clearly there’s a lot of variables that have to be working to get to 100% efficiency, but we’ll talk about that in a minute.

Right now these guys only had $4,450 billable and wanted to outsource!  We needed to get efficient before anything else.

Even if we were at 50% efficiency, we should have $16,000-$20,000 billable. That’s just at 50%!

We made a target goal of 75% efficiency for February. A lot of things had to come together to make this happen.

We were at 24.7% ‘time efficiency’ (if we wanted to do 40 hours per week in billable work).

We were at 11.1% overall efficiency right now (because of pricing and potentially other issues).

It may have seemed like we were miles away from February’s target, but a lot of these were relatively simple fixes we could put systems in place to solve.

Note: Even with just corrected pricing(2x), and working just 2x as much (20 hours per week), revenue would already increase to $17,800/month. $4,450 x 2 = $8,900 x 2 = $17,800. That’s without even improving anything else! (assuming we kept getting leads, which we had no problem doing)

We set up their weeks so they were 100% focused on design work at least 7 1/2 hours/day, a minimum of 4 days a week. This would achieve their target goal of 75% efficiency.

calender

If they only worked 30 hours on the actual billable work, we’d start bringing in $6,000/week instead of the currently projected $890/week.

The rest of the time they could get other tasks done, follow up with clients, browse the internet, and do whatever the hell it was they were doing with all of their time.

redditpic

“What if they don’t have enough work to fill up the 30 hours?”

That’s fine, then we focus on plugging that hole.

Getting client work wasn’t the problem. Not yet anyways. We had just barely turned on minimal marketing efforts and were getting deals closed, so we could always ramp that up if we needed to.

Obtaining client work when the product or service is high value is not difficult. The company has a great service, so acquiring more customers should not be a difficult task.

As I explained in a previous post, I have a very simple formula for businesses: https://foreverjobless.com/how-to-create-a-business-that-prints-money/

It’s just two steps:

Step 1: Create a product or service that’s higher value than what’s on the market.

Step 2: Figure out exactly how you can reach your potential audience.

These steps were solved.

“So you should have a cash cow right?”

Well, yes. It’s just that unless there’s hours being billed in a service business like this, you don’t bring in money.

“Can’t you optimize the current revenue and decrease expenses like customer acquisition costs?”

You can’t really optimize to increase profitability based on what we’re bringing in because there has to be real revenue to optimize revenue. You can’t optimize 10 hours/week very well, it’d take a LONG time. If you worked a year at that efficiency, you’d only do a few months of actual work. It’d take an enormous amount of time to improve efficiencies within the business if your sample size took that long to grow.

It’d be too much of an incremental change to try to increase margin on 4k/month in revenue. That’s not how you create a cash cow. That’s how broke people try to make money.

“Why are you only focused on time efficiency? Can’t you be working on efficiency, while also scaling traffic/leads, then outsourcing any overflow?”

While you could outsource, it’s a pretty ‘risky/lazy’ move to outsource when you haven’t even figured out how to run the business efficiently yet. If you’re running so inefficient you’re doing less than 10 hours/week of work, it’s unrealistic to assume we’re going to contract work out, and be able to efficiently manage other people to do efficient work. It’s just not going to happen.

We’d end up with disgruntled customers, and some of the leads we’d originally closed would unhappily be requesting refunds, so it’d be silly to try to acquire tons of traffic/new deals if we weren’t efficient yet.

We’re not even making money on our own jobs right now. You don’t unprofitably scale by outsourcing, and expect to miraculously be in the black.

We have to fix the efficiency hole first. If we had all the deals in the world we still couldn’t make money/scale if hours were just vanishing and not going towards the work.

“What if these aren’t the only issues?”

That’s fine. Here are the issues that could potentially give us problems in this type of business:

  1. Not getting enough leads— not an issue yet as we can’t fulfill what we have.
  2. Not closing enough of the leads we were getting— too small of a sample size to know our conversion rate, plus similar to the reasoning above, we can’t fulfill what we have in a timely manner, so it’s not relevant yet.
  3. Pricing deals too low— found this was a problem and implemented fix.
  4. Not getting enough work done— clearly the gap we need to fill.

 

Click image for larger version

ServiceBusinessEfficiency

“So if getting the actual work done is by far the biggest issue, what else are you implementing to fix it?”

Well, besides creating specific schedules of time to work solely on billable work, I’m having Mike and Mason each send me their daily schedule the night before individually to avoid what I think was another timesuck. I think a lot of times people in service businesses are working on the same things together, but not getting twice as much work done. In other words, there are blocks of time while even if dedicated strictly to billable work, that are unintentionally getting charged at half the rate.

Often too much ‘brainstorming’ and looking over each other’s shoulders. It’s obviously great to exchange ideas and check out each other’s work, but if not careful, both guys are spending time “working”, but two guys will be doing one guy’s work.

looksgreat

“But I don’t understand. If you already found these problems, and set plans to fix them, why not start generating a lot more traffic right now and just outsource any overflow?”

If the systems we’re putting in place solve our current issues, then we’d move our focus to getting more deals. If we did so great at finishing jobs quick that we didn’t have enough work, that’d be a good problem to have.

Our sole focus right now needs to be plugging our bottlenecks.

The main bottleneck with this business is the amount of billable design work being done.

Every time we work on a non-bottleneck (anything but design hours) we’ll cost the business $100/hr.

We can’t get that money back.

“An hour lost on the bottleneck is an hour lost on the business forever.” – Eliyahu M. Goldratt

To understand more about how bottlenecks affect companies, I recommend reading The Goal.

Let’s pretend a consultant did hourly calls at $100/hour. If he was only doing 2 calls/day because he was “busy” doing other random things, he’d be spewing $100 down the drain every time he was doing busywork instead of income-producing work. It’d be very easy to see that he was costing himself a ton of money by not doing more than 2 hours/day of income producing work.

In businesses that don’t charge an hourly rate, the same is true, but it’s a lot harder for people to realize how much money they’re actually throwing away, since they can’t directly tie their time to a dollar amount. This increases the amount of ‘busywork’, which confuses people into thinking they’re actually doing income producing work.

I believe we have systems that will improve the business, but time will tell how effective they are. If efficiencies don’t improve, we’ll re-analyze and continue until we fix the bottleneck.

I’m sure these guys will figure it out. I’m betting a lot of time and money that says they will.

We’ve talked about a number of different ideas for this company, and there’s a lot of interesting directions we may take it. If you’re interested in hearing more about this company’s progress, leave me a comment below and let me know. If you’d enjoy more stories in this style from businesses I’m involved in, let me know that as well. I write based on what I feel like people are wanting to read, so your comments count as ‘votes’ for me to decide what I’ll be writing on.

Do you know of a service business that wants to improve their business and would benefit from reading this post? Please share this with them.

Lastly, if you subscribe today, I’ll send you the Money Leak Finder PDF, to show where you’re losing money in your business:

The-Money-Leak-Finder





46 Responses to “My New Startup is Wasting $35,550/month”


  1. Billy

    I launched a YouTube channel today as well and made a video on this subject: https://www.youtube.com/watch?v=5yqfhPSZNyI

    Reply
  2. Chris Waldron

    I think this happens to a lot of young business. You don’t focus on billable work. If you arent over working standard hours on billable time, then you should atleast move non billable “work” to after hours. It takes work to get off the ground.

    I do similar with internal hourly rates, even if i quote flat rate jobs or monthly consulting, its based on a standard hourly rate of what my time is worth. Great break down of the business, keep up the progress Mike & Mason.

    Reply
  3. Rafal Dudek

    Hey Billy, nice read as always 🙂

    Here is my experience with my own web design company. I do this as a side project but it can generate a substantial income. My number one rule is that any new project that I start, I guesstimate 3x the time needed to work on it. I’ve been burned in the past when I quoted 5 hour work that took 40 hours. Never again 🙂

    Web design is one thing, I try to push on other services too like hosting, maintenance, backup/restore, security, all of which I learned to script, automate, and even outsource 🙂

    Unfortunately, experience is key here. I bet we all get burned one time or another before we learn not to make the same mistake again 🙂

    Reply
    • Billy

      Thanks for sharing your experience Rafal! How long have you been doing it, and where do you concentrate on customer acquisition?

      Do you ever quote in ranges for a job, or stick to just overestimating your hours to calculate firm bid price?

      Reply
      • Rafal Dudek

        Hey Billy,

        I’ve been doing it for almost 20 years now. Started web development and programming while I was in high school designing basic web sites hosted by geocities and such. Remember those? I didn’t start doing this professionally until about 2007 when I started getting client requests to create websites. I do virtually no advertising so all my customer acquisition is done through word of mouth referrals. Working full time as systems admin at a major healthcare provider in Colorado, I can only devote so much time to side projects. Family always comes first 🙂

        As far as quoting ranges for jobs, it all depends on how much custom work is involved. Most of my projects so far have been setting up websites for people. My biggest custom work that I charged hourly (there was no quote because I didn’t know how long it would take) was when I created a custom offline EMR system for a doctor that specialized in plastic surgery. He did not want any of the solutions that were out because they had too many features. He just needed very basic stuff. That was before my wife got pregnant so I had a lot more time to work on it. That project took over 300 hours to complete and because it was so new, I charged $100/hr for it. Normally I charge $250/hr


  4. Jacob Rothselberg

    haha mike/mason sound like theyre from utah or something based on that

    Reply
  5. Ben

    Love your posts, and I too love “The Goal”, im rereading it now at the moment to help with some sticking points in a baked goods business, the fun part is, its in a different country. Dealing with different cultures adds an element of spice.

    Reply
  6. Victor

    Hi Billy,

    Loved this post. As you know, I try to follow your teachings, but am having a hard time implementing all the things from the previous posts. Today’s post fit me really well, as I’m wasting time like a fool lately. Doing fine on poker though. I have goals both on entrepreneurship and on poker this year, so I hope I find a way to get everything done. Thank you for your quality work. How was your stay in Brazil? You never got to Brasilia, did you? If you’re planning to come and watch the world cup, I might be of some help finding a good place to stay, although I know Americans usually are not that much into soccer as we are.

    Reply
    • Billy

      Thanks Victor!

      I did take a trip to Brazil before a conference I had in Argentina, but I think I may make another trip over sometime later this year. I liked it. I need to learn some portuguese before the next one though.

      What are the things from previous posts you’ve had trouble implementing? Anything I can help with?

      Reply
      • Victor

        Hi Billy! Thanks, but now it’s really up to me. I wrote “posts” but meant “post”: the goal setting one. Although I know something about visualizations, it’s been hard to do it twice or three times a day, as it takes a lot of discipline. But it’s usually like that for me, I hardly accomplish big things on my first trial, so I’ll just keep insisting. A lot of service providers, like taxi cab drivers, are being taught a few words in English, but you shouldn’t expect to have actual conversations with most people… I guess those English classes will probably be enough only for the act of selling goods and services. Here goes a text to inspire you to learn our beautiful language: https://tipsypilgrim.com/blog/why-portuguese-is-the-best-language-for-music.html


  7. Filippo Boninsegna

    Awesome post, of the kind you don’t find many of. Please keep them coming, as I find them much more useful than success stories, especially for those of us just starting out in business. It’s not the math itself that’s hard, but just remembering that you HAVE to do it, there’s no other way! And tracking time is key (what you measure you can manage).
    Cheers

    Reply
  8. Jack

    Would be good to see more of these, good insight into different businesses!

    Reply
  9. Aaron

    I would like to see more of these businesses that you are involved with as well. A+ blog man, you’ve got a ton of good information.

    Reply
  10. Bill Aug

    Great post as usual! Always take away some great ideas that can be implemented into our business right away…that’s my favorite part about your posts! And the stick figure drawings of course 🙂

    Reply
    • Billy

      Awesome Bill, so cool to hear! I’d love to hear about any stories you have implementing things from ForeverJobless into your business.

      What type of business are you in?

      Reply
      • Bill Aug

        I own a few niche e-comm companies, and JV on a few other non-internet businesses as well. Really plan on working on building a proprietary brand/product this year though…have some ideas we might take a stab at but nothing set in stone yet. Your post on goal setting will be a huge help for really holding myself accountable on that! Proprietary is where the future is for sure!

        I think your overall style of writing has been my biggest take away from your blog, I was never much for reading business/entrepreneurial style blogs, more just books that had a track record for good material. Seemed like most of the shit I would come across as far as bloggers went always seemed like they had a hidden agenda, like writing some half-ass article in hopes I would buy they’re crappy e-book. So when I came across your blog and you not only said SHIT in a post but also called out the fly-by-night wanntrepreneur bloggers…it was a breath of fresh air! I could totally relate to the stuff you were saying…I would think most would agree, that the best thing about your blog is how in depth and real you are when you talk about a subject.

        It might take you a while to post…but ALWAYS, ALWAYS worth the read! Keep it up man…and don’t ever censor those “Shit’s”…the blog world can use more of that lol!


    • Billy

      Awesome, GREAT feedback Bill, thanks!

      Reply
  11. Jonathon Barton

    One thing you missed, Billy…
    There are not 5 full weeks in *any* month – that’s 35 days.
    There are 23 billable days in January, 2014, and therefore only 368 billable hours between Mike and Mason. That will throw off all of your other calculations to a degree – Sure, it’s only 8%, but that’s a (fairly massive) $3200 error calculating in income/hours in “weeks” versus “days”.
    Aside from that, an excellent article, as I’ve come to expect. =)

    Reply
  12. Jesse

    Billy, so who is the web design firm? I need some work done

    Reply
  13. Shameer Shah

    Great post Billy. Firstly, may commend you on the powerful headline that turned my head and it often takes a lot to do that. Secondly, I love that it talks from experience and this insight can be very valuable for new directors and founders who are looking to take the right steps.

    Well done!

    Reply
  14. Cristina Ansbjerg

    I love this post. It’s brilliant and probably one of the most useful posts I’ve read in a very long time. The video too.

    Reply
  15. Petar

    Hi Billy,
    It seems that a common problem for most start-ups (especially those requiring direct labor to create value, or as in this case – revenue is directly related to the hours Mike and Mason(M&M) work) is that the founders must spend time on all sort of activities which do not directly create value, but are necessary for the normal operation of the business. For example, other than designing, M&M must also spend time on various administrative work, accounting, marketing, etc, etc.
    Now, when they work, they create (or you aim them to) revenue of 100$/hour, and when they spend time on other activities they create 0$ (not really, but let’s assume this for simplicity).
    In this case, would it make any sense to hire someone (for let’s say 20-30$/h) to take care of most of the activities that take time off M&M? So, for every hour that the extra employee works, and enables M&M to design an extra hour for 100$/h, this will net the company 100-20=80$/h. The extra employee could also work part-time, as the value he adds is limited and shows diminishing returns (in terms of the hours he works)
    This, of course, is extremely simplified example, but do you think something like this can benefit similar start-ups?

    Reply
    • Billy

      Hey Petar, it definitely makes sense. Once they become efficient we’ll move that direction. There isn’t a lot of admin work for the number of jobs they have right now, it’s just due to inefficiency.

      Reply
  16. Andrea Grassi

    Hi Billy!
    What a wonderful post you wrote here.

    The sad thing is that many people still don’t track their time properly OR they do got paid only hourly.
    Dunno why in the freelance business things still work like that, but that’s the truth.

    I ended up here from inbound.org but couldn’t be more happy to read these conclusions from you.
    I will share this post with the users of my product, they might be really interested.

    My product is a time tracker (what a coincidence 😉 ) to help people understand how much they are working on a project, mainly aimed at freelancers.
    So your post comes with perfect timing!
    Thank you

    BTW: If your readers are interested I could also give a good discount to all of your community, hoping to increase the people tracking their time and being aware of their work.
    Let me know if you interested.

    Be awesome.

    Reply
  17. Lindsey

    Just like everyone else, I loved this post! 🙂

    I’m trying to move my freelance illustration business full-time and am struggling with customer acquisition. I spend most of my “free” time completing projects but don’t have enough time to build systems to acquire new leads.

    Reply
  18. Andy Cook

    This is a great post and thanks for taking the time to write it up.

    They also said some tasks they thought would be simple on the job turned out to be harder than they thought, which added additional time.

    This line was especially important to me. Too many times in my development life have I taken on a job, thinking it’ll be a quick fix, only to run into an unexpected snag which starts to shrink my hourly calculated rate (I usually do flat-rate jobs.)

    I think it’s important to negotiate some wiggle room into the contract price and account for those extra hours.

    If I’m working on a project and it goes without a hitch, great! I earned some extra revenue and delivered the project on-time or sooner than expected. If I do run into a snag, at least it’s accounted for or I can hire outside help to complete the project on schedule.

    Reply
  19. James

    ““Can’t you optimize the current revenue and decrease expenses like customer acquisition costs?”

    You can’t really optimize to increase profitability based on what we’re bringing in because there has to be real revenue to optimize revenue. You can’t optimize 10 hours/week very well, it’d take a LONG time. If you worked a year at that efficiency, you’d only do a few months of actual work. It’d take an enormous amount of time to improve efficiencies within the business if your sample size took that long to grow.”

    True, since a 10% increase on a smaller stream such as $10000 = $1000
    Where a 10% increase on a larger stream such as $50000 = $5000

    However this is a little simplified to me, as it needs to factor the cost of the optimization.

    If the $1000 optimization cost $200 (for ‘everything’) then the return per dollar is 5X, where as if the $5000 optimization cost $2000 (for ‘everything’), then the return per dollar is only 2.5X

    Although to be fair, I can see how many optimizations may look more like…

    I might initially spend $5000 to optimize, then maybe $10 per unit to maintain the optimization.

    If I’m moving 50 units, then my cost is $5000 + ($10×50) = $5500 and my cost per unit is $5500 / 50 = $110

    If I’m at the scale of moving 500 units, then my cost is $5000 + (10 x $500) = $10000 and my cost per unit is $10000 / 500 = $20

    This is obviously because the cost has been spread over the initial investment.

    This second part is very important to understand and I interpret this as the point, though it is also worth remembering that the maths is always context specific.

    Reply
  20. Joyce

    What a helpful article! Thank you for writing it. You seem to have the luxury of plenty if job leads. What about when business is lost or just slow? What is your recommended strategy to beef up leads? For example, how so you use Social media or email. How do you attack a database? What are some of your success stories? Perhaps a good topic for another great article that is hard to find.

    Reply
  21. Trevor

    It’s amazing (in a sad way)how many business owners don’t truly understand business.

    It’s no wonder most businesses fail within a year or two.

    But once someone “gets it”, as clearly you do, it’s like a lightbulb in your head that you can never switch off! You’re always looking for opportunities to grow the bottom line, whether that’s through top line revenue at the beginning or lowering expenses once the ball is rolling enough to allow for appreciable efficiency gains.

    Thanks for breaking this example down, it shows the many errors of naive managers. Best of all it shows how to fix it!

    Good to see you posting again!

    Reply
  22. petar

    Billy,
    Have you considered any performance enhancing techniques like consulting some sort of motivation\productivity coach or employing any other technique that can help productivity on a personal level.
    In similar work environment the correct mindset and motivation of the employers\founders is key!
    I could give more specific recommendations if you are interested.
    Best of luck!

    Reply
  23. Joel Hughes

    Great post Billy,
    really thought provoking stuff.

    Joel

    Reply
  24. Alastair McDermott

    One thing your guys might find useful is an automated time-tracking system, rather than something that requires a user action to start/stop. Two examples I’ve used personally are RescueTime and TimeSnapper (Classic version is free).

    Both track all activity on a machine, in different ways – RescueTime monitors active window titles, TimeSnapper takes a screenshot every X time period. Seeing the stats or images makes it very clear where time is being spent.

    Reply
  25. Alex Champagne

    Hey Billy,

    That was like reading an article about my company — and it gave me a pretty great idea of why we’re billing 5k a month instead of 40k.

    I’d read every word if you wrote more on this topic.

    Also, do you offer coaching?

    Reply
  26. mark

    What do you mean in the flow chart “consider expanding”? Can you please expand on this (lol)

    Reply

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