Pragmatic margin management and labor intensity for micro-businesses

Large businesses can afford to extract profits from high labor intensity yet low margin activities. Small businesses cannot IMO.

And certainly not solo operators like independent consultants/ freelancers!

Here’s my thinking (& best advice) on how I manage and take advantage of this in my own consulting activities…

The choices we make about our consulting/ freelancing business models impact how many leads & clients we need per year to meet our income needs. These choices directly determine how hard we have to work on a whole host of activities …

… at marketing (lead generation, lead screening, non-billable interactions), at sales (how many proposals we have to write annually, how many deals we have to close), & at getting up to speed with each new client/ situation.

That’s a lot of stuff for a solo operator!

I try to keep my transaction sizes – or per client annual revenue at the very least – ($$$$+) on the higher side.

I much prefer generating 3 to 5 really good inquiries from focused outreach efforts versus, say, 30 to 50 mixed bag inquiries with smaller annual needs.

I’m a solo operator: I don’t have the kind of time needed to screen these folks and to go through the sales process … simply to make a smaller margin on the project!

These are very labor intensive non-billable outreach efforts after all!

This is also, in part, why I prefer new business from existing clients over new ones. There is less sales uncertainty as well as lower “getting to know each other” overhead.

What will work best for you? I think it depends on where you’re starting from / what you’re working with. I’ve certainly made numerous exceptions over the years, both for practical reasons – i.e. I needed the cash flow – & for personal reasons – i.e. I really like the client.

My point is this: the labor intensity of your marketing, selling, & production matters A LOT when you’re a small business or solo operator. And these are directly driven by …

… your marketing strategy & strategic decisions about which markets, clients, & projects to emphasize & accept. My best recommendation?

Be conscious of this ongoing trade-off, choose wisely, & adjust as you can, but remain pragmatic. Keep the future in mind – not just immediate cash needs – or you’ll always be STUCK focused on immediate cash needs.

If you enjoyed this, and you haven’t already subscribed, you may be interested in my newsletter, which is ~80% focused on sharing the business strategies used in my solo technology consulting practice & highlighting high caliber viewpoints on these same topics from other independent professionals and small business operators. It has a couple hundred subscribers and gets sent out once a week.

Hope you got something valuable out of this post. You don’t have to do things the same way I have, but maybe the sharing of my experiences & thinking trigger something in your own thinking … that’ll get you closer to where you want to be. Good luck in your ventures!

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