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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!

By Josh Richards

Josh is a consulting network/ systems/ cloud engineer, freelance high stakes IT project manager, and former technology executive. He has consulted on information technology matters for over twenty-five years. In 2006, consulting became his primary source of income (just before the global financial crisis!). He’s a big fan of craft beer, freshly roasted coffee, artistic burlesque, good food, and applying science and reason to problems and opportunities small and large (and just for fun). When he has time and energy he also likes to get out on his bike or attend a soccer match.

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