AS JOINT VENTURE PARTNERS grabbed coffee this morning and settled into our weekly meeting, small talk, invariably, turned to our respective day jobs. Each is the owner of a small service-based consulting business. Two lawyers, one financial consultant, one business development expert, and a web designer/developer all agreed one of the most challenging aspects of running a closely held business is feast-or-famine syndrome. The question quickly arose: How do you stop feast or famine in your service business? For the uninitiated, feast-or-famine syndrome is the challenge of creating a steady, reliable income from month to month. One month may be flush, and the next barren. Or it may be that for three consecutive months, money is flowing like a waterfall down a mountain, and then suddenly making money feels like drilling for water in the middle of the Sahara. It can be maddening. Certainly, this pattern of cash ebb and flow makes it hard to set reliable budgets and pay recurring expenses. If you are a business owner caught up in the feast/famine cycle, what actions can you take to stabilize your revenue and income so you can plan more effectively for long-term growth of your business? Here are three suggestions:
- DEVELOP MONTHLY RETAINER PROGRAMS. Regardless of the nature of your professional service business, you should be able to either a) develop a payment strategy to spread out the cost of a high-ticket service over the course of several months. (Thus, rather than charging $10,000 for a project, you might charge $12,000, but divide it into six equal payments of $2,000 to be automatically charged on the first of each month); or b) upsell a monthly ongoing service agreement after the initial service has been provided. (For example, a $5,000 website, with a monthly maintenance and content update agreement for $500 a month).
- SPREAD OUT YOUR START DATES. There is a tendency among small business service providers to take the 50% deposit and then immediately start work, cramming new projects into an already packed schedule. One way to normalize income and also create a more consistent work flow (which, hopefully, also will reduce stress as well) is to schedule the start date of a new project out a few weeks.Thus, when pitching a project, you might call a client and say: “I’m setting my July schedule now, would you like to be on it? I only have room for two more projects that month, then I’ll be booking for August.” Of course, to hold their spot, they must pay some initial retainer.Not only does this help you take control of your schedule and revenue, it also sends a message to the client that you are in demand.
- CREATE A PASSIVE INCOME STREAM. This is a strategy that takes a little bit of extra effort and time to work, but really could create some shifts in your business in the long run. In addition to the services you offer clients, you also may want to start creating content you can sell online, both as a tool for educating clients, and as a passive, long-term income stream for your business.Create a video series, write and publish a book or develop a subscription-based podcast. At first, you may not make much money this way—and, of course, you will need to devote resources to create, publish and then promote this new income stream—but eventually, your efforts could really pay off. In a few years, you may find your passive, supplementary income has now become the main source of your revenue in your business.
Of course, the real key to minimizing the feast/famine cycle is to be sure you are charging for the full value of your services. Entrepreneurs often have a tendency to over-estimate how quickly they can turn around a project and get it out the door and off their schedule. If you think you can get a project done in a month, and charge accordingly, but it winds up taking you two or three months, you’ll feel like you are working that second and/or third month for “free” because you did not charge enough to ensure money would still be coming in during those extra months. This will leave you struggling to find the time to even look for new projects much less add them to your schedule. If you are a small business owner or entrepreneur who is struggling to get out of the feast/famine cash flow cycle, we’d love to help. PM me to schedule a consultation.