(Originally posted here)
This was my response to a scenario raised in The Fastlane Forum.
What do you think?
Make $1m by building a business that generates $25k profit per month and then selling it.
Obviously it has to be built such that the new owners are confident they can continue to generate $25k/mth.
Now, how to make $25k/mth ?
Maybe 1,000 businesses paying $25/mth ?
Maybe 100 businesses paying $250/mth ?
Maybe 10 businesses paying $2,500/mth ?
Or more likely, a bit of Perry Marshall’s 80/20 rule of thumb that one fifth of your customers will pay 4 times as much.
So if you had 100 businesses paying you $250/mth, then 20 (20% of 100) will likely be willing to pay $1k/mth, and 4 (20% of 20) will likely pay $4k/mth.
So maybe it would look like:
- 80 businesses paying $250/mth ($20k)
- 16 businesses paying $1k/mth ($16k)
- 4 businesses paying $4k/mth ($16k)
Total monthly revenue of $52k ?
We’ve overshot, but maybe we pick the 100 * $250/mth scenario and any upsells are gravy, or we hit $25k/mth earlier than 100 signups.
Hmmm… interesting. I’ve already decided they are businesses and not consumers.
What springs to mind immediately is 100 cities for XYZ vertical.
Provide a service for a business in a city for $250/mth that needs minimal maintenance once built.
After you’ve dialled in one business in a vertical, scale by finding similar businesses in different locations.
Obviously we’re looking at businesses that cover specific geographies.
EDIT: Why sell when you get to 100 * $250/mth for XYZ vertical?
Go to 500 in XYZ vertical as well as diversify to other verticals.
Add higher levels for businesses that want more of what you’re selling.
Add lower levels for businesses that want less.
Start with 1 * $250/mth doing something that *could* scale.
Don’t worry about scaling with your first client.
Just concentrate on landing them and use them to learn the vertical.
THEN find a way to scale.