Are you using the 40% Rule to Expand your Business?

The year 2018 offers some exciting opportunities for our businesses to expand. Tax changes and a rising equities market offer stimulus to an already growing economy. It is the year for all of us to step up and put those growth plans into action. Plant that seed and watch it grow into the dream you have been planning.

One of the biggest challenges for many small companies is trying to understand how to grow and expand the business.  For some, especially in the service sector, expansion might be geographically limited due to hard costs – a fully loaded service vehicle can easily top $100,000 plus the skilled labor team to employ in it.  On the other hand, America is built largely in a service economy now, with many more “intangibles” for products today, so how can, say, a small business – a consultant, let’s say – expand their offerings?

For one thing, understand that perfection is poverty.  No product or service was ever designed perfectly the first time.  Every book every written has been cut and proofed by an editor (this newsletter is no exception) and just as importantly, no one ever carried a finished product to market without substantial testing and revision.

Here’s the rule of thumb for new services – create 40% of it before you sell the first one, then use that first sale to guide you on how to structure the completed package.

I can hear you all right now, “But Patrick , my business situation is special and regulations forbid me to launch anything that is fully vetted and documented.”

In a very few cases, you’re right.  If you are raising money for a venture capital deal or need institutional investors, you’re absolutely right.  Most of us aren’t, though.  We’re web designers, marketers, social media specialists, auto repair shops, alarm companies, or accountants.

The beauty of the 40% Rule is that many of these products and services are already in a sort of murky developmental stage in your company anyway.  In the case of a web designer, it could be an add-on software or program or offering hosting for the website that you built.

A repair shop could offer an annual maintenance package.

An accounting firm could offer bookkeeping services based on QuickBooks.

In each case, this service or product is not intended to replace the primary role of the company, but to be a value-add for existing clients.  Just as importantly, because it is a value add, the marketing costs of client conversion, lead capture, and marketing is lower.  At the same time, since we are building out the offering as we go, utilizing existing clients allows you to be using some of the goodwill you have built up based on your reputation – not on the expectations with a new service offering.

Now, there IS a Catch-22 in all this – because you have only designed a thin framework (the 40%) of what the product or service is, once you have closed a sale on it, it is imperative that you stay focused on that new client and how they are being taken care of.  If you don’t stay on top of this – managing production, keeping in touch with the client, and even managing scope creep, you can quickly find yourself having created a product that either nobody wants because it isn’t robust enough or one that everyone wants because you aren’t charging enough.

Neither one of those is fun and that is why this type of expansion can be extremely lucrative on the one hand and very stressful on the other.  No matter what, though, there’s no denying that this offers a sure-fire way to grow your business in the new year.

Remember, my office is open to you and your family when you have IRS issues that need to be resolved. IRS is some of the most expensive debt that a person/business can face during your lifetime.  Penalties, interest and interest on the penalties are detrements to your company growth. I’m willing to bet that even calling for a quick phone meeting could result in some new IRS strategies.  To review your irs notices, please get in touch with  New Life Tax Resolution. Call Patrick LeClaire @ 407-287-6638.

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About Patrick LeClaire

After 15 years in corporate finance and Tax Preparation, I formed a company as an Enrolled Agent. I insist on superior customer service and the highest standards available as I embark on a journey to resolve one case at a time at New Life Tax Resolution.