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The Four Hour Body and You Like many of your Tim Ferriss fans out there, I've been very keen to try the Four Hour Body lifestyle change. I'm overweight by quite a few pounds, so I made a New Year's resolution to shed some pounds....

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Improvements and Fixes to WP E-CommerceImprovements and Fixes to WP E-Commerce Like many of you, I am a user of the WP E-Commerce plug-in for Wordpress as well as a Gold Cart upgrade customer. While WP E-Commerce has many excellent features and does wonders for the Wordpress-based...

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Credit cards: a lifeline for cash Hi all. It certainly has been a while since I've last posted. That's because in many ways the 4HWW concept has been shot given the urgency of making ends meet and scrambling to get whatever dollars are...

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Version 0.2 of Show User Level Content Plugin Now Available Making an update to the Show User Level Content Plugin ... finally on version 0.2 This version should allow multiple hide statements in the same post. This is a test of that functionality. The first...

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Outsourcing Collections and Accounts Receivable?

Category : outsourcing

One of the main themes espoused in the The 4-Hour Workweek is the idea that you should outsource all tasks that you can and automate all the rest, leaving your time mostly focused on strategy, business-growth, and handling escalated tasks that exceed the capabilities of the outsourcers. All this sounds great, and Tim Ferriss makes lots of recommendations in his book on outsourcing a wide range of activities. However, one of the things he doesn’t mention much about is the activity of collecting money from customers.

If you’re doing things right with a muse (or even bigger) business, collections should not even be an issue. You’re probably already charging upfront for your products,using credit cards, or check prior to receipt of goods, and so you shouldn’t even have an accounts receivable problem. This is another argument behind the point that the 4HWW ideas and lifestyle is primarily suited to product-based businesses that sell products up to $500 (items that can easily be charged to a credit card). I presented other arguments to back up the point that the 4HWW lifestyle and outsourcing concepts are not really appropriate for service-based businesses at all, or product-based businesses that have long sales cycles, expensive price-points, in-person delivery or sales, or proposal generation. Basically, the 4HWW ideas are really meant for payment-upfront, product-based businesses that require no in-person sales, delivery, or proposal generation and where the decision-making cycle is very short. This really leaves a lot of businesses outside of the 4HWW ideal.

For those in the services industries or in businesses where it is impossible to receive full payment for goods prior to delivery, then the ugly problem of collecting accounts receivables rears its ugly head. Collections takes time. Generating invoices. Collecting checks. Following up with delinquent accounts. Finance charges / service fees. Working with large company’s accounts payable systems and procurement people. None of this is fun nor conducive to the 4HWW goals. If you can’t change your business to bring it in line with the sweet spot defined above, then what can you do? Outsource the whole collections and accounts receivable mess.

I have not yet done any research in this area, but I can imagine that there must be a place where you can send your monthly or weekly or even daily accounts receivables to some outsourced firm who goes through all the trouble of making sure the payments are received. I would imagine they’d take a percentage cut of the collections to do so, however, but save you the headache of managing such a time-suck of an activity. For large-ticket items ($50k an above maybe), this might be a good idea. But for those in the not-so-sweet spot of 4HWW (products over $5,000), but not quite $50k, this might prove to be problematic.

Does anyone have any experience with this type of accounts receivables outsourcing and have any advice? Do you think I have it wrong with regards to the 4HWW sweet spot and characterization of the 4HWW ideals as primarily focused on cash-upfront (point-of-sale) products that are bought (not sold!) between $50 and $500?

More playing with numbers

Category : revenue

Following up on the last post where we identified the target market by identifying pricing and market size most appropriate for Bought Products, things get better when we observe the power of monthly revenue.

Ways to Make $5M a year - Take 1

# of Products Sold Price Per-Product Monthly Revenue Consumables (3x per year)
1 $5,000,000 $416,667 $1,666,667
5 $1,000,000 $83,333 $333,333
10 $500,000 $41,667 $166,667
50 $100,000 $8,333 $33,333
100 $50,000 $4,167 $16,667
500 $10,000 $833 $3,333
1000 $5,000 $417 $1,667
5000 $1,000 $83 $333
10000 $500 $42 $167
50000 $100 $8.33 $33
100000 $50 $4.17 $17
500000 $10 $1 $3.33
1000000 $5 $0.42 $1.67
5000000 $1 $0.08 N/A

But, let’s take another twist. Let’s keep the price constant and instead think of how the numbers of customers change when we move to monthly, or any repeated sale per year.

Ways to make $5M a Year - Take 2

$ per sale # of Customers Monthly Customers # of customers (3 sales/yr)
$1 5,000,000 416,667 1,666,667
$5 1,000,000 83,333 333,333
$10 500,000 41,667 166,667
$50 100,000 8,333 33,333
$100 50,000 4,167 16,667
$500 10,000 833 3,333
$1,000 5,000 417 1,667
$5,000 1,000 83 333
$10,000 500 42 167
$50,000 100 8 33
$100,000 50 4 17
$500,000 10 1 3
$1,000,000 5 N/A 2
$5,000,000 1 N/A N/A

What makes this interesting is that consumable products… that is, products that provide only a short term value that then need to be replenished have excellent prospects.

To make $5M in revenue, all one needs to do, for example:

  1. Find 10,000 customers and sell them something for $500 once,or…
  2. Find 100,000 customers and sell them something for $50 once, or …
  3. Find 100,000 customers and sell them something $17 three times in a year, or…
  4. Find 8,333 customers and sell them something for $50 a month, or…
  5. Find 20,000 customers and sell them something for $21 a month, or..

You can see how that goes. Play with the numbers and use them to help determine whether your bought product strategy makes sense. Next step: figure out what product to sell, whether it’s a consumable or a one-time sale, or a monthly recurring revenue source. Personally, I like the 10,000 customers $500 a pop or 20,000 customers $21 a month plan… Hmm.

Applicability of the four-hour work week

Category : Getting Started

The more I read the book and think about how to apply it to my own life, the more I wonder about just who this four-hour work week is most appropriate for. For sure, if you have a product company that can operate on semi-auto pilot with subcontractors and outsourcers performing the responsibilities of fulfillment, order management, customer support, and sales/marketing then I can see how the automation possibilities easily lends itself to a shorter work week.

But how about businesses that require in-person delivery specifically by the person they are contracting with? For example, I have a hard time seeing how doctors or dentists can take advantage of four-hour work weeks. Maybe if they were simply office managers that had other doctors working for them, but if you were a doctor’s patient, would you want that outsourced? It certainly seems to be hard to apply the lessons learned in the book to those situations.

Service vs. Product

Basically it seems that the core challenge in applying the four-hour work week is that you have to be in a product business vs. a service business for this to make sense. A service business entails anything that is sold with the unit of work being delivered by a person rather than the unit of value delivered by a product. Furthermore, services have low repeatability. That is, if you deliver the service once and it takes a certain amount of effort, then delivering the service again will take a similar amount of effort.

On the contrary, with a product, the cost to build and develop the product is amortized across all the sales of that product. The cheaper it costs to build the product, the greater the revenue potential in sales. And if the product has no incremental cost once it’s built, then you can sell it literally millions of times without any additional cost (information products are a good example).

Now, this is something that Timothy Ferriss talks about in his book, so there’s no new ground discussed here. But the core is that most people are stuck in service businesses or in a service organization part of a product business. To change the work week requires either completely changing what you do for a living or structuring your work such that you no longer deliver the service, but either supervise others who deliver the service or productize the service offering such that there’s no longer an element of human delivery.

Buying People vs. Buying Brand

Another key issue is that is the value being bought from the company a function of the people who deliver that value (in which case, the cost of delivery is going to scale with the cost of labor), or is it a function of the brand (in which case, cheaper products and services can be offered at a premium given the value of the brand). To successfully become a four-hour work weeker, one needs to transition from becoming the sole delivery of a labor-driven value proposition to a manager of others who deliver the labor-driven value proposition to the sales of products that sell value based on brand, not on labor.

If you’re on the service side trying to live the four hour week, I see this as the fundamental challenge to face: either leaving the service business altogether, or productizing it in such a way that people buy the services at a premium based on your brand, and the labor is then outsourced to others who deliver at low cost.