The Math

How much money do you need to quit your day job and survive?

How much profit can you make per sale?

The combined answers of these 2 questions should give you a dead simple metric to strive towards.

You should always aim to charge as much as you can for your product or service.

The Math on Physical Products

If you make $20 profit every time you sell a hat, and you need $1000 a week, you need to sell 50 hats a week. That's 50 different people you need coming to your brand every week, 2600 a year. Yeah, selling physical products can provide some pretty daunting metrics.

But with a $300 product that has a profit of $100 in it you only need 10 sales a week. Keeping these numbers in mind is crucial when deciding what you're going to sell.

Despite being one of the harder ways to make a living, physical products seem to be one of the first money making modes budding entrepreneurs gravitate towards, I'm not sure why that is but I suspect it has something to do with humans' desire to "Make something wonderful and put it out there" — Steve Jobs. When I really got into business half the drive came from my personal desire to have better freestyle scooter products for me and my friends. When making physical products, you should love the product so much that simply creating it is rewarding enough to keep you going.

When done right, for long enough, physical product businesses built around a strong brand can scale massively. The more customers there are wearing/using your product the more potential new customers are exposed to it. As more stores start to stock your product more other stores want to stock your product. Every year you've been around the stronger your brand gets within the market. The barrier to entry is high, not everyone is able to invent, design, prototype and produce physical things and those who can garner a lot of respect and admiration for doing so.

But to take it back to the math… physical product companies notoriously have some of the lowest profit margins. So get very clear on that 'profit × number of sales' right from the start so you know exactly what you're signing up for.

The Math on Service Businesses

If you charge $200 a job and need $1000 a week to survive you'll need 5 bookings a week. If your customers are likely to book you for the same service monthly you could say you just need 20 customers in total. If you need $2000 a week to survive that doesn't necessarily mean you need double the amount of customers, I would say you need to double the amount you charge.

When starting out it's easy to set a really low price for your service because you're so desperate to make a sale. That and the fact you probably lack confidence. But starting your own business to end up working just as much, for the same amount you could make in traditional employment isn't exactly the goal here.

If you're working the same amount as you would in traditional employment you want to be making more. If you're making the same amount as you would in traditional employment then you want to be working less. Otherwise you might as well stick with the job.

Service businesses end up coming down to how much you can charge for the job minus the cost of material.

A dog walker might charge an hourly rate while their cost of materials is virtually nothing. The cost of poo bags and some dog treats are minor compared to the yard maintenance business constantly needing fuel for mowers, chemicals for lawn care, not to mention the machinery itself and the type of vehicle needed to transport such machinery.

How much can you charge for the job? ($300) How much does it cost you in materials, tools and fuel to complete the job? ($100) The remaining $200 is your profit. So you need to book 10 jobs at $300 to survive each week.

The Math on Virtual Products

Virtual Products like website creation and video editing incur costs such as Adobe Creative Cloud subscriptions and stock image library access. Editing video often requires a high quality computer and expensive external storage too. You need to consider the cost of software and hardware over the course of a year and divide it by the amount of weeks or months in the year. That's your operating cost.

The Math on Digital Products

This course you're taking is a Digital Product.

It took me over 10 years of lived experience to learn and 6 months of deep thinking and regular writing to get it ready to release. Then it cost me $50 a month to house it in the software you're currently viewing it in. For every sale a small percentage goes to the payment processor.

I spend time promoting it through various social media accounts and strategies.

But essentially, it costs (almost) $0 to run, so when I make a $50 sale, I actually make $50 profit (or very very close to).

If my life cost $2000 a week and my course sold at $50 a pop I'd need to sell 40 a week to survive. Luckily I am not trying to live solely on course sales because 40 customers a week is a bit daunting.

After Thought

The world of entrepreneurship is filled with stories of people being told for years that the unit economics of their idea simply will not work, only for them to end up working better than even the operator had ever imagined.

So feel free to ignore absolutely anything discouraging I say about the math of business. Some of the most successful entrepreneurs flat out ignore these numbers.

I put it here thinking of those with dependants and mortgages, who know in their hearts they want to build a business but can barely let themselves imagine leaving the security of the job that their family depends on. You may not have the ability to drop everything and go all in on starting a business, you'll have to allocate pockets of time throughout the week to make incredibly high leveraged actions. It will be harder for you. It will seem impossible for some. But it definitely can be done.

Additionally, regardless of your position in life, even if you can't see yourself making any of the amounts needed to make any of these businesses actually replace your income, you should still start anyway. You just never know what opportunities will come up once you start truly putting yourself out there. You need to have faith in inertia. That is, the belief that by jumping in and trying something, even if it doesn't totally work you'll be that much closer to finding something that does. (See The Reps.)

Making $100 an hour as your own boss compared to $40 an hour working for someone else might just motivate you enough to find a way to drum up more business for yourself.

Your First Customers

Your first customers are usually your friends and family, and I think there's a lesson here.

Firstly, if this is true for you — that you have friends and family who would support your small business just because they can — then you should count yourself lucky and cherish those people.

Secondly, don't shrug it off as a mere pity purchase. It's easy to say, "oh yeah, they're just buying it to show some support; it doesn't really count yet". I actually said this to my wife, who quickly corrected me by saying, "actually, I think they just want to know how to start a business".

Translation: Believe in yourself. They actually want the thing you're selling.

Even if I know a huge part of it is them just supporting their friend, even if it's 90% support and only 10% because they actually want the product, that is more than enough.

Additionally, who cares? Your friends need their lawns mowed, they need cool golf bags, t-shirts, instructional gym videos, whatever it is that you do. Just because someone is your friend does not exclude them from the large pool of people on earth that could benefit from your product or service.

So embrace it, aim for it, use it to your advantage. Get reviews from them, quiz them on their experience through your website or the booking process, use your personal connection to ask them for feedback you wouldn't feel as comfortable asking a stranger.

Lastly, if you haven't launched your thing yet, without getting your hopes up too much (because it might not be the case for everyone), keep in mind that if you have a decently large enough friendship and family circle, there's a good chance you will have a few instant day-one customers. But only if you can believe in yourself enough to package your expertise or creation into a purchasable product or service and ask people to pay for it.