Liberty is the right to choose. Freedom is the result of the right choice.

Jules Renard

The freer you are, the more control you have. Freedom is quite literally the ability to choose.

For most people working a job, it’s not always apparent how little control they have, and that’s partly why when you ask them why they would like to start a business, they answer ‘to make more money’. Before, I insisted that you should want to start a business that frees you, a business that gives you more control. Why is the freedom to make choices more important than money? In part II we looked at this question in the section on cycles, and the ‘lack of feedback’ trap. One day you are working a highly skilled job earning a good salary; the next, and due to forces outside of your control, the market changes and suddenly you are being asked to train your replacement. But the more choices you have, the more ‘levers’ you can control. When the market changes, you can respond.

When you are in control of a ship it’s because you have your hands on the wheel: you get to pull the levers and decide where to go. Otherwise you are just a passenger.

So, now that you’ve taken control of your ship, what can you do that you couldn’t before? The list is almost unlimited!

Since Melissa had brought up marketing, I decided to go through the marketing process with her and see how many things we could influence, and what effect just tweaking all the different ‘levers’ could have on her bottom line.

‘Say you own a shop; you might run a promotion that gets people in the door. That’s your response rate. Then it’s up to you or your salespeople to convert those leads into sales. That’s your conversion rate.

‘Once you’ve measured those numbers you can adjust some levers. What that means is you can try different marketing or different offers, and measure how that affects your leads or response rate. Then, you could try adjusting what the salespeople say to potential customers to see how that changes your conversion rate of those leads.

‘When you first got the telemarketer to ring agents and book them into a meeting with you, that was getting leads. When you sat down with the principals and sold them on your business, that resulted in conversions,’ I explained.

‘Since then, you’ve put together a list of email “leads” — people who may be interested in your product — so for now we can start at the conversion step: how many bookings do you get from each email you send? We’ll call them your first round customers.

‘Now there’s a lot we can tweak with marketing. We can send out two different offers — one to half your list, another to the other half of your list — and measure the difference to see which offer was more effective. That’s called A/B testing. But we’ll come back to marketing soon, after we look at all the other levers you can adjust.

‘Once you’ve got a customer, what can you do to get more sales from that customer?

‘You’ve put in all this effort to meet with principals and you’ve picked up an agent or two from several different agencies. But there are more agents at each agency! Some have a photographer they use already; others are still taking the photos themselves.

‘Is there anything you could do that might encourage the agents you are working with to “spread the word” to the other agents they know? That would be working on adjusting the “referral rate lever”.

‘Once you’ve got some referrals, we can then look at your total customers (first round plus referrals). What can you do to influence how much they spend?’ I asked.

‘I guess I could encourage them to try a dusk shoot, which I charge more for?’ Melissa replied.

‘Sure, that’s a great idea. I’d call that your “average $ spent” lever. How much do your customers spend on average per transaction?

‘There’s more to this lever though: you can also see what you can do to encourage your clients to buy more “extras” each time they make a booking: in your case floor plans, and any other extras you can think of. You could do an offer that makes it tempting to “order the whole package”.

‘We’ve looked at the average amount spent per transaction, but what about the average number of transactions a customer makes?

‘If you market a special offer and pick up a new customer, what can you do to make sure you get more than one shoot out of them: what could you do to encourage an ongoing relationship?

‘You don’t want to fall into the trap of offering a discount shoot, only to have people book you for that one shoot and no more,’ I explained.

‘I do really go out of my way to make sure I give a good service so I haven’t had too many examples of that to be honest.’

‘Well that’s okay. What about the agents you do work with? Do they use you for all their listings or only some? What could you do to increase the number of shoots they book you for? Do they just book you for their “premium” shoots? Could you get them to use you for their small unit shoots as well? That would be tweaking the “average number of transactions” lever.

‘Now there are a couple more levers I’ll mention: “margins”, which are how much money you have left after you take into account your expenses; and “taxes”: how much you have left after the tax man takes a chunk. Then I want to run through a hypothetical to see how much you can achieve even if you only tweak each lever a little bit.

‘It’s important to see how, by putting aside a small amount of time for Freedom Quadrant activities each week or month to make even small changes, you can make a huge difference to your bottom line.’

Take a hypothetical business that over the last year had the following figures, and then increase the leads, conversion rates and so on by only 10 per cent.

From $55 125 to $98 080.05!

By only ‘tweaking’ each lever 10 per cent, you’ve increased your net profit by 78 per cent!

If you worked on each lever until you increased it by 50 per cent, how much would your net profit increase?

You’d have a turnover of $1.814 million dollars, or $816 328 profit before tax.

Even leaving aside tax, that’s still a 937 per cent increase on profits before tax.

Little changes that you make to several different levers can make a huge difference.

‘Okay, so you haven’t been in business a year yet, but already you can start to make some adjustments and measure the results. Now, at this stage of your business it’s early days so tax isn’t going to be such an issue, because you haven’t earned much yet.’

‘Thanks,’ Melissa replied sarcastically.

‘Unlike the example I gave you, you have fewer customers who do more transactions with you each year. So, trying to increase the number of transactions of your existing customers might not be as important as getting one new customer and establishing a relationship with them. That will give you an idea of where to start focusing, and which lever you should adjust first.

‘Also, your margins are pretty high already because you are doing everything yourself. If you eventually grow and need to take on employees, then looking at the margin lever will become more important too.

‘Of course you can look at margin as it relates to a lot of things, for example your time. What’s the most profitable thing you do at the moment?’

‘I guess it’s my dusk shoots?’

‘That’s the highest value thing you do, in terms of what you get paid for it, but how much work do you do for that money?’

‘Well, when you put it that way, dusk shoots do take a lot of time to shoot, and even more time to edit … it only takes me about an hour to draw up a floor plan. So I guess floor plans would actually be my highest “margin” thing?’

‘That’s a really good insight. We had no idea when you started that floor plans would be your most profitable service. That’s why it’s important to get in touch with the market so it can tell you what it values most.

‘It’s good to think about this now, before you get fully booked. If you’d tried to increase your Average $ Spent per transaction by encouraging all your agents to do more dusk shoots, you might have made more per agent, but you would have ended up with less free time per week.

‘Now that you know your highest margin service, it might be worth putting the focus on encouraging your agents to do more floor plans instead, leaving you more time each week to maybe even take on an extra agent.’

‘Considering dusk shoots are limited by how many I can do anyway, it’s kind of good to know floor plans are more profitable. Okay, so how do I get agents to do more floor plans?’

‘You could try what McDonald’s does and just ask! Make it a habit to say, “Do you want floor plans with that?”

Melissa groaned. ‘Well at least if I make it a habit to ask them when they book a shoot, if they do want floor plans I’ll be able to draw them up while I’m onsite. Occasionally an agent will ask for them later after buyers have started to look at the property and then I have to go out all over again to measure them up. If I do them at the same time as the photos I’m working on my margins too!’

‘That’s right! It’s a good idea to make it a habit too — that’s what I meant by “specialise so you can systemise”. Asking “Do you want floor plans with that?” every time is creating a system. And it’s something you can systemise because you are specialising in one type of photography.

‘You’ll really appreciate having thought things through now, and having put little systems like this in place, if you ever decide to take on employees.’

Having adjusted one lever already, we decided that since Melissa had passed on the security of the exclusive agency deal, and had let her old agency go too, the next lever to focus on was increasing leads.

‘I could email out an offer for 10 per cent off my regular prices this month?’ Melissa suggested.

‘You could. The thing about offering discounts is twofold: firstly it does kind of put out there the idea that your product is overpriced. And you can only do it so often before people come to see that as your “real” price, and then wait until the next discount to book you.

‘While you’ve got this time on your hands it’d be nice to put together more of a “system” for marketing instead of just a one-off.

‘Secondly, there’s the economics of it. Let’s say your margins are 20 per cent, if you offer a 10 per cent discount you are effectively giving away half your profits, but you are only offering the consumer 10 per cent off. If you are giving away half your profits, you might as well give them all away (best done on things that have “soft costs” for you, like your time) and offer the customer something much more enticing: instead of 10 per cent off they could get 100 per cent off! “Free” is much more powerful than “discount”, and it doesn’t diminish the perceived value of your service like discounting does either.’

‘If this is another example of how freedom leads to wealth I’d like to see it. How does working for free make me more money again?’ Melissa asked.

‘Well, obviously you’re not doing all your shoots for free, but you could offer to do the first shoot free for new agents. Or maybe we could focus on the referral lever and offer a free shoot for any of your existing agents who refer another agent to you?’

‘That’s a good idea, actually,’ Melissa agreed.

‘I like that you’re thinking of doing marketing; that is, a direct call to action. In fact, I’m a big fan of “call to action” or “offer-based” marketing. The reason is because you can measure it. As we were talking about with the levers, if you can measure your performance you can improve it, and even small improvements add up.’

Too many people buy into the ‘Mad Men’ 60s era ad agency style marketing: that marketing is all about raising brand awareness or other things you can’t measure. If you can’t measure, how do you know any adjustments you’ve made to your marketing lever have been successful?

Since the advent of what the kids call ‘social’, the tendency to favour this type of marketing has only increased. Instead of throwing money at 1960s ad guys in suits, we are now throwing money at social media gurus in skinny jeans! Just because it’s on a new platform or has a new name, it doesn’t mean that marketing fundamentals have somehow changed.

Some people might find the recipes and jokes that some businesses share on their social media of value, but what you really want to be doing is offering value in your area of expertise. Trust me, your clients can get their ‘hot political takes’ elsewhere!

Your customers may want to have a relationship with you, so not every email has to be asking for a sale. But any marketing you do that’s not directly asking for a sale should still be offering some value.

In Melissa’s case that meant the idea was to offer value that those on her list could only get from a professional photographer. This is why the ‘listicle’ style of internet article became so popular: people love learning new facts, especially new facts from someone they respect as an expert, that can satisfy their curiosity, teach them something about the world, and that they can then share with their social circle and sound like an expert themselves!

‘Remember the agency that offered you the exclusive deal, how there were two photographers? Which type of photographer do you want to be? The one who does a high volume of work for a low price, or the photographer who does a lower volume for a “premium” price?

‘We can send out offers and you will get more leads. And getting busier and busier will make you more money — linearly. But you bought back your time so you could buy back more time. Instead of trying to just get more work, it’s time to get more money for the work you do.’

‘Okay, sounds good. So how do we do that?’

‘When you started out you offered the agents who agreed to meet with you something for free that got you a lot of bookings, helped you build an email list and also enabled you to position yourself as more of a premium photographer right from the beginning.’

‘The marketing kits,’ Melissa replied. ‘They worked well because it gave me something to offer them, instead of just asking the agents for business.’

‘Exactly. It also displayed your skills as a photographer and as someone who understood the needs of agents. So what if we did something like that again, only online this time?

‘I’m thinking of something you could turn into a series of emails, so you can plan them out now and still have something to go on with when you get busy again.’

Too many small businesses treat marketing as first aid: a quick fix in an emergency. When work quietens down, quickly churn out some marketing. When work picks up, slack off on the marketing. And the cycle repeats.

‘Ah, systemise the marketing,’ Melissa exclaimed. ‘I like it. I hate trying to think of things to email out, especially when I’m busy.’

‘Alright, well, it’d have to offer a lot of value if there is no physical thing to give away this time, if you want a similar response,’ I suggested. ‘How would you feel about this: what if you put together a five-week photography course for agents, teaching them how to take better photos?’

‘Wait. Why would I do that? That’s what I charge people to do! Why would I want to teach them to do it themselves?’ Melissa asked in shock. Up until now she’d been pretty open to the ideas I’d floated.

‘On the surface it seems mad, I agree. And it’s really stretching the whole “offer it for free” principle. But let’s think about it for a minute. Even over a five-week course, could you teach them everything you know about photography? And even if you could, could they ever approach your level of experience doing the occasional shoot when you do them full-time?’

‘Well no, I guess not.’

‘So you are unlikely to lose the agents who already use you. They’ve already shown they are prepared to pay to have someone do a quality job. Besides, a lot of them hire you because they know their time is more productively spent doing what they do best, getting listings and selling. So which agents would this appeal to most?’

‘The agents who do their own shoots already?’ Melissa guessed.

‘Right. Those are the agents on your list who were probably never going to book you anyway. They’re happy to get by with their own photos. So you’re not losing anything there either. If you view these emails as “relationship building” marketing then you are offering a lot of value, at no real cost to yourself.

‘Some of those agents will no doubt take what you teach them and use it to improve the photography they do. But others might realise for the first time what a gulf there is between what they’ve been doing and professional photography. Good taste is learned! You may be in effect creating a new market for yourself of newly informed consumers!’

‘Okay,’ Melissa said, warming to the idea. ‘I can see that. In fact I could do the referral offer we were talking about in the middle of this course. Offer my existing customers a free shoot if they sign up one of the other agents in their office who may have been doing their own photography up until now.

‘Oh, and I could do a quiz at the end of the course and the first new agent to respond with the right answers could win a free professional shoot too!’

‘That’s great; combine your call to action emails, offers and relationship marketing all into one! Now you’re rolling.’

There was one added benefit of creating the course that didn’t become obvious until later, and that was how it also helped to raise Melissa’s perceived expertise and value in the eyes of agents who were already booking her.

Counterintuitively, putting together a course to teach agents how to do better photography not only didn’t stop them using Melissa as a photographer, but instead positioned her as the person who taught people how to do photography. One of her agents reported that he’d been approached by another agent in the office who’d been following along online doing the course, and they wanted to know if Melissa was really his photographer!

‘Help! I’ve got a problem!’

It had been a few months since Melissa had lost the work from her old agency and we had invested some of her newly freed-up time into coming up with a marketing plan. I’d been following along with her email course and had seen that Melissa had not only understood the idea of blending relationship marketing with calls to action well, but had found a way to further systemise her marketing by sending out the occasional link to a blog that highlighted ‘dodgy real estate photos’, which was not only quite funny to read, but was also a clever way to take a lot of the work out of her marketing. So I was surprised when Melissa told me she needed help.

‘What’s the problem?’ I asked, genuinely surprised. ‘The marketing not going well?’

‘No, actually the complete opposite — I’m run off my feet. I’ve picked up a couple of new agents who are great, but I’m getting more enquiries than I can handle. There are only so many hours in the day!’

‘That’s not a problem, that’s great,’ I laughed.

‘No, it is a problem. I hate having to turn away work. What do I do?’

‘Other than just turn away the work?’ I asked.

‘I’d really hate having to do that, but I’m not too keen to take on an employee either. What if the work drops off and then I have to find work for another person too? I’ve been enjoying my independence so much. I’m not sure I’m ready to commit to that yet.’

‘That’s fair enough. I’m glad you are still thinking in terms of valuing your freedom. Employees can both free you further, or potentially cost you your freedom. It’s good not to rush into taking people on just because you are busy, or out of some sort of scarcity mentality or fear of turning away work. Too many businesses feel obligated to grow quickly for growth’s sake,’ I replied.

I was reminded of a story about a Japanese manufacturing firm that, let’s say for the sake of the story, made widgets. They produced 50,000 widgets a year at a price of $5 per unit. One day a big American company came to Japan and approached the firm with an offer: ‘How much can you make us widgets for if we order 1 000 000 of them?’ the Americans asked, sure that the small firm would be impressed with such a large order. The owner of the Japanese firm thought about it for a minute and said: ‘$10 per widget.’

‘What?!’ the Americans replied. ‘You don’t understand; we offered you a very big contract. You should offer us less per item, not more.’

‘No, you don’t understand,’ the Japanese owner explained. ‘We are set up to produce 50 000 units a year in volume. If we took on your order we’d have to invest in a new factory, new machines and take on many new workers just to meet your order. It would cost us more per unit to produce 1 000 000 widgets than it would to produce just 50 000. We would have to change our entire business, for just your order.’

Don’t be afraid to turn away work if it could end up costing you more than it’s worth, in money, or time.

‘Since you are still valuing your freedom,’ I said to Melissa, ‘I’ve got one more technique you can try before you decide how you want to grow from here. It’s a great technique because it can increase your freedom and increase your wealth at the same time.’

‘Okay, sounds great!’ Melissa replied enthusiastically.

‘Not so fast,’ I cautioned. ‘If you don’t like turning away work, you might struggle with this.’

‘Stop teasing and spit it out,’ she laughed.

‘Okay, here it is: you’ve got to raise your prices.’

‘Alright, you were right. I’d feel bad about raising my prices, especially for my existing agents.’

‘Why’s that?’ I asked.

‘Well, I guess I feel obligated to my clients. They have given me a lot of work, which I appreciate. And I guess I’m also worried that if I increase my prices I might lose some of them.’

‘Okay, well let’s look at both parts of that. As far as losing clients, let’s say you make 10 per cent profit per client. Now I know you make more than that, which is one of the reasons you chose this business, but many businesses operate on lower margins than that. So for every $100 a client spends you make $10. If you raised your prices by 10 per cent you’ve doubled your profits. In this example you could lose half your clients and still come out even, right?’

‘Sure, I guess.’

‘But wait, if you lost half your customers you wouldn’t come out even, you’d come out ahead.’

‘How’s that?’

‘Well, you’re not taking into account the unseen. If your profit stays the same, but you now have half the amount of work to do, you just gained a lot of freedom! Besides, in reality, it’s highly likely you won’t lose any clients at all.

‘But there is another aspect to think about too. You said you appreciated your existing clients. But now that you are run off your feet with bookings, you’re not as available for them as you were in the beginning. If you raise your prices and that does nothing more than deter the odd bargain shopper looking for cheap shoots, you’ve actually done your existing clients a favour by making yourself more available for them and allowing them more choices when they book you, and the ability to book you with shorter notice too, which is something I’m sure your regulars would value.’

‘I guess you’re right,’ Melissa conceded.

‘You may eventually want to take on staff,’ I said, ‘but you should want to do that when you can see a way that it can free you, which means you have systemised your business and can delegate or outsource parts of your workload. It then becomes an active choice. But, what a lot of people who suddenly find themselves booked out do, is try to avoid turning down work by quickly taking someone on as an employee — someone who may take up way more of your time than they save you, if you haven’t first systemised your business. And then on top of that, they end up raising their prices anyway to cover the cost of the employee. By raising your prices first you not only give yourself some breathing room, but you give yourself greater margins to work with, if and when you decide to expand.’

‘I still feel nervous about asking for more,’ Melissa admitted, ‘but if it’s a choice between turning away work, taking on employees, or this, I’ll give it a go.’