Episode 390: 3 to 1 & 1 to 3

Knowing your revenue per person can give you an idea that says, if I want to scale my company to $1 million, to $2 million, to $3 million, and our current revenue per person, say, is $115,000, and I'd love for it to be $125,000, you can kind of reverse engineer and see how many people would I have on the team. If we were doing $3 million and we did $125,000 revenue per person, you could get an idea. Of how many staff or how many employees that you would have. And then you could begin to kind of look and see what would our organizational chart look like that. So I think it will give you incredible insight depending on what your targets are.

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Hey everyone. So I was recently on someone else's podcast and they asked me a question that I thought I would share some of the discussion with all of you. And they were asking me around basically the stages that the businesses go through. And so we're calling this episode 3 to 1 and 1 to 3. So what do I mean by that specifically? I'm talking about the stage when a business is doing $300,000 in annual revenue up to a million. And then if a business is doing a million dollars in revenue up to $3 million, I believe that those two distinct stages are unique in the challenges and also at the opportunities that they present. Now, if you're doing less than $300,000 in annual revenue, look, at the end of the day, you just have to be able to sell enough of something to get the business enough lift. I believe that a business owner, entrepreneur, solo can get a business to around $300,000 just off of their back. But to really get the thing from $300,000 to $1 million, there are going to be some natural problems or issues that are going to arise. And so what are those? And then how do those differ between 1 to 3? I think specifically the challenges that arise for a business owner that is doing around $300,000, $400,000, $500,000 is they have to get the business out of their head. They really do have to try to figure out how do we document our systems and our processes in a way that I can transfer that information over to someone on the team. You probably have 2, 3, 4, maybe full-time team members. They're in sales roles, some customer service roles. And so your revenue per person is probably around $100,000 revenue per person. I think when you begin to do that, the business can start to have the semblance to where it's not dependent upon you. In our world, we would say that you have a set of playbooks that form an operating system for the business. Simply put, again, the business owner has to get the business out of his or her head. Typically, you kind of end up being the center of gravity. I'm in Huntsville, Alabama. And so in Huntsville, there's the US Space and Rocket Center. And so there's a lot of space and NASA's here. And so we know that— don't know much about space, but we know enough to know that Small things rotate around big things. The Earth rotates around the sun, the moon rotates around the Earth, etc. And so you kind of are the center of gravity where the business is kind of rotating around you. Well, what will typically happen when you begin to do that and you begin to create systems and processes in the business, you begin to document what it is you're doing. You document your sales process, you document how you onboard customers. You document your recruiting system. You document how you onboard team members. You document your training system of how you onboard them the first 90 days. You document how you train them on an ongoing basis. You talk about how you handle issues in the business, you know, you handle payments in the business, etc. All of these things begin to get out of your head and begin to get documented so someone else can do it. Sometimes I like to say, look, your team can't read your mind, but they can read the document. And so let's say you begin to do that. The business is going to start to grow. It's going to get past $500,000, $600,000, $750,000, maybe even beginning to push $800,000 or $900,000. Well, what happens? You start to add more team members. Maybe your revenue per person starts to push to maybe $115,000 revenue per person, $120,000 revenue per person. So let's say you do get it to a million. You learn the skills of how to document your systems and processes in the business. Now what happens? What are the challenges that begin to present themselves naturally when you're around a million dollars, maybe a million, $1.2 million, et cetera? Well, at that point, because you have hired people in the business and the business is growing, you're probably starting to get past 6 people on your team. And I believe that 6 is the maximum number of direct reports you can have in the business. So when you're at your 7th, 8th, 9th, 10th team member in the business, naturally you probably even already started to think about this as I was discussing it. You probably have managers. You have a team lead for the sales team. You have a service team lead. You certainly at this point, hopefully, have an executive assistant in place. And so now instead of just transferring your knowledge to everyone in the business, now you're having to learn the skills of leading other leaders. And the more that you can lead other leaders in the business, the more the business can continue to grow. But that's a different set of skills. If you've ever gone through what it means to even hire people, maybe you work with Autopilot Recruiting as an example, and you build a bench of people in the business and you start to hire really great people. You have a documented sales process, you have a documented onboarding process, all those kind of things we discussed, and so the team is operating, starting to operate independently of you. Well, now you can't have 12 different direct reports. I had, one of my clients had 10 direct reports at one point. And if you do, you do a 30-minute one-to-one with 10 direct reports, I mean, you're in one-to-ones for 5 hours. I mean, that takes up the entirety of a day just in your one-to-ones. Add in a weekly team meeting with that, and that's a full day that's just in weekly team meetings and one-to-ones. Hence why the maximum number of people you can have reporting directly to you, I believe, is around 6. And ideally, that number would be probably around 4. So you start to develop other leaders into the business, and then those people begin to have their own one-to-ones and direct reports. And I believe that is the unique skill sets that change when you go from $300,000 to $1 million, and then when you go from $1 million to begin to scale to $3 million. Okay, now let's talk about this number that I shared a minute ago, which is called revenue per person. This has been incredibly helpful for me, and I don't want to gloss over it here on this podcast. And so I mentioned a moment ago around revenue per person, maybe $100,000. The target that I have to be able to get a business to is around $250,000 revenue per person. Now, at the first glance, some of you are going to say, oh, there's no way. I mean, I'm doing a million-dollar business. I have 4 full-time team members. Look, the point is, is to set out as like, wow, that would be an amazing place to be. What is my current revenue per person? So take your total revenue for the year and divide it by your FTEs. FTE stands for your full-time equivalents. Many of you are going to have fractional team members in your organization. Now I use fractional specifically as opposed to part-time. I think there's just some sort of a connotation or imagery around part-time. Means they also kind of are not locked in whenever they're with you. So I like to use the word fractional instead of part-time. Just means they're not full-time. They're used— they're 10 or 15 or 20 hours a week. So anyway, maybe that's my personal preference, but I like to use fractional instead of part-time. Okay, so let's say you have someone that is working 20 hours a week. That is obviously 0.5 of a full-time team member. And so If you had one of those and you had 4 full-time team members, your FTEs would be 4.5. So you want to divide that by 4.5. Let's take someone that maybe is at 10 hours a week. That would be 0.25 of a full-time person. So you would definitely have, let's say you had the same 4 full-time people and you had one person that was 20 hours a week, so you're 4.5, and then the other person that's doing 10 hours a week, they're at 0.25. So you would be at 4.75 full-time equivalents. I think that's pretty easy math to be able to do, and you divide that into your annualized revenue. So if you were doing, say, $800,000, take $800,000, divide it by 4.75, you would get your revenue per person. Now, depending on the industry that you're in, you can do this math to begin to kind of see, well, what is the relative revenue per person in my industry? Maybe if you're an insurance agency owner, $125,000 revenue per person may be a great place to be. It's interesting using this number, how I've been able to hear a really large business, maybe even a business doing $25 or $50 million, and I could immediately go in and say, Okay, let's say they're doing $100,000 revenue per person. How many people did they have on the team? Or if they're doing $250,000 revenue per person, how many people did they have on the team? The other way is often I've had someone share with me, I'll ask, how many staff do you have? How many employees do you have? And they'll say, I have 50 or 75. And then I'll do a quick calculation in my head. I'll say, so are you guys doing about $50 million in revenue? Are you doing about $25 million in revenue? You've been doing about $10 million in revenue. They're like, yeah, we actually are. So it's been really fascinating to me to see how those numbers have played out. If you actually go online and pull up, say, a big company— I happen to be recording this outside of a Starbucks at the present time, and I did this with Starbucks— their revenue per person across all their baristas and all their corporate staff was $87,000 revenue per person. When I did it for Apple, no surprise, their revenue per person was over a million revenue per person. And so you can see a $250,000 revenue per person as a goal or as number to shoot for is absolutely a fantastic number. But for many of you, you may say, that's just not possible. But knowing your revenue per person can give you an idea that says, if I want to scale my company, to $1 million to $2 million to $3 million, and our current revenue per person, say, is $115,000, and I'd love for it to be $125,000, you can kind of reverse engineer and see how many people would I have on the team? If we were doing $3 million and we did $125,000 revenue per person, you could get an idea of how many staff or how many employees that you would have. And then you could begin to kind of look and see what would our organizational chart look like that. So I think it will give you incredible insight right, depending on what your targets are. Now let me go back. If you're at $300,000, you're wanting to get to $1 million, that is absolutely aspirational for so many business owners. Getting to $1 million is absolutely beating the odds in business. 91% of small businesses in the US will never cross $1 million in top-line revenue. So if you have already gotten to that point, congratulations to you. You have beaten the odds. I mean, 9% of businesses get to that point. That's incredible. And getting to that point is not only a significant milestone, but it also ensures that you have sustainable enough revenue to make the investments in marketing and in people and in quality people. Plus, you're probably making enough personally at the level that you really wanted to make when you started the business initially. So getting to $1 million is absolutely an incredible milestone to cross, and it's still an incredible milestone to be able to celebrate. But getting there, my guess is you want to continue to go. You want to see what it looks like to go from $1 to $2 or maybe even $1 to $3 million. Use that revenue per person number to begin to kind of see What would our team members and our staff look like? And that's from a business metric. Having some of these numbers in the back of your head helps you within some of the conversations you'll have with other business owners, but it also, I think, will give you a path forward and also begin to allow you to start thinking about what would my leadership team need to look like? What would, how many managers would I have in place if we went from $750,000 to $2.5 million to $3 million. And even if that seems so far off right now, I promise you, if you set your sights forward and give yourself time, but at least begin to say, you know what, that's where I want us to go, with time and effort and focusing on the right things, I have no question you'll be able to do it. So $300,000 to $1 million, got to document our systems and processes so we can hand that off to other people. From 1 to 3, we're now gonna lead other leaders. I hope this helped. Till next time, lead well.

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