Episode 66: New Membership Organizations and Parkinson's Law with Erica Wernick

Christina, can you start us off on this one?

What do you want me to say?

Whoever is sickest starts us off.

I think you sound more congested than I do. Chris.

You are now listening to two sick people and two healthy people on the.

Profit first podcast, episode 66.

Oh.

I don't feel well.

Oh, man, I don't feel good.

You know, I like the grunting is okay, but I thought you were hacking up a lung. That would not have been cool.

It felt that way.

Welcome, everyone, to the show, the Profit first podcast. I'm Chris Curran, the founder of Fractal.

Recording, and while he's a little bit under the weather, I'm not. And I'm Mike Mallow. It's the author of Profit First, I'm in studio with my colleague Christina Buldock.

Welcome. Hello.

Who's also sick.

Yes.

You know, it's that time of year, the weather starts changing, and so do people's health, it seems like.

Yep.

Well, you, listener, hopefully you're healthy and fine. You're listening to the Profit first podcast, and you can find us on things.

Like itunes and Stitcher and Tunein Radio and, of course, our website, profitfirstpodcast.com and this is the show where we talk about the. The most important thing in business, period. Would anyone disagree with that? Mike? Is anyone crazy enough to disagree with that?

Yeah, that's the funny thing. Like, the most important thing in your business is your profitability. That translates to sustainability. Yet so many people, like, oh, you can't. Some people have a negative connotation about profit. Like, ooh, profit's a bad thing. Are you kidding me? That's like saying, blood's a bad thing, like, it supports you. And other people just say, well, profit's something that will just come as long as I make a lot of money, as long as I sell a lot. And they put profit last. It's like you two. It's like, now that you're sick, Christina, you saying, oh, you know, I finally decided to put my health last. No, no, you're like, I'm sick, damn it. I'm getting healthy. When it becomes important, we put it first. So, yeah, not everyone gets it, Chris, but we're getting. We're making the show. Convince them to start putting it first.

Right. And I want to just thank you on behalf of so many listeners and readers. Thank you that you wrote the book Profit first, where you detail the art and science of profit. That's right. There are rules, there are tips. There's genius in that book. If I do Say so myself, dude.

I appreciate you saying that. And it's not just the book. Now this show is having an impact. I actually want to do a shout out to one of our listeners that emailed in. If I bastardize, just do the first.

Initials, the last name.

Matt. Oh, no, it's Matt Olmshank, who's the only name worse than Almshank is Mallowitz, but Matt Almshank of Signature window cleaning in Phoenix, Arizona. Thanks for the shout out. We're so happy you're enjoying the show, Matt. And yeah, keep spreading the word and keep, keep, you know, cleaning windows, what you do. And if we need to clean window in Phoenix, call Matt.

Keep rocking the profit. Thank you.

Yeah, Chris, what do you been up to, bro?

Oh, man. You know, it's snowing here in Colorado Springs and it's been a little colder than average, but it's great. We still haven't seen much deer lately, but I haven't gone hiking too much either. But we went to this one state park around here. It's so cool. It's like 5,000 acres. They have 55 miles of trails. They have cabins for rent. So we're gonna rent. We want to rent a cabin and go hang out in the state park in the mountains of Colorado for a while. That'd be cool, right?

Such a mountain man now.

Yeah, exactly.

I know. But the thing is, I'm a vegetarian. I don't eat meat. I don't hunt, I don't fish, I don't drink alcohol. I don't smoke anything, so.

So what do you go hunting for, like a four leaf clover? Well, you equip yourself up and stuff and. Oh, my. Everyone stop. Quiet. I think I see a clover in the distance. Stalk it. Stalk it right away. That's funny. That's funny.

Yeah.

Then you get up to it and you get up to, it's only a three leaf clover. Yeah, the sound effects are back. Me, I have an Apple iWatch. Boom. Bam. Christina Caesar.

Yeah, pretty.

You know what's so cool about the iwatch? First of, it measures your health. So I like to exercise regularly. And it measures your blood pressure and not blood pressure, but your. Your heartbeats per minute and the exercises you're doing. The coolest thing, it has a reminder to stand up. So every so often I'll say, mike, you haven't. I don't know how it measures standing versus sitting, but it does. It says you haven't stood in the last hour. Stand up. So, yeah, it's a cool little. I'm digging it. I'm digging it.

That is pretty cool. Stand up, Mike.

Yeah. All right. Now I'm standing.

The real Slim Shady.

So we have a really cool guest coming on. I'm going to thank our sponsors first, but I just want to give it get wet your appetite. Her name is Erica Wernick, and she has a business out in la. She'll give us all details on that. Who's implemented Profit first. But it's kind of struggling to get really into the nuances. So we're going to explore how to master profit first in today's episode with a real business in a cool vertical. But before we do that, we have to thank our corporate partners, the folks who make this possible. Do you know who they are, Christine?

Oh, I do. We have nextiva.

She's not even looking at a piece of paper.

And T sheets.

Yes.

And Fundera. And Fundbox.

Yeah, exactly. You gotta emphasize that D at the end. Yeah. So we'll give you details on those companies a little bit, but just a thank you for to them for supporting our show. And don't forget, at the end of the show, too, Christina and Chris will be put on the spot to share the insights that you learned from this show. And me too. Maybe we're learning some interesting stuff from Erica. Okay, well, her name is Erica Wernick. She is a graphic designer for television, and she is a founder of LA Bound, the Ultimate Guide to Moving to Los Angeles. Now, Christina, why do people move to Los Angeles?

To become famous.

Famous. And you can see her work on TV shows like Glee, one of your favorites, the Office, One of your favorites. I love the Office, Entourage, the middle. But there's like 20, 30 shows that goes on and on. Erica is implementing profit first in her business because I don't care. Even if you're in la, which is known for its wealth, I don't care where you're located or what you do. If you're not implementing profit first, you can get yourself in a bind. And Erica is finding her way out using profit first. So with no or not much further ado, let's bring her on board. Welcome to the show, Erica.

Hey.

I've heard other people on your other episodes comment about that crowd cheering, but you don't realize how exciting it really is until you hear it.

I mean, it's kind of. I know. It's kind of amazing. It's kind of. They are here for you. Like, we. Yeah, we announced that you're coming on the show. So here's the deal. We rent a Stadium we now here's.

The other sound in movies. So I get it, I get the setup. I understand and I appreciate the creation.

All right, so let's get right into it. Tell us a little bit. What does your business do? Well, actually, let me rewind. How did you get into this business? And then tell us what you do.

Well, I moved to Los Angeles to work in the film industry. Like so, so many people that live in la. And I had a dream of working in television and I made it happen relatively quickly. I broke in my first two weeks in la, landed my first television show, and since then I have worked for seven years in television on over 20 television shows, like you mentioned in the introduction. And as I found my success and really got to live what it was like to do something that actually makes you happy and see that these big dreams that we have, they actually are possible, I started becoming slightly obsessed with wanting to help other people. I see so many people in LA struggling and I can usually quickly point out why it's not working for them. And I am just so passionate about wanting to help them because I've lived it, I've lived the dream and it's awesome and everyone else deserves that same dream life that they're going after. So that's basically why I started LA Bound. And it didn't even start as a full on business, it just started as an eBook, LA the Ultimate Guide to Moving to Los Angeles. Just because I feel like everyone who's been in LA for a little bit of time starts getting emails from random strangers. And by strangers I mean your mother meets someone in the grocery store whose daughter wants to move to la and she says, oh, you should email my kid. And you know, these questions just started flooding in and everyone had the same questions over and over. So instead of repeating myself all the time, I was like, hey, what if I put this in a book? And since I'm a graphic designer, it was just a really fun design project for myself. So that's where the business portion of LA Bound started, just with this ebook.

You know, it sounds like a fantasy for so many people, like, oh, to become a movie or television star, to move to la. But you hear about all these washed up dreams. How, Erica, did you land your first gig in two weeks?

Yeah, for one thing, I have to say, and to comment on what you just said is that my, my goal, my dream was never to, you know, quote unquote, be famous. I mean, I'm not. I wasn't going after acting, but I wasn't going after it for the wrong reasons. I was going after it because I truly love graphic design and I love the industry and I just wanted to be a part of it. So I feel like when people come here with the intentions of, oh, I just want to be famous, that's where they really get tripped up. Like, it just. It. That's not going to get you far. You really need to be passionate about what you do to make it through, you know, this industry. And I broke in so quickly. This is what I teach in LA Bound. Just because I did work, I did research for almost an entire year before I moved to la and I connected with people in the industry. I had no connections, I knew zero people, but I did. You know, the same thing that people probably do in any business where you reach out to someone who's already done what you want to do and you ask them, hey, how did you get there? What are the first steps that I need to be taking? I mean, even that's what I'm doing here on the Profit first podcast. Like, hey, I want to have a profitable business. Let me talk to someone who knows a thing or two about that, bruh.

Yeah, yeah. Now, you picked the show to be on now. So what I'm hearing is you didn't really land your first gig in two weeks. It was a year and two weeks. It was just two weeks from when you landed in la.

Correct.

Smart preparation. And one thing I was unclear, I thought it was an actress role. Was your first gig as a graphic designer for a television show or was it an acting okay?

No, no, no, no. I have a degree in graphic design and I went to art school and all I wanted to do was design graphics for television. And so, yeah, that first show that I booked right when I moved to LA was for a graphic designer on a show.

That's amazing.

Wow.

Now, I assume all these shows work as a graphic designer?

Yep.

Now, I assume it's kind of hit or miss work. Maybe that's not the right term to use, but I assume that if you're a graphic designer, you get engaged in a project, there's a certain period of time, there's a certain fee for the project, but then it's not for the rest of your life. The show ends or their needs for you end. And it sounds like it's either starvation or flourishing. Do you experience those peaks and valleys?

Absolutely. You know, I was just telling someone I feel like the television world prepared me very well for the entrepreneurial world, you know, because I constantly have to find my own Work. And, you know, hey, if I booked a show like Grey's Anatomy, then I'd be set for 10 years. But that didn't happen. And that's why I've worked on so many television shows, because I've done a lot of first seasons. You know, it's very common these days for television shows to be canceled. So when a show's canceled or if it only has one season, I'm back to the drawing board. I have to hustle every time to find my own work.

Yeah. Or for pilots to get ditched, as Christina knows. How many pilots have I filmed?

The entire industry, no matter what your job is, I feel that's how it works.

Yeah, yeah. I think I've done three or four pilots.

Yeah.

And the last pilot I did, they're like, this is the best one ever. This is gonna go big time.

And then it's a cycle. Then you're starting all over.

So, okay, so, Erica, you do this as a profession. You find there's an entrepreneurial opportunity for these other people. You start, you write the book LA Bound. It's turned into a business. Just tell us briefly, what does the business do? Exactly.

So since that ebook that I mentioned, it has grown into a membership community. That's where I am today. And I just saw a need for these people who are moving to Los Angeles to connect with other people who are moving to Los Angeles. Because I think one of the biggest problems when people want to move here for a big dream is that they have no support system. And, you know, very often they only know maybe one or two people in la. And it's a very lonely transition. It's a very lonely time. So I saw the need to be able to connect these people with each other. And then I also used the membership community to teach them how to break into their industries, how to get their first gig, how to network with the appropriate people that are really going to make a difference for their career.

And just to give a sense to all the folks listening in, many of the folks listening in, entrepreneurs, they do have membership communities just like yours. Not necessarily for the service you provide, but they have membership communities. What's the fee structure, if you're willing and able to share that, to be a member? What's the size of your organization just so we can get a flavor of what the makeup of your business is?

Well, these kids are, you know, fresh and new out of college and don't have a lot of money.

They sound very wealthy.

Yeah, they're extremely wealthy. You know, they're Just like, they're just like the entrepreneurial audience in which they really understand the value of investing. And so I charge them $1 million a month.

I love it.

And so I don't even need to be here.

Yeah. So they have no money, you know?

Yes. So, you know, and through my growth of my business, or I should say not even the growth of my business, but learning what I should even sell has been a journey because of that reason, you know, I really struggled with can they pay money? Can they. Can what? Can they pay? So. And I really want to provide enough value for them. You know, it's really important for me to be able to help them. So right now, the, the real quote, unquote fee that they'll see on the page if they go to try to sign up today is $35 a month. However, I do multiple sales opportunities through webinars and through email series where they can get it for 25amonth. So for me, 25amonth is like my standard fee that I really get.

And then how many people are active right now with you? Because I know that turns they sign up.

Yeah, yeah. So it's only been live for like three months. This is.

Okay, so you're brand new at this.

Okay, brand new. So my business has. LA Bound has existed since the end of 2013, but like I said, it's just been a journey of me experimenting with what can I actually sell besides this ebook. So I've sold hundreds of ebooks because. But because I was offering it at such a low price, I wasn't making any money. And so even after selling, you know, hundreds, I've sold over 300 ebooks just on my own site. So I tried different things. I did an online course, I considered coaching, which I would still love to do, but I ultimately got some guidance from people who run online businesses and I'm part of their community and they really helped me to figure out the membership model. And when I first launched it three months ago, everyone was so excited that I was like, huh, Okay. I think this is maybe what I should have been doing all along. And, you know, I still get to kind of coach them in the site when I talk to them one on one. So it's still a great opportunity for me. But since then I've had, I think I've had 40 members in the past three months. And it's so brand new that the churn rate I'm still working on, I'm still trying to figure it out. I feel like it hasn't been quite Long enough. You know, the very first people to sign up, I offered them a, I forget the term, the proper term, but basically I offered them a really low fee to get to start populating the site. So all of those members are paying $10.99 and they're still in there, like every single one of them, I think.

Gotcha. And just so we understand the last piece of business, and thank you for your candor. I mean, this really helps everyone understand their, the situation their business is in so they can relate to you. What do they get for $10.99 a month? Or 25 or 35, what do they get from you?

So there are multiple aspects. The first, as I mentioned, is the community aspect. And it's sort of like a Facebook layout where there's a newsfeed and they can talk to each other, they can ask me questions one on one privately in a private message or on the news feed, so they have direct access to me. And then another aspect are all the resources. So there's two categories of that. There are resources for Los Angeles. So if you're brand new moving, there's a neighborhood guide. Neighborhoods are a big topic in LA because it's so spread out. So where you live is really important. So there's all that kind of stuff like how to ship your car, where all of the targets are, where's the Ikea, all that kind of stuff for people moving. And then there's also a whole bunch of resources on the industry and how to break into the industry, how to network. Every webinar that I do, the replays are there. And finally, members only events. So I do webinar esque events once a month where we do hot seats where people can ask questions. And we also have some live members only events. We're actually hiking to the Hollywood sign in a couple of weeks.

Oh, cool. There you go. No, it's great networking. Okay, good. Now I have a sense for your business. Let's get to the profit first coaching. The one good piece of news I have for you, Erica, is regardless of your size, if you had one member and you were making $1 a month, we could still get this going. So you're far past that. Yeah, you're well past that. So that's good. You started to implement profit first. I know you were working on the instant assessment. We exchanged some emails back and forth. Tell us what you were doing and where you got hung up and let's get you through this and make your business profitable.

Thank you. Yeah. And you know, I was so nervous to come on here and be honest about this, because, you know, I feel insecure about, you know, my issues with accounting and money and all that stuff. But I feel confident that I'm not the only person out there that probably feels that way. So hopefully.

Well, you know what? Let me address that first. Thank you for your courage, for coming on, because it is terrifying to open the kimono if you wish well, or wish. I don't know if you wish to open kimonos, if you will. But it's scary because we think we're alone and we think we'll be inferior to everyone else because I'm not successful. I don't have as much wealth, but I got to put on this air of success, especially in your kind of business. But it's the humbleness and the authenticity that actually comes across to members and the folks listening in. I can guarantee you, Erica, 90% of the people listening in can directly relate to your story because they're directly going through the exact same situation now. So I appreciate your nervousness, but applaud you for having the courage to do this. And as a result, I promise you'll see some rewards. If nothing else, we're gonna guide you through to more profitability. So I'm sorry. Just wanted to say that. Yeah, no problem. Just keep going.

Yeah. Thank you. No, because I was gonna say, you know, in the beginning of the book, you have all these examples where people break down and, you know, start bawling in front of you when you do the assessment with them.

Yeah. And I'm a co crier, so I.

Was like, should I have the tissues nearby when I do this? So essentially, me being a graphic designer, going to art school, I'm the art brain. Right. So I don't have that accounting brain. And reading the Profit first, I was really excited. My mentor had recommended it to me. He said it changed his business and that I should be doing the same thing. And I was really excited. And I think in general, it's actually quite easy to understand. So thank you for making it very easy to understand. You know, just for. Yeah, just for, you know, an everyday person who's not good with numbers. The part that tripped me up was just doing the actual assessment for a couple reasons, which you kind of mention in the book. But, you know, A, I don't think I've ever paid myself, you know, And B, this business model, and this whole year, this whole journey of figuring out what model will I actually use for my business has been, you know, it's taken me Such a long time to get here that I've had to spend a lot of money to get here and I haven't really profited. And, you know, it's also an online business, so I was a little confused about where all my expenses fall in the chart, being that almost all of my expenses are monthly recurring subscriptions that I need for the online portion.

Yep. Okay, so let's start digging into that, how you address the assessment. The first thing I want to address, and you mentioned that you don't have an accounting brain. Here's a little secret. Basically, no one does. And most accountants don't either.

My sister does. I come from a family of CPAs.

Oh, screw them. Tell them to. Yeah, I didn't get the right genes.

Monster kill.

Yeah, no, screw them. But okay, so your sister and your family are a bunch of anomalies and weirdos. And I mean that in the nicest way. Most people don't have an accounting brain. And I think it was Einstein who said, if you measure a fish, a fish's success by its ability to climb a tree, you'll never find a successful fish. You know, and it's a shame that so many of us say, I don't have an accounting brain. I gotta force myself through this. I have to finally figure it out. No, that's not what you're designed to do. So don't measure yourself or hold yourself up to the bar of being an amazing accountant. The profit first system is designed to work for the rest of us, the most of us. And it's a simple cash management system by looking at bank accounts. So now here's my question to you, Erica. Do you occasionally look at your bank balance and see how much money you got in your bank accounts?

Absolutely.

Okay. That habit is a good habit. Many entrepreneurs run their business based upon what they see as their bank balance. And I'm telling you, that's a good thing if channeled the right way. So most of us have one bank account. And I'm just assuming for your business, do you have one bank account? Or maybe you have a few. What's your setup?

Well, after reading your book. Actually, actually, right before I started reading the book, the end of the year, I did finally open an account for my business. You know, like I said, I haven't even really been making that much money, so I didn't feel the need to open an account. But I did open an account. And after I opened that checking account, I read your book and I. I changed the name of it to La Bound Operating expenses. And that's where I am now.

Good, good. So let me give you a visual analogy. You could, if you were thirsty, drink maybe a glass of milk or a glass of orange juice or maybe like wine or maybe like a beer. You would never take that wine, beer, milk and orange juice mixed into one glass and chug it down. Right. It's disgusting. You would never chug it down yet. That's. Chris. That was. That was disgusting. God, your voice. Jesus. But that's what we're doing in our business. You see, money is. When we have money come into our business, it's allocated for other purposes. One is intended to be that wine. One's intended to be the orange juice. Yet we're gluming it all together. So it clouds it and we just digest it, we choke it down. So the reason we set multiple accounts is to discern the purpose of the money before we spend the money. So if $100 came into your bank account from your memberships, and it looks like you're making more than 100 bucks a month, but 100 bucks comes in, the first stage is to allocate it into its different juices. This is for my orange juice. This is for my beer. This is for my wine. This is for my milk. So kudos to you. The first step is you set up these multiple accounts. But now let's go back to the assessment. You start to go through the assessment. And just so our listeners in that aren't familiar with the profit assessment, what this is is a quick way of analyzing where your business stands. What we do is we look at your revenue from the last year or the last 12 months, we put it in, and then we see where we've in fact allocated money in reality compared to where we should allocate money based on profit first. So how far did you get in that process, Erica?

So I figured out my total revenue.

Okay. And what was. Do you mind sharing that, too?

It's so embarrassing.

Listen, it's not.

No.

I've made, in many of my years starting my business, 5,000. I made one year total revenue. I've lost $50,000 one year and couldn't afford it and lost my house, my cars. So I've been there, I think every.

Year for the last six years. I don't think I've ever made a profit one year. I think I had a little, but other than that until, you know, very recently.

No shame here, Eric.

No shame. So light on us.

Okay, so. And I did, you know, when I first figured out, I was like, you Know what? That's not so bad. It's essentially, you know, I spent an entire year figuring out what to sell. So my total revenue for 2015, $7,315.59.

Okay, good, good. So not bad. Listen, that's $7,000 more than nothing. So $7,315. And one nice thing too is by sharing the numbers and being very specific about it, you've set a baseline, you know, now next year in comparison to how you did this year. So that's good. Now when you took those numbers, did you take anything in? Did you pay yourself anything last year from that money?

See, I don't know because I didn't have a separate account. And so the money was just, you know, all of my memberships, everything is through stripe. It just automatically goes in my account. And so I didn't track, you know, any of that.

So we're gonna put a big question mark in owner's pay. Now, another thing we want to allocate is profit. And let me distinguish what these are. Owner's pay is the pay you take to support your life, your lifestyle. And in a small early stage business, that's what you are. Usually everything goes to owner's pay. Nothing goes to profit. So I'd expect there to be no profit in this business yet. The next thing is taxes. Did your business, and I assume the answer is going to be no, did your business reserve any taxes on your behalf last year or when you had to pay taxes that come out of your own pocketbook?

My accountant did everything for me and I just showed him all of the numbers and gave him all of all, basically all the documents that he needed to see what I had made. And so I don't know, I didn't have to pay anything. I got money, so.

No, you got money back. Okay, so if you got money back, that means you were paying something and that means it likely came out of your own pocket. So that means you were making either quarterly contributions or you received a deduction in a paycheck. If you get a paycheck, do you get a paycheck or.

Well, so here's the thing though. I work full time in television. You know, this is a side thing, so I gotcha. I pay taxes through television all the time. You know, I'm on their payroll, so. And I have a feeling that, because you know, what I, what I made from this business, I also freelance design business and I made extra money from that as well. But what I think he does is he does tax write offs because I have so many things that are write offs.

Right? So then now that means your business, this business that we're talking about, likely had a loss or a break even last year, and that would result in no tax consequences. So then the last section in a profit assessment is how much did you have in expenses for this business last year?

Okay, ready?

Lay it on me. Everyone strap your seatbelts. Okay, drumroll.

$7,246.60.

Wow, you made some money.

Okay, I made $68.99.

Thank God you didn't make a penny more. That would just be embarrassing.

It's definitely something to cheer about.

No? Well, yeah. And this is the definition of what's called Parkinson's Law. And if there's anything I want to educate you about on this episode of the Profit first podcast is the understanding of Parkinson's Law. And the scenario you're playing out, by the way, Erica, is the exact same scenario I've seen for 70,000 businesses. $700,000 businesses and 7 million dollar businesses. Company makes $7 million in revenue. I owned one of those and spent $7 million in expenses. Actually more 7.5 million. So the size of a business does not matter, is the profitability of a business. Now, here's what Parkinson's Law is. Is our natural behavior to expand our utilization for money by based upon its availability. The more money that becomes available goes into that one bank account, we will use more of it. The example I love to use, I use on other episodes is a tube of toothpaste. Tonight, Erica, if you brush your teeth and there's a full tube of toothpaste, you have the propensity to use a longer bead of toothpaste. Conversely, if that toothpaste tube is almost empty, your behavior likely will radically change. You'll bend it over the corner of the sink, you'll bite the edge of it. You'll squeeze into everything. Every ounce of your energy will be pushed into that toothpaste to squeeze this one droplet of toothpaste out of it. Do you know what I'm talking about? Can you relate to that?

Oh, absolutely. And it reminded me of an example that you gave in your book that similarly about the idea of when we, you know, let's say $500 comes in and we get so excited and then the next day, you know, our car breaks down and it costs $500.

Exactly. That's Parkinson's Law. That's Parkinson's Law. Your business is. This is a clear definition of Parkinson's law. You had 7,000 come in and you found a way to spend $7,000. Now, here's the crazy thing about Parkinson's law. I am convinced you didn't sit there, pen and paper in hand, saying, ooh, here's how much I made, here's how much I'm going to spend. It happens at a subconscious level. We find a way to spend everything we have. And then that trigger moment happens. There's no money left on the credit card or there's no money in the bank account and we stop the spend. So we throttle on, we throttle off based upon the deposits coming into our business. Can you relate to that?

Absolutely.

Okay, so I got big news here, and I want to congratulate you. You are a human being. Oh, my God, I thought I was.

An alien all these years.

No, you are totally, totally normal. So going back to your kind of question about the profit assessment, here's where your profits have been historically or has breaking out. 0% has gone into your pay. 0% has gone into your profit reserve, what you reward yourself with on a quarterly basis. Zero has gone into taxes. 100% has gone to expenses. That is your profit assessment. Now on, on our website, Profit First Professionals in the resources section, we have a tool where you can get recommended percentages. But I'll give you a rough sense what I encourage you to do today, right when we finish this recording, get those four accounts set up, plus a fifth. The four accounts are owner, set up a checking account and call owner's pay. Second one, set up a checking account, call it profit. Third one, it's also a checking account, call it tax. And the fourth one is a checking account and call it expenses. The fifth bonus account is your income account, also a checking account. What happens from today going forward, Eric, is every time a deposit comes into your membership business, it goes into income account. You are never, and I mean never allowed to spend a penny from the income account. But when the money goes in the income account on a periodic basis, you can do it once a week or once a month or twice a month. And I have a whole method to the frequency to pick. But a business of this size, it's irrelevant. But on a periodic basis, consistent basis, made the last day of the month, whatever money is an income account, you allocate out to these different boxes. And since you've never had owners pay, if we Simply made that 10% going forward, that's a small step forward. Since you've never had a profit, if we made that 1%, it's not a big, big chunk of money. And if we allocate 1% to tax, that's not a big chunk of money. And that leaves 88% of your money going to expenses. What this translates into is if you had another $7,000 year, $6,000 plus will go into your expense account. Is it. Do you conceive that you could have run your business just as well with $900 or so less than you did this past year? Do you think you could find a way to cut out $900 over a full year for this business and still run it just as effectively?

Well, I actually went through everything last night because I knew that was going to come up. Damn it, you. Yeah. So I know. I know. Three that I can cut out, one I've already cut out, and two, I'm cutting out tomorrow. But some of them I actually really need. This is the problem because it's an online business, so I can't get rid of my membership plugin. You know, that's my memberships. So there. Yeah. So. And it's interesting, and I wanted to ask you if this is okay too, because one of my expenses, I spent a little over 2,000 doll on Facebook ads. Now, Facebook ads is what I use to grow the business and to attract new customers. So how. How do you do this when you have some expenses? I mean, not that it has to be $2,000, but, you know, some of these expenses I have, I really can't cut out, you know, especially when you're. When it's brand new and you don't have it, you need to get customers, you know, so I have to spend money on advertising and things like that.

Did those $2,000 yield at least $2,000 of revenue?

Well, my revenue was over $7,000.

And was it all generated from Facebook?

I don't know for sure. I've used Facebook ads all year.

So that's the answer you got to find. There's two types. There's a cost and there's an investment. Here's the clear delineation. A cost is something you put money into, and it results in the loss of money. An investment is something you put money into, and it results in a gain of money. Facebook, just like anything else, can be an investment or a cost. But if we don't have clarity on it, we often in many cases, are experiencing a cost, but we don't know and we think it's an investment, so we continue it. For example, I'll play a game with you. I'll give you $10, but you give me $12 in return, every single time. I'll play a game all day long. You'll go bankrupt. I'll get rich. But the reverse could be true too. You give me $10, but I'll give you $12 in response every time, you'll get rich. So we gotta learn Facebook. Is it an investment you're putting in 10, getting 12, or is it a loss? We're putting in 10 and we're getting back nothing. Or we're putting in 12, getting back 10. So you got to figure it out. And that's what profit first does. What we know now is if we start allocating money to your owner's pay, 10% of all deposits, profit, 1%, tax, 1%. We only have $6,000 or so to run your business on. It forces us to become critical of all of our expenditures and differentiate between cost and investment. Now, the membership site, I can tell you that's an investment. Why? Because it's causing customer retention. If your customers join you and they stay for a second month, it's not because of the Facebook ad, it's because the membership is supporting them. So clearly, if you've retention over one month, that is an investment, is an efficient investment. Maybe not. We still got to play with that. But first we want to cut costs. Now, you said there's a couple things that were kind of obvious. What are those things?

My email marketing system, My email, you know, marketing provider. You know, I have infusionsoft, and that was a big investment for me this year, but I feel like it was a game changer and just how I run everything and organize everything and communicate with my list. So, you know, for me, it feels like I can't let go of that.

Okay, so let me address another thing. And you may be right, but you may be woefully wrong. I have a friend who's a pilot for, you know, the first plane he flies jets. You know, the first plane he flew was a Piper jet. Piper. Not Piper jet. A Piper. A Cessna. A Cessna. A little propeller. Yeah, Piper. I don't know, I'm like, what? Never. Here, here's a tip, Erica. Never use an analogy about something you have no idea about. But he now flies 747s. And the thing is, he started off, he was one of those guys that flew the planes up and down the beach. All pilots start off with a small propeller airplane. If you start off with a high end tool, rarely can we extract all the value of it. Usually it's overkill. I don't know much about infusionsoft I know my own business isn't at the level where infusionsoft would be a tool that we could truly leverage to its fullest. So we're waiting. So I understand. Yeah. Infusionsoft. I'm sure it's an amazing tool. You may be better served.

I didn't start with infusionsoft. I use mailchimp for over a year. A year and a half. Two years.

Okay, so you. Yeah. So you may still be a mailchimper. You have a $7,000 business. Can mailchimp reduce the cost, and can we still extract the same benefit? I know infusionsoft has always. Bells and whistles. You may just be jumping early. The whole idea of profit first is we have to make sure there's money going into your pocket. I don't care what size business you have. Seven thousand bucks is a legit business. We gotta be allocating money to you. We gotta take care. I got one. If this was my company, I got one employee I care about. Her name's Erica. I gotta make sure that she's being rewarded for the extraordinary effort she's putting in. That's my number one priority, and that's gotta be your priority, too. Take care of numero uno. Stage two is I gotta become very critical of all the costs I'm incurring and really see if it's a truly justified cost, if it's a premature cost like you're experiencing. I think with infusionsoft, even though I love that software, it may be premature for this business. Or is it just a sunk cost, money going out the window that's not returning anything of value? Makes sense.

Yeah. What about time?

What about time specifically? What do you mean about it?

With mailchimp, I had a lot of problems, and I was losing customers because of it. And it took so much of my time, and it was time that I could have been spending getting new customers or investing in my business or growing my business. And so with infusionsoft, I feel like I've gained so much time, and I don't have any of those problems.

Yeah. Okay. So time simply means that there's more of you available. Now, here's the hard truth. If we look at your business and remove the emotion and we just look at as a factual thing, your cost of business right now, at least last year was $0. You cost us nothing. Right now. You're our biggest asset, and you cost us nothing. So your time is actually cheaper right now than infusionsoft. Potentially. Now, here's the deal. There's a certain point that that flips. So when you invested in infusionsoft, the time it availed you, were you able to, as your a direct effort of you, were you able to generate new customers more frequently, better customers, better retention? What was the result of this available time for you?

Yeah, it's been amazing for me. I mean, I've really enjoyed it and all of the new things that I can do with it and how easy it is to put people in categories and tag them and really get a better understanding of the activity of each customer.

So here's the deal we go through, and we got to start wrapping up the show, unfortunately. Here's what we do is we summarize all the costs you're having, and we look for the most obvious ones, the ones we can remove that have no consequence to your membership. It's a cost that's going to the ether and it's not resulting in additional profits. Those we just ditched. Then the second thing is we look at the ones that maybe are offering some value, but can we ditch those? But the biggest element that we didn't have time to talk about on this episode is profit margin. The other thing is you may not have enough margin. What you're charging, you're charging $10 a month for some people. You've moved up to 35. Can we move it to 70? Can we move it to 100? And if so, who's the market that would really cater to that? Your customers, as they exist today, may not be able to support that. But that doesn't mean there's not a good market here. I mean, after all, you only have 40 members out of hundreds of thousands of people that aspire or have moved to Los Angeles to pursue their dream in the movies and in television. So we may want to shift the market mile, too, to increase your margin.

Okay.

Okay. So here's your tasks to go home with. Even if we have another $7,000 a year, if we have $3,000 a year, I don't care. You got to set these five accounts at your bank. Second, just to get started. And you're just going to take a little leap of faith here. Every time you make a deposit, 10% starts going to you. You are never to touch that for the business. It only goes to you. 1% goes to profit. 1% goes to tax reserve. I want you to see if you can find a way to run your business off 88%. Here's what we're going to do. Are you cool with that, Are you with me?

Yes. Sure.

Okay. Even though it's a little leap of faith.

Sure. Yes.

But you'll do. Okay, here's the challenge. We're going to get on the phone again with you on a podcast in three months. So you can't back out of this and say, oh, I didn't do it. I want you doing this. And just. You got to stick with it. In three months, I want to sit down. We're going to do another show with you if you're up for it, and we want to see where you stand. And I think you may even surprise yourself of what you find in. In your business as a profit center or an opportunity. Ways to increase your margin, ways to cut costs. I think your perspective will start to change.

Okay.

Are you up for it?

I. Yeah. I mean, there's definitely. You know, this is a longer conversation than 20 minutes, but, yeah, I'll definitely. I'll definitely have to take a look at what my expenses are and what I can cut and how I can change things.

Perfect. So good. So you're on. So that's what we're gonna do. Trepidation is okay, but what we're also gonna do for you is we're gonna let you work with Erin from our office here. She will walk you through a full implementation of profit first. So you're not gonna be left abandoned saying, figure it out. We'll get on the phone with you and walk you through it behind the scenes here, and then we'll come back three months from now, you and me, we'll talk on the phone and see how you're doing.

Okay.

I love the enthusiasm. Oh, my God.

I don't know. It's. It's a lot. It's like, oh, crap, now we have to stop talking. And, you know, it's. Yeah, yeah, it's. You know, it's. It's. It feels like a lot, you know, a bigger conversation. I know in the grand scheme of things, it's a really short conversation. Cut your goddamn expenses, Erica. Oh, sorry. Can I say that?

No, you can't say God damn. You can't say shit, and you can't.

Say, okay, sorry, I got that. So in general, it's a short conversation, but just figuring out the details for me, it'll be a longer conversation to have with myself to figure out exactly where I can make the cuts.

Yeah, and you just nailed it on the head, by the way. The whole thing you're saying right now, that's Parkinson's law kicking in right now. Our Mind starts saying, oh, I can't do that. I'm barely getting by. I only have enough money to live off 7,000. But the thing is, why 7,000? The dollar amount you made, like you didn't plan on making $7,315.59. That's arbitrary. That's what you made. But magically you found a way to spend almost that to the penny. And that's our mind fucking with us. You can say that he was joking, I was joking. But that's our mind totally, totally messing with us. So you found a way to live off what you had. I'm just telling you we're going to reset that number a little bit lower or you're going to make more revenue. It's just going to be a different percentage, but your mind will automatically kick in and do it. And then our mind does this nasty thing, it says, but I can't do it. And. And this whole mind mess goes on. So what you're going through is normal. We're going to walk you through kind of the psychology of it behind the scenes with Aaron. And I assure you, if you just trust yourself and trust the process, you'll be shocked at the results.

Awesome.

Okay, cool. All right, Erica, we're going to let you go. Thank you for your candid. You were amazing to share, so honestly. And I hope the folks listening in you do the same with your own business and be so candid about yourself. All right, thank you, Erica.

Thank you, thank you. Thank you so much for having me.

Yeah, you're welcome. Thank you. I'll catch you later. So, Christina, Chris, I want to talk about what we learned from them. We gotta hustle off the phone here. So real quick, who's our sponsors? You say them, I'll say what they do.

Nextiva.

Nextiva voiceover IP phone system we've been using for over five years. Love them. Next.

Fundbox.

Fundbox. If you need your invoices financed, right. You got a business and you're about cash flow problem. If someone's not paying their bill. Fundbox release those funds to you. Fundbox Next.

T sheets.

T sheets, time tracking software. We use it here. You can even use it. Christina's favorite is the text in function. Just texting time all the time. It's amazing. Time tracking software. And last one, Fundera. Love Fundera. That's the one stop funding. So if you need to get a business loan now here's the deal. Erica told us between the lines, if you need funds, make sure it's an investment. That's something that will give you money back. So only invest in things that will return money to you. And Fundera is a great source for that. Christina, what's the biggest thing you learned from today's episode?

Oh, it's hard to pick the biggest thing. I would say that things are not what it seems. And when she first started telling her story and she was like, oh, I moved to la and within two weeks I got this. And I was like, you know, like, some people are just so lucky. But that's not the case. It wasn't luck. She worked her ass off for it. She did her research, she made the right connections. She really. She worked for it and she had the right intentions to do so. You gotta have the right intentions to be successful.

I agreed. Chris, your biggest takeaway?

Well, I had like a thousand takeaways. I mean, I'm so sick, I can't remember. Both of you gave so many good ideas and stuff. But I really appreciate Erica's journey that she's on. She's creating this online community with a membership model. I think that's huge. I think these days it's all about community. And I think she's doing great. And she's, like you said, very courageous to. She's taking the bull by the horns. She's figuring out that, okay, to get to that next level, I need to do something different or better. And she's actually doing it. She's going through this period when it's a little painful, right?

It's.

It's rough. Business is rough. I don't like it personally, but anyway. But she's doing great.

She's doing great. And the candor was what impressed me. That was my biggest takeaway. You know, I can't think of a single entrepreneur, including myself, that doesn't do the double number game. And what this is, we have the numbers, the double set numbers, the numbers for ourselves, like the real numbers and then the numbers we tell the world. So I would go out there and say, I got, you know, my business just passed a million dollars when it was doing 600,000. Really my business, you know, I just passed the $50,000 mark. I just made 15,000. We do this because our ego and bravado kicks in. But until we can get true candor about our real numbers, we can't address it because we actually start believing our own bullshit. So kudos to Erica for saying it the way it is. This is a business that's just getting started. A neophyte business can be a neophyte business for A hundred years. But now that she has the candor, and it's permanently recorded and will be throughout eternity, now is we. She has a way to navigate through this. And every listener, you're close to the phone for this. Listen in for this.

This gets me fired up a little scared.

Every listener. I got all fired up. I was getting fired up about everyone. Until you have candor about your numbers, you can't improve things. Profit first is a percentage based system. It works with a $7,000 company. It works with a $1 company or 1 million or a hundred. I don't care where you stand, your business. Now, the irony is Erica is living Parkinson's Law. She was the thought she had, the resistance, the fear she had, that's all Parkinson's Law. I don't have a big enough business to do Profit First. I can only live off $7,000. Can't you see, like $7,000 just a random number that she made. If she had 100 more members, that would have been different. If she had 12 less members, it would have been different. We always find a way to live off of what we're making. Parkinson's Law. Start allocating money to Profit first and you'll find a way to thrive. All right, Chris, we gotta get the heck outta here.

Yes, we really do. This has been another great episode of the Profit first podcast. You can check out all our previous episodes on profitfirstpodcast.com and of course, check us out on itunes and Stitcher or tune in your favorite podcatcher, however you like to listen. You might even want to just binge listen and go walk around your backyard for a few hours listening to Mike Michalowicz get fired up.

Yeah. And listen, if you want one on one help, we're here to help you. Go to profitfirstprofessionals.com, click on the First Find button. We have people throughout the country, actually throughout the globe now, that are helping entrepreneurs of all different sizes, from startups to wildly large revenue companies that are struggling to make a penny, to make lots of pennies, to become very profitable. Go toProfit First Professionals.com and click on the find button and we're going to help you out.

Boom.

Next episode, Robin Robins is coming. This woman made a rocketing business. This is one of those success stories how? And interestingly, if Erica's still listening in a membership organization that went from a neophyte making less than 7,000 to over $7 million a year, now you're going to find out how to do it on our next episode.

That's awesome. Thanks for listening, everybody.

See you.

Sam.