Turn Your Business Expenses into Hidden Profit Machines

Hey, Ryan here. Before we dive into the show, let me ask you something real quick. Are you a seven or eight figure founder who's tired of carrying the whole business on your back? If so, then you're exactly who we built. Get Scalable live for this is the only room where real business owners just like you come together to share what's working. Now, when it comes to strategy, scale and exits, there's no fluff. It's just results. And it's happening November 18th through the 20th in San Diego. And yes, Roland and I will both be there. You can grab your ticket now@getscalablelive.com and don't forget to use code LUNCH to save 25% again. Getscalablelive.com, code LUNCH. All right, let's get you into today's episode.

What's funny is we've been talking about this for over 10 years and it's really an ingrained core thought process for us in all of our businesses, and we've had a good chance to experiment with it. The first time that I can remember doing it was a business that you and I owned with some other folks back in the day that was a copywriting agency and it was basically content as a service. Every dollar your business spends could be a dollar earned if you know how to flip the script. Scalable's E2P strategy turns cost centers into profit centers, whether it's marketing, payroll, legal consulting, even rent. Today on Business Lunch, we're going to show you how to stop burning money and start making more of it. Ryan, how are you doing this wonderful day?

So good. My question is, who on earth would be interested in generating more cash flow and improving their margins if you, this.

Day and age, I'm going to guess all of the people on earth and some of the people in outer space.

Yeah, we just, it's funny, we just got back from our, our founders board mastermind meeting in Nashville. Great time. So always so cool to connect with, you know, with our, with our clients and just get to be face to face with, with business owners. But it just seems like everybody right now is like, how do I, how do we generate more, more margin? How do we, how do we make the cash register ring a little bit more and sales. And sales seem to be okay.

Ish.

For most businesses. Like, I haven't really heard from anybody that sales have necessarily completely fallen off a cliff. Like maybe they flattened or they're, they're down a bit. I'm hearing out there that because of concerns about, you know, Tariffs and things like that, that there's some slowing. But what we're definitely seeing is margin compression. Right. And I think certainly if you're, you know, because of these tariffs, that that's happening and it's just impacting every single phase of the business. People don't think about it, but your. Your plumber is charging you a little bit more because their parts that they're doing that probably came from China or somewhere else cost them a little bit more. And so when everybody throughout the economy is getting charged just a little bit more, that naturally is going to compress everybody's margins just a little bit more. So I think this topic is. Is great because it's basically, yeah, how do we take our expenses and turn them into profit? What. What better way to improve your cash flow and your margins than to take something that is on the expense area and make it, you know, profitable instead?

What's funny is we've been talking about this for over 10 years, and it's. It's really an ingrained core thought process for us in all of our businesses, and we've had a good chance to experiment with it. The first time that I can remember doing it was a business that you and I own with, with some other folks back in the day that was a copywriting agency. And it was basically content as a service. And so. Well, actually, it wasn't. It was. We created it as a result of that. That's what it was. I'm sorry. So. So we had copywriters that we were paying to create copy for our businesses, and they were not completely full. And so we thought about, you know, what if we offered those services to other people? Because that business was an E commerce business. But we also have this business, Digital Marketer, which teaches people how to market. And a lot of people that were customers of Digital Marketer and that we would meet out in the wild when we were talking and stuff would be like, you know, gosh, where can we find good copywriters that know how to write the kind of copy that you guys teach? You know, particularly that Ryan teaches. I don't really teach it. And it was just like, well, we have those copywriters. And it would be like, you know, people would poach our copywriters and things like that. And we kind of finally just said, what if? And hear me out. We just offered to provide the services, that capacity, that excess capacity we've got to other people, and we actually charged them for it. And I was like, that sounds like a good idea. And so we created a content agency that was basically built on the back of the overcapacity that we had. And we turned these cost center copywriters into profit center marketing consultants effectively. Right. That was kind of the, the place that it all started. And what, what is your recollection and memory of how that went and what was good and bad about it?

Yeah, I mean, I think so there's a number of ways that you can incorporate E2P that we should talk about expense to profit. The simplest way is self liquidating it. Like just how do we get this expense center to, to just cover its own cost? So we can talk about some ways to do that. The second way is the group buy. Yeah. So how do we go in and get people to kind of share the cost? And then the third way is the spin off, where, how do we take this expense and actually spin it off into its own business unit, into its own company? That's what we did. And it's the most complicated. It's also the most like fraught with danger. Because what you are doing if you're doing a spinoff is you're taking what is currently a function within a business and now you're turning it into its own business, which means it's going to need its own leadership team. So in the beginning what I remembered is it was incredibly easy to sell incredibly high margins. But then it became this drain on resources because we're saying, okay, who's actually running this thing? Because we can't really have. The department head wasn't actually equipped to like CEO a separate business unit. But we kind of unintentionally asked them to do that. And so you, I think if you're going to do a full scale spin out, you have to make sure that the team is there and that the margins make sense for it to justify a spin out. Because I believe in retrospect we could have done it on a smaller scale and probably had the whole dang department paid for just utilizing our friends, you know, people in the industry not had to deal with any outside drama and just had. Had that thing paid for. So that's kind of my recollection. And you know what? I wish we didn't. Look, ultimately we end up selling that business and it was fine, it was a good result. But it was, I remember there was some, there were some sleepless, sleepless nights.

Yeah. And I think it's, I really like that effectively what you're doing when you create a separate organization out of this, as you're creating a bpo Right. A business processing, business process, outsourcing, or an mso, a marketing services organization, would be kind of the analogs to what we're talking about here. So it's, it's just that rather than going out and creating one from scratch, and that's what you're going to do as your business, you are actually creating one to help you with your business, be able to kind of defray some of these costs that you've got. And so I think it's a really great way to do it. One of my favorite examples was I gave a talk about this, gosh, maybe eight years ago at Joe Polish's Mastermind, the Genius Network, and, and talked about, talked about it. And then after that, one of our consulting clients, Tucker Max, who had a book writing company called Scribed, came to me and he said, holy crap. He said, this is freaking amazing. He said, I. I didn't realize. He said, I've seen. And I want to say it was, it was like it was either nine or 11. He said, I found nine different places that I can turn into new entry points into my funnel by offering the services of our people. He said, we were thinking very linearly about our business, that somebody wants to write a book. So somebody wants to write a book, and they come to us for help, and then we help them figure out what the idea is going to be, research the market, start writing, you know, ghost writing the book, then we're going to fact check it, then we're going to edit it, then we're going to lay it out, then we're going to create a cover design, then we're going to create a marketing plan, then we're going to do a launch, then we're going to book them on, you know, for talks and things like that. And, and then we're going to help with distribution. And he's like, every point along that way could be a service, because maybe somebody's already written the book and they just need editing, or maybe they, you know, they've written it but it's not released and they want to have editing, or maybe they just need a good cover, or, you know, maybe they just need to get booked on podcasts and then when they write their next book, they're going to come back to us. But now, instead of only being able to address people who want to write a book but haven't yet, our market is multiplied. Our tam. Our total addressable market is multiplied, you know, hugely, because now we can get people at any of those points to come in and all of our people along the way that have capacity and expertise in this can now be entry points into our funnel that allows us to significantly increase our revenues and profits. So, like, I really love that example because he was so excited because it hadn't, you know, it was just like this completely new thought of our business isn't or doesn't have to be linear. And I think that might be kind of the big takeaway is like, how could I explode my business up and say, you know, what if the entry point wasn't at the top of my funnel currently? What if it was throughout and after my funnel? Then what would happen? What could I do? What are all of the cost centers along the way? And. And what are the products or services that I could provide to my existing customers or to customers that I'm not currently able to address to be able to bring them into my, you know, my ecosystem?

Yeah, I think that's a. That's a great question. I would also. Just a really simple way to get started with this is to look at the biggest cost centers in your business and just ask the question, how could I make this pay for itself? So I can tell you, in a lot of businesses, if you have any sort of customer care, customer support type department that is almost exclusively a cost center, that is an expense. It's something that you need to do, but it doesn't naturally make much money. Well, we asked this question over a decade ago. How do we get this cost center to pay for itself? And ultimately, the solution that our business partner, Richard Lender, came up with is they're sending out emails all day, every day, individually, one on one. But there's still a ton of emails that are getting sent out. And now a lot of these are emails to grumpy people because something went wrong. But a lot of them are just general questions. And a lot of these grumpy people are no longer grumpy. We've done a good job for them. And so what we realized is if we just gave everybody a ps, just a standard PS that goes at the bottom of every single email they sent, you know, P.S. oh, by the way, we've got this event coming up. You should go sign up. You know, P.S. we're running a special on this, you know, this week you should do that. And so every week we basically had a PS of the week, because every customer care rep got this ps. They added it. Eventually we, you know, found a tool that made it to where we could update on our end so they didn't have to do it. Just the addition of that offset, it wasn't quite 100% of the cost of the customer care department. But I want to say it's self liquidated 50, 70% depending on the month and you know, the performance of those particular offers, that's a big deal. And that was just free money that came from asking the question and there was no risk. We didn't have to spin out a different business unit. We didn't have to incorporate a group buy or anything like that. Just asking the question, how could I get this to pay for itself?

I love it. Yeah. And I think the thing to think about as you're exploring this is it's really a mindset and methodology combination. We're thinking of going from cost burden or expense or cost center to profit lever or new funnel entry point or you know, or, or profit center. If I didn't say that like that's, that's really the, the mentality and, and we're thinking about like at every level along the way asking the question how can I monetize this? And if you can't think of it yourself, maybe put a extensive description of the customer journey and the products and services that you've got into ChatGPT or Gemini or Claude and say how could, where along the way could these expenses or please identify expenses that could be turned into profits. The other thing that you can do is you can go through your, get your accountant or your QuickBooks or whatever it is that you use for accounting and list your expenses by supplier and, and list the expenses by supplier and from most from greatest expense to least expense and then look at any of your expenses that are over about, you know, it could be different in your firm depending on how big you are. But over say 10,000, 100,000, you know that, that probably over 100,000 is, is, you know anything over there you would want to look at and then do the same with your payroll and see by department or even by person who are the top people that are the most expensive. And then think about what's the capacity that each of those things is being used at. If your creative designer that's, that's creating your ads and stuff like that is already efficient and using AI and and is completely booked. You probably don't want to turn them into a profit center. Right? They, they already are. They should be making you money. But maybe the first question we ask is what's the capacity, the unused capacity. The second question is how could we create more capacity with this resource? So maybe your creative person is not yet using AI and they could be twice as efficient and therefore they could have 50% of their time open up. Well then that's a good indication that that might be a place to do this. Do you have any other thoughts on kind of like how to find opportunities to do it?

What you said about going into the P and L and listing out is always step one then asking the question. I think first, how do we get this to pay for itself? I think the second question is who else would benefit from this? And that question should be who else would benefit? From a client perspective, it could be who else would benefit from. If you have a holding company type model, other teams within the organization that you could do that. But speaking of the client side, there's likely services that you're paying for internally that you utilize that because you have access to that service. You could offer a higher level of service to your clients than you're offering right now. Or maybe you do offer it, but you're not charging for it.

Right.

And so I know there's lots of things where, and again, what you don't, what I'm not saying, please don't hear me say to, you know, give people access to a tool that you're paying for, like give them your login. I'm not suggesting that you violate any terms of service or give people access to data that they shouldn't have access to, but to the extent that you're able to provide a higher level of service to your client because you have this tool, just ask the question, are we charging effectively for that? Are we advertising that we're able to do this? Because either you are, you're not doing that yet and you could, in which case you've just come up with a way to help that tool self liquidate or, or you're not and you find like really this tool isn't paying for itself. So, so we can, we can cut it. I know we've been able to do that at higher levels of membership as a result of investing in tools. The other thing that, that we've done that, that people can do is thinking about the group buy. A lot of times people think about a group buy, they think about physical products, they think about raw materials, inventory. We've done this in the past that we actually have a, have a client who, they're funny enough in the candle supply space and they're, which is a business, you know, our former business partner used to be in but years and years and years ago and they're worried about tariffs, they're Worried about China. And so they're, they just did a big massive import and now it's like we've got all this stuff, you know, what do we do? And kind of what do we do moving forward? And I asked like, are there smaller suppliers in your space who maybe don't have the juice to do direct importing? Could, could you partner with them and say, hey, I'm going to do this buy. Do you want in on it?

That is kind of with the bath bomb ingredients back in the day too.

Remember what the, the what we did.

It with the bath bomb ingredients. We sold those to other bath bomb makers when we were doing the bath bomb things. This is a great.

Exactly. So there's that. But it can also apply to something like your media buying. So for us and a lot of our companies, what we spend on advertising is our single biggest expense. So we looked at that and we said, who else could benefit from the fact that we're spending all this money on advertising? And that's when we went and partnered with a non competitive company but that still had access. So this is an indirect competitor. So a business that can absolutely has your same icp, but they're selling a completely different solution. We went to them and we said, hey, look, why don't you give us money? You know, and we've also done this where we split it. Why don't we both throw $10,000 a month at this campaign? We'll, we'll run it because we have the capacity to do that, because we're running it. We get first dibs of the leads for the first seven days and then after that we'll advertise your stuff. And then after that we'll each get, you know, get a copy of these leads that, that effectively reduces your cost per lead by 50% with almost no real downside. And again, it comes from asking the question, first, how do we get it to pay for itself? Second, who else would benefit from this investment that we're already making?

Love it. A couple of ideas for you guys. If the expense is marketing your traditional role, there would be lead gen cost. The E2P opportunity would become a marketing agency for other people in your niche. If you've got customer service, normally that's support overhead. But the E2P opportunity would be to offer white labeled customer support for other brands. If it's HR and recruiting, that would normally be internal hiring, but you could create a talent placement agency. I know we've got a business that's got three recruiters in it, finding accountants all day long because we can't find enough of them. And that's a service that we can provide to other people. Software automation or software would be productizing into SaaS or consulting offer. We had our AI team that was doing automated AI calls for outbound generation defined businesses. And we turned that product that we paid for, plus that team into a profit center and sold that as a service. And that was super cool legal compliance.

Another version of that coming up because we've now created the growth hub with the AI marketing team. And so same thing now our internal AI team that has helped us develop this for our own internal purposes. This is going to be a spin out as a separate business unit that these folks are going to essentially help drive.

Yeah, my favorite one of all time was the. I just always remember this. It was, I want to say it was November 2006 was the COVID on Businessweek that said that Jeff Bezos, Jeff Bezos wants to run your back office, I think it said, or something like that. Wall street just wishes he would mind the store. And it was when Bezos had the, you know, the brilliant idea that's to me the inspiration for us doing this, which was, I've got all this infrastructure and hard drives and tech and stuff, why don't I make that available to the rest of the world? And he created AWS Amazon Web Services, which is an $80 billion company and for a long time was the only part of Amazon that was profitable.

Like it was called all their margin.

And you know, and it just goes to show you how the experts can be wrong when you've got a visionary, you know, and visionary can be wrong too. But, but that was one of my favorites. Zappos did it with customer service. It's like it's just having the mind shift of not questioning the expense to optimize or reduce it, but to basically say, how do we commercialize what we're already paying for? Where's the opportunity to monetize the expense? That's the big, you know, really the big insight I think here. And that that can turn into something significant.

Yeah. And how do we commercialize it internally? How do we commercialize it externally? Because like I said, I don't want everybody to think and I think this is the mistake. When we talk about E2P, everybody's thinking, okay, so you know, I need, I basically need to spin this out into its own company. That may be the solution. But see, first, can we get it to self liquidate? Is there simply a group buy opportunity doing these things before you jump immediately to the spin out. Although, as is the case, you know, the example of Amazon, you know, aws, the spin out can be incredibly lucrative and incredibly powerful and create a lot of value when it works. So big, big, big fans of that strategy.

So that's something that you should do if you're thinking about, you know, I've got compressed margins, I'm worried about tariffs, I've got all these, you know, these issues that are causing me to not make as much money now as I did before. Or you are making money now, but you'd just like to make more of it in your business, then E2P is definitely something that you should take a look at. I like last time that we recorded one, we were talking about getting better titles for our podcasts. So since this is business launch and you guys are fly on the wall, this is what Chat GPT came up with. Of all the ones that I like the best, Ryan, tell me what your thoughts are. Turn your. Turn your business expenses into hidden profit machines.

I like that. Hidden profit machines.

Yeah, yeah, yeah.

I like it.

We'll send those off.

We'll see. We'll see if that. It's always fun because now we'll see if that's what it winds up being because maybe they run some other tests.

Yeah, I know.

I like it.

Awesome.

I think it's, well, great.

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