UPWORD Consulting - Week 8
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Welcome back. Now that you understand what profit first is, and how you can leverage it as a cash management system for your business, let's get into implementing it. It is due time. And I'm going to walk you through each of the 12 steps to implementing profit first, step by step, you can get this done in no time at all, I do recommend that you complete each step before you move on to the next step. All right, really, really important. But you can get this done right away.
So let's jump into step number one, get your butt to the bank, this is the absolute foundation of profit first is opening up those bank accounts at your primary bank, doing this on a spreadsheet, that doesn't count that would be doing profit first ish. And you want to do profit first, right? So step number one, get your butt to the bank. Now we talked about that there are five core accounts to profit first, your income account, owners pay, operating expenses and tax. But for you guys, since most of you earn retainers from your clients, or bill your clients on a retainer basis, we are going to recommend a bonus account, which is the drip account. So what's going to happen is you're going to open up six checking accounts as your primary bank, when a client pays you a retainer, that retainer is going to go into your drip account. And then as that income is earned, so when you hit a milestone, and it's time to collect that $2,000 payment from the retainer account, then you will take that $2,000 from the drip account and move it into your income account. And then the balance set down your income account on your allocation day is what you will do your allocations from to profit owners pay tax and operating expenses. Now remember, there are only two ways to increase profitability, number one, increase margin and number two, decrease expenses. Now, I want you to recognize that your retainer is your margin, your time is your money. So if you're going to get a 20% milestone payment, let's say that's $2,000. Well, how are you going to spend your time to get that to that milestone? Are you going to spend 12 hours which would make your hourly effective rate $167? Or are you going to spend eight hours, which would make your hourly effective rate $250 for earning that milestone payment? I think we know what the correct answer is. And that would be eight hours, you want to increase and maximize what your effective hourly rate is. Now, obviously, you're not working 40 hours a week at $250 an hour, there's times when you're spending on marketing and doing back end operations, etc. So that is why it's important that when you're actually doing client work, you are maximizing your the value of your time when you're doing that client work. And this is of course Parkinson's Law that empty tuba toothpaste, you know, when you constrain yourself and when you only give yourself eight hours to get it done. You get it done. When you just let it be whatever it takes, that's when it starts taking 12 1520 hours. So remember, your time is your money. And this is where you can increase and maximize your margin. So you're going to open up six accounts at your primary bank, and you're going to leverage that advanced profit first account of the drip account. Now, when it comes to opening up your bank account, most of you already have at least one checking account at your bank. So you've already established a banking relationship. And as long as that banks not charging you fees, then that is your designated primary profit first bank and all you have to do is copy and paste the email that we have for you in the resource section and just slightly customize it to highbanker. His name is Andrew. Hi, Andrew. A simple request associated with our account ending in xx xx xx, we have some exciting things happening with our company, insert company name. To prepare for our future we are implementing a new cash management system called profit. First, we kindly are requesting to open five and in your case six additional accounts. With online access. We do not require checks or ATM debit cards for these accounts at this time. Ideally, we'd prefer to have the new count signature cards sent to our office or via email for signal Get your best regards your name, your title, your company name, your direct line and your email. It is that simple. Now, when you get those accounts open, you're going to ruin or rename those accounts online, you can call them anything you want. But obviously, we recommend that you call it drip income, profit owners pay tax and operating expenses, you're most likely the account that you have currently set up with your bank, if you only have one account, you'll probably want to rename that your income account, because that's already associated with maybe your merchant processor and such, so people already are paying into that account. And that's a little bit harder to change. Yes, you might have expenses that are coming out of that account. But those expenses should come out of the new account that you are going to call operating expenses, because it's much easier for you to change the those withdrawals. And, you know, private first friendly bank, again, is a bank that doesn't charge fees. Now, they might require nominal minimum balances, a nominal minimum balance would be less than $100 per account. If they're requiring, you know, significant 1000s of dollars in terms of a minimum balance, then that is not a profit, first friendly bank. And we do suggest that you find another one. And we do have a link in the resources section, that would give you a list of profit, first friendly banks if you are looking for a new bank. Now, if you are doing currently over $100,000 in revenue and sales per year, then you definitely want to go with a traditional bank, you'll want to open up six or more accounts for the advanced profit first, starting with that drip account kind of pushing you into that advanced profit First, if you are doing currently less than $100,000 total per year, in total sales, not real revenue necessarily, but in total sales, then there is an opportunity, if this is a side hustle for you have a full time job. And you're really just kind of starting to get this going. And you don't foresee yourself be exceeding over $100,000 in the next 12 months, then we recommend going with Lance bank. Okay, now there's a line here that's very specific. So again, please follow these recommendations about total sales. But Lance bank, they use the term stacks instead of accounts. And you are a little bit limited in terms of the number of stacks or accounts that you can use. But this is perfect for kind of getting the ball rolling. Again, if you're doing this as if you're building your digital agency as a side hustle and getting it going for the next 12 months or so before you exceed $100,000 in revenue. And we do have the link to Lance bank that you can go to directly and check them out and get some special perks including some free free months, if you decide to move to the advanced option. What's kind of cool about them is they do help you with filing your taxes if you go with the advanced version of Lance and such. So again, if this is more of a side hustle, and it this, this would be the way to go for you on that. Now, in terms of if you're advanced profit first and over $100,000 in revenue, there are some additional advanced profit first accounts that you might want to add to that list of six accounts. You've got your payroll account sales tax contractors, which would be a cost of goods sold third party products, which is another cost of goods sold and then client adspend. Again, another sub class of cost of goods sold. So depending upon how big you are, if you have employees, you do pay payroll, then I would definitely recommend that you add in a payroll account. If you collect sales tax, I would have a sales tax account. And as soon as sales come in that have sales tax associated with it, boom, get that sales tax out of there, and move it and sweep it to the sales tax account. And then of course, we'll go into a little bit more detail how you manage your cost of goods sold expenses with profit first so that you can hit your allocation day running. So that is step number one, get your bank to the bank. Let's do it. Now. I've had people do this in less than 30 minutes and you can do so let's get your butt to the bank or at least send that email to your banker now. And then in our next step, we will talk about how you start by just allocating 1% to profit Okay, Congratulations, you've gotten your butt back from the bank, and you've got your bank accounts open.
So now it's time to move on to step number two. And you're going to do step number two by simply starting to allocate 1% to profit with each amount of income that comes into your account with every deposit. So when a client pays you, it's going to go into the income account, and you're going to allocate 1% of profit. Even before we start doing the allocation percentages, and figuring out your rollout plan. And such, you can start allocating 1% to profit, you can run your business on the 99% that you've been currently running it on, and start putting yourself on the path to permanent profitability by just allocating 1%. And we'll get through the next steps really quickly. But let's start building that profit muscle. Now let's start building that profit habit. And start that allocation today. Step number two, with each deposit that comes into your account, start allocating 1% to profit. And that is step number two, how easy was that? Well, now I think you're probably ready to move on to step number three, which is hauling your ask your inconvenient bank to open up your secondary accounts.
All right, it's time for step number three, when you are going to haul your ass to an inconvenient bank to open up your secondary accounts your profit hold, and your tax hold accounts. Now, it's really important that this is an inconvenient bank, what's going to happen is is you're going to do your allocations to your primary bank. And then after those allocations are complete, you are going to sweep from your profit account at your primary bank to your profit hold account at your inconvenient bank. And you're going to sweep from your tax account as your primary bank to your tax hold account at your inconvenient bank. So these accounts go to zero, actually at the end of your allocation day, because that money goes out of sight out of mind to your inconvenient bank. And it is so important that you have this inconvenient bank. Because those can be savings accounts. And what we want to do is we want to eliminate temptation. If you're not seeing it, then you forget about it. And that's what we want you to do, we want you to forget about it, like start just scrolling away that money to your profit hold in your tax hold account. So at the end of the quarter, you can look and see, Wow, I've got the money to pay my taxes. And I've got money for profit distributions at the end of the quarter. So the secondary bank, the inconvenient bank is absolutely critical to doing profit first, right? Because it will keep it out of sight out of mind, you want to like sweep it and forget about it and just let it keep building over the quarter. So remember, you've got these three servings for you. And then what's left is what you run your business on in that operating expense account. So that is step number three. Paul, you're asked to your inconvenient secondary bank and get those profit hold and tax hold savings accounts opened. And then I will see you for step number four next, which is determining your allocation rhythm and scheduling your first allocation day. But get your butt while you're asked to that inconvenient bank before we hit step number four.
Okay, we're at step number four. When you complete set number four, you're going to be done with phase one, there are three phases to implementing profit first. And step number four is going to make you complete phase one. So let's dive into it. It is determining your allocation rhythm, and scheduling your first allocation day. It's about to get real and let's make it happen. So rhythm is important. You want to be doing this on a consistent basis. Profit First, the book recommends doing your allocation days on the 10th and 25th. Because it kind of follows a natural cycle of when bills are due, which would be the 15th of the month and the first of the month. So if you've had those allocations done on the 10th and 25th, you're ready to pay those bills. So they're there they're paid before they're due on typically the 15th and the first of the month. And then another option for your rhythm or your schedule could be according to your payroll schedule. So for example, in our companies, we pay bi weekly, every other week on Fridays. So we do our allocation day on the Wednesday prior to a Friday payday. So the money is there, it's allocated to our payroll account, and the payroll company can just pull and sweep that money out of that payroll account. Now, when you do to a payroll schedule, if you're paying bi weekly, that means you're doing 26 allocations per year, if you're doing it on the 10th and 25th of the month, that means that you're doing 24 allocations per year, you could do weekly if it's necessary for you. But we recommend that if you do weekly, you do it on the same day of the week, every week, again, it's really important that there's a rhythm, it's the same timing over and over again. Because what happens is, is this rhythm just will allow you to start to see how your cash is flowing. So this represents your income balances on your allocation days. And what profit first does by being a percentage based system is it allows you to normalize your cash over time. The problem with operating out of one bank account is let's say you have just a huge payment from a client. And so you see all this money in your account and you go, I'm rich, I can give myself a raise, we can buy this new equipment, we can do this, we can do that. But then what happens is, you know, you got a little bit extra here. But then on your next allocation day, it's a little bit tight, because you're not bringing as much revenue as you did on that allocation day prior. But since profit first is a percentage based system, it doesn't matter what your income balances, that percentage based system is going to keep your cash flow consistent throughout the year. And that is the secret. So that is step number four, determining your allocation rhythm and scheduling your first allocation day. So decided now write it down, and mark it in your calendars. And then you'll be ready for step number five, doing your initial assessment.
All right, now it is time for step number five doing your initial assessment. So what you're going to want to do is you're going to want to pull on a cash basis, your income statement for the prior year or the prior 12 months, you want a whole year 12 months, even though it's August, we would recommend pulling your last year's completed year 2020 income statement to do this off of but you could also do like a July 1 2020 through June 30 2021, if you wanted, but the key is, is that when you pull this report from your system, you need to make sure that it's on a cash basis. Most accounting systems, you can pick accrual or cash basis in terms of how you want to see the data. And since profit first is a cash management system, we are going to look at the income statement on a cash basis. Okay, so a cash basis income statement, most often most accounting systems default and just automatically give you an accrual basis. So you're just going to want to change that selection to be cash basis. All right. So what we are going to do now is we are going to, and then I would recommend bringing it up and exporting it out of your system in Excel, because then you can kind of do a little bit of math with it. So and then this, I'm going to walk you through this sample spreadsheet. And you'll just click on the tab below. So if you want to kind of go back and look at this while you're doing yours. This is one of the resources associated with this lesson. So what you're going to want to do first is we're going to want to figure out, you know, how much did you pay yourself and owners pay how much was payroll to other employees. So, in this sample income statement, we have a payroll tax expense, and we have a wages and salaries expense. We recommend that if your accountant or bookkeeper is not already doing this, that you bring out your officers pay separately because that's just a good number to kind of see separately on your income statement and it just makes things easier to work. When you go to, you know, prepare your workers comp reports and such because as an officer of the company, as the owner of the company, you are not eligible for workers comp, so you have to discount your salary from your total employee's wages. So in this case, when we take the payroll tax expense, plus wages and salaries, that totals $60,841.94. And let's say you paid yourself $35,000, gross salary, so we're going to plug that into owners pay. Now, I like to just keep owners pay as the gross salary, and the employer taxes that your company pays on your owners pay that just comes out of the payroll expense, we don't want to make this overly complicated. So just focus on owners pay it, my recommendation would just be your gross salary. So if you paid yourself 35,000, then 35,000 of 60,841 and 94 cents is 37%. And then the rest that you paid in payroll of $25,841.94 was 27% of payroll in terms of your total wages and salaries amongst everything that you paid last year, then what we're going to do is now we are going to subtract that 60,008 4194 cents, that was part of operating expenses, this whole operating expense category. And your total operating expenses were $94,550.26. Minus taking out the payroll. And the owners pay means that your profit first operating expense was $33,708.32, which is 36% of the total. And then what we're going to do is so now we see that, for this operating expense category 37% was owners pay 27% was payroll, and then 36% is operating expenses. And then you just want to make sure that those percentages obviously add up to 100%. And that it reconciles in terms of dollar wise against your total operating expenses from this section of your income statement. Alright, now, what we're going to do is we're going to go a little bit higher on the income statement. And we're going to look at, you know, what your total income was based off of different types of income, and then, more importantly, your cost of goods. So, you know, I recommend that based off of what you are generating revenue from, whether it's design services, if it's hosting, resale, or affiliate income, you're going to want to like really kind of line item where that in revenue is coming from, so that you can start setting targets for those different types of categories, because obviously, those have different margins associated with them as well. Not all sales are created equally. And then in terms of cost of goods, we want to look at what your subcontractor cost is, what your third party products cost is as cost of goods, what maybe client adspend, if you're buying ads for your clients with a budget. And so what we're going to do here is our total cost of goods equaled 147,001 5749. And so that would be 61% of our total income. So 147,001 5749, total cost of goods divided by the total income of 241,571, and 44 cents is 61%. And that means our gross profit is 39% of our total income. And that's that $94,413.95. All right, so this is pretty fun stuff. And this is how you can break down and figure out your percentages real easily. I mean, that just took us a few minutes, and it will take you less time now that you know what you need to do. And so I will see you for step number six next.
All right, we are almost halfway there. Step number six out of 12 steps to implementing profit First, it is time to reverse engineer your business. So what we are going to do is pull up our reverse engineer calculator which is a resource for you in Excel associated with this module and There are different tabs down here. So we'll have two samples for you. And then we'll have two blanks for you so that you can play around with it, we are going to do the blank one right now. And so step number one is we're going to figure out which column we're in in terms of real revenue, based off of our owners pay target, and then what the corresponding target allocation percentages would be for that real revenue, again, based off of the owners pay target. So let's say that we want to make $75,000 a year in owner's pay so that $75,000 a year would put us in this first column of having zero to $250,000 in real revenue, so our percentages would be 5% for profit. And that would be 50% for owners pay. And that would be 15% for attacks. Oops. And that would be 30%. For operating expenses. All right, and we were on make sure everything totals 100%, then we'll move on to step number three. So we'll insert the target owners pay you need to make in the green box, or that you want to make. So let's say we want to make $75,000. And so that means that our real revenue would be $50,000. And again, all of this auto calculates based off the percentages. So if you just follow each step, and do what it says, then these auto calculations work out just perfectly for you. So then, if your real revenue target is $150,000, then this would break down in terms of like what you would expect after a year of doing profit. First, at your target allocation percentages, you'll have banked 70 $500 in profit, $75,000, and owner's pay, you'll have 22,500 set aside for taxes. And you'll have $45,000 in operating expenses for your company. Step number four is to determine what percentage of total sales are subcontractors and cost of goods. And so we're going to enter that in this box. So let's say our subcontractors are 33% of our total cost of goods. And let's say our other costs of goods. So the resales, the ads, etc, are 18%. So that means that our total sales would be $306,000. And we're going to have 101,000, out of that 306,000 going towards subcontractors and $55,000, going towards other cost of goods sold. So then what you're going to do is now step number five, we're going to enter our average sale amount in this blue box. And remember that the way that we can increase margin is by increasing our our sales price. So this is kind of where you can play with things. So if your average sale price is 70 $500, then you need 41 sales over the course of a year at 70 $500 each to hit this $306,122 in total sales, which will then make sure enable you to realize a $75,000 income. So if we require 41 sales, that means that you need to be doing 3.4 sales per month. Let's say you want to work 40 weeks per year. Oh excuse me. So you want to work 40 weeks per year, that means that you need to make an average of one sale per week. And let's say you're going to focus your sales on one day a week, then you would just put a one in that box. But if you're going to focus your sales on two days a week then obviously with these kind of numbers It would need to two days or so, or a half a sale per day, if you were going to focus on sales two days per week, out of 40 weeks. So this is kind of fun to play with. And then what you need to do is you need to keep adjusting your average sale price in the blue box until you're comfortable with the number of sales required to hit that real that total revenue number. But remember, we want to also then look at, you know, how much time are you spending on things, and then what is your average hours per your time spent on the projects. So let's say your package value is 70 $500. Again, this is all auto filled based off of just following these steps and entering numbers and the corresponding colored boxes as described in each step. So let's say you spend 1.5 hours on your initial client meeting. And your plan and your your subcontractor meetings are two hours total on the project of your time, your initial work on the project is four hours, and then you spend about 11 hours doing edits, and to completion. Now, again, you've got your contractors and other costs of goods supporting you with 30 $825 of that 70 $500 package value. And so then this totals 18.5 time of your hours, which gives you an effective hourly rate of 198 65. Now, again, you're not working 40 hours a week at this billable rate. So we want it to be higher, you're unfortunately sadly, not making $150 per hour times 40 hours a week, times 52 weeks a year. But so that's why it's important to get this number to be $150 or more per week, because as the owner of your business, you're likely spending at least 1520 hours a week working on your business that is unfortunately not necessarily billable hours, but they will become billable hours as you fill your pipeline and, and get the that business going. So you're going to want to play with these numbers. And as you can see, just by adjusting some things, you can start to see where you are. So you know this is good $198 average per hour, and it's above the $150 mark. So make sure that you go through this reverse engineering exercise, and it's all based off of the target income that you want to make out of your business. I will see you for step number seven next.
All right, we're just zipping along in terms of your profit first implementation, and we're already on step number seven, how to create your profit first rollout plan. This might look familiar because we did go over this in our initial like how to profit first videos. So if you know what your target allocation percentages are, now what we need to do is that's where we want to get to, and we have to go from where we start where your current allocation percentages are. And then we move them incrementally over time over typically four to eight quarters does it take to move from your current allocation percentages to your target allocation percentages. If you are a brand new business, you are good to go because you just start at your target allocation percentages. Alright, and you don't have to do rollout plan, because you're going to come and hit your target allocation percentages out of the gate because you can because you're new. But if you have an existing business, and you've done your initial assessment, then what we're going to do is we are going to fill in the blanks, quarter over quarter of how we are going to move from your current allocation percentages from your instant assessment, getting to your target allocation percentages. So if this was your current allocation percentages, for example, 0% to profit 30% to owners pay 0% attacks and 70 cent percent to operating expenses, then that totals 100%. And that's where you are having 0% profit and 0% attacks. Totally normal. The majority of companies that implement profit first have been allocating nothing to profit and nothing to tax. So that is not a problem. So what you're going to do is if this is where you're starting, then you your first allocation quarter is going to be based off of moving these incrementally. So your first allocation, quarter of doing profit First, let's move 1% to profit Keep owners pay at 30%. Let's do 1% to tax. And so that means that we are going to reduce operating expenses from 70% to 68%. And then we reconcile still to 100%. So if by allocating more percent of profit 1% of tax, you still can operate your business on 60%. And then we're going to, again, make incremental changes for the next quarter. So this is your rollout plan, we're going to do this plan now. And so the plan is already done. And it's you just move these percentages each quarter based off of this plan. So what we're going to do is we're going to keep it at 1%, for profit, we're going to move owners pay up 3%, we're going to move tax up 2%. So that means we need to bring down operating expenses by 5%, again, totaling 100%. And then, you know, again, incremental adjustments, moving things up and down one to 3%. But then just making sure that everything still totals 100%. So you know, increasing your owner's pay is going to be something done by probably reducing your operating personal perk expenses. So you know, it's really important in profit first, that you keep your personal separate from your business, owning a business doesn't mean it's a like blank check that you can write and write expenses off to the business that are really personal expenses. That's just really poor practices, and in profit first, and in doing profit first, right? We want to make sure that there are no personal Park expenses in the business that are not really genuine. Operating or business expenses are right, because those personal perk expenses, just as money going out the door, that you're not really recognizing as what should be profit, wouldn't you rather have profit in your business that you take out as a distribution to your company, so really focus on making sure especially by this point, in time that you are starting to really clean out the business of having those personal expenses, sneaking in as being operating expenses, because they're really not. And then another quarter, another incremental adjustments and changes. And then we're almost there, one more quarter, and then we'll hit the target allocation percentages in that final quarter. So remember, it takes 467 up to eight quarters to move from your current allocation percentages to your target allocation percentages. It's important that you make small incremental changes to each account, one to 3%, especially in those first few quarters that you're making those adjustments, but get this plan done, and set it and forget it and then you just have to reference it each new quarter, and you plug these numbers into your allocation calculator. Alright, that's step number seven, creating your rollout plan. Then we're going to move on to step number eight, which is completing your allocation per the rhythm and schedule that you set.
All right, and like that, we are on step number eight, which is completing your allocation schedule per your rhythm. And it is going to take you like three minutes max to do your allocations on allocation day. Using our handy dandy allocation calculators. We have two calculators, we have a basic version of the calculator, and we have an advanced version of the calculator. And so let's walk through those both now. Alright, so on the basic version, you're just going to follow the instructions here. So you're going to enter the date in this box here. So let's say it is 06 1521. And now we're going to step number two enter the income amount or the amount of the income account in that blue box. So let's say that is $6,000. And then while law, the allocation, magic and calculations have been done for you, if these are our current allocation percent So you just need to verify that your current allocation percentages, match your rollout plan like we did in step number seven. And then what you'll do is you will print this sheet as my recommendation. And then you will complete the transfers from income to $300, to your profit account at your primary bank $3,000 to your owner's comp account, $900 to your tax account, and 18 $100 to your operating expense account, you'll check those out. If you're keeping your own QuickBooks and your bank is not hooked up, then you would do those same posting those transactions in QuickBooks. And then you are going to do your secondary sweeps from profit to profit hold at your inconvenient bank and from tax at your primary bank to tax hold at your inconvenient bank, check those off, and you are done. And that is how you do profit first allocations if you're doing basic profit first using just the standard accounts. Now, if you're doing advanced profit first, a few more steps because there's a few more accounts, but still like that it can be done. So again, you're just following the instructions up here. So enter the date, let's say it is 625 21. And the income balance is let's say it's $12,000. And then what you're going to do here, if you have these advance accounts, then we're going to want to deduct the sales tax. So let's just say sales tax is 10%, for easy math, so that would be 12 $100. Oh, excuse me, an extra zero there. And let's say your contractors, now you can do it as an actual amount. Or you could do it as a percentage. I think it's some examples, we use 33% for contractors. So you could plug that formula in here, if you wanted. So you could say equals point three, three times the income amount. And then let's say you've got third party products, let's just say for this round that was $1,000 for this period, and if you had a client adspend, maybe it was 15% of that $12,000. So you can enter these as either a formula and base have a percentage or the actual hard dollar amount. So let's say 15% times the income balance. And so we had this total in terms of cost of goods. And so that means that our net income balance for allocations is $4,040. And so then we would do our transfers based off of the current allocation percentages that are already plugged in there. And voila, you would then print this do your allocations according to plan. Now, in this case, we are using that payroll account if you have employees. So when you do your secondary sweep, you are going to do a secondary sweep from owners comp to payroll. So we still want to use that owners comp account. Even if you're paying yourself payroll just like everyone else, it is really important that you do that allocation to owners comp, and then do that secondary suite from owners comp, to payroll so that your payroll company can withdraw that money to fund the direct deposits. And then again, you do those secondary sweeps from profit to your profit hold account at your inconvenient bank and from tax to tax hold at your inconvenient bank. So we have these basic allocation calculator and advanced allocation calculators as separate resources for you here in this module to plug and play your numbers and make your allocation days simple like that. See you for step number nine.
All right, step number nine. Remember there's only two ways to increase profitability number one increase margin. So let's dive into increasing your margin in step number nine. And we have just a couple of reminders and a couple of exercises. Now we introduced this exercise. Remember your time is your money, so and your margin. So make sure that in this reverse engineering exercise that you really focus in on how much time you're spending on how much you're charging the client And making sure that your target hourly rate is $150 or more for actual client work. So, you know, play around with this, and this is where your margin is. And then we also have another exercise here called the double double half exercise. And I'm gonna walk you through it quickly. But you really should go through this, and spend just a little extra time thinking about things in terms of how you differentiate yourself. So let's move to this worksheet. And just remember, you know, if you love numbers, numbers will love you back. So we've had this little reminder pop up on a few worksheets for you. So this pricing bonus, the double double half, which we're going to do is in step number one, you are going to enter your current pricing. So let's say, you know, for your basic, most common package, you are currently charging $4,000. So then what we're going to do is step number two, we're going to double that price, what would $8,000 look like, for you to charge for what you're doing now? And then step number three, we're going to double number two, what would it look like for you to charge $16,000 for what you do now, now, let me tell you, I want to be quite honest, there are people in the market, you charging $4,000 someone your competitor, charging $8,000, and they're getting it. And then there's even other competitors out there charging $16,000. And you know what, they're getting it too. So you just have to target and find your ideal customer, the you want the customer who's obviously willing to pay $16,000. But even finding that target customer who's willing to pay $8,000, because they value what you do is a much better client than the person who's currently paying you $4,000. So then it's step number four, I want you to really think about that $16,000, because I'm telling you, there are people out there that are charging and getting $16,000 for what you are selling and getting $4,000 for Alright, so I want you in step number four, to list as many benefits and features about what you're selling for the current price to justify it at pricing it at the double double price. So what are those reasons that would justify you charging $16,000, I know that you are better than the average Joe, I know that you are better than charging the $4,000 that you're charging. And we just have to get it outside of your head and stop telling yourself these limiting belief stories and really focus in on the value that you're delivering the wow factor all of the attention to detail that you I know are doing better than your competitors. So list those here. And then after you do that, I want you to list at least 10. All right, there's plenty of space here. But I need you to list at least 10. And then in step number five, let's commit to making the items listed in number four, pre eminent benefits that your customer gets. And you know what, you can't just be doing it, you got to verbalize it in how you're marketing and selling your packages, you need to point out these differentiators. And you need to highlight them and you need to talk about it over and over and over again. Because each time you do, it's increasing the value that you are to your target customer. Alright, so this is a key step. All of these are key steps. But now you need to commit to verbalizing it and talking about it and sharing that with the client as to why your price is worth $16,000. But don't freak out quite yet. So then what we're going to do is we're going to guarantee create some sort of guarantee and again, promote that guarantee. People love guarantees, and the right kind of customer will appreciate the guarantee and respect the guarantee. And as long as you're delivering to the ideal right customer, he won't have a problem. So in here, you'll list and write out what your guarantee is to your customer. How many of your competitors are offering a guarantee in your space? Probably very few, so why don't you Be the Trailblazer, the maverick, the one who puts your customer's fears and just doubts at ease by offering them a guarantee and differentiating yourself even more from your competition. And then at step seven, number seven, I want you to determine what your new sales price is. Are you going to be $8,000? Or did you finally come to the aha, that you are really worth $16,000 and your competitors who've been charging and getting $16,000? Well, they have a new competition in town for $16,000. Because you are totally better than them. And you're going to start verbalizing how and why you're better. And you're going to be offering a guarantee. And that is going to be why people are going to value you and pay you $60,000. But if you're not quite ready to make that double, double step, then you know, again, even if you landed $1,000, you have completely doubled your pricing. But don't don't go less than doubling what your current prices after you go through this exercise. But I challenge you to be somewhere between 8016 or you know, steps two and three. All right, I'll see you for step number 10. Next.
Okay, it's step number 10. Step number nine was talking about how we can increase margin. And since there's only two ways to increase profit, number one, increase margin and number to decrease expenses. Wouldn't you expect that step number 10 would be focusing on decreasing expenses. Now, what we have for this is, I would recommend that you tune into profit First Nation and start at episode number six. So Episode 678, and nine encompass our expense challenge. And then we have this resource for you here in this module that you can use to follow along and hit opportunities where you can cut the expenses in your business, because when you cut expenses, what do you do you increase profitability by cutting those expenses. So cutting expenses is so important. Anytime someone does this exercise, they are cutting at least 10%. so easily. I've had stories of people cutting up to 30% just going through these exercises in their operating expenses, and then going oh my gosh, I can't believe it. So please, please, please promise me do set number 10. We guide you through it in episodes 678, and nine of profit First Nation. And then you can check step number 10 off the list. And I will see you shortly for step number 11, which is celebrating profit distributions every quarter.
And now at step number 11. We are going to talk about how you celebrate your profit distributions at the end of every quarter. So in terms of profit first, when it's time for your quarterly profit distribution, your number one priority is to celebrate, even if that celebration is 1% of profit. If your business has business debt, so not personal debt, but business debt, that could even be loans you've made to the company that would be considered business debt, or you know credit cards that you've been carrying expenses on, and just paying the monthly minimum balance that would be a business debt. What we want to do is at the end of each quarter when it's time to take your quarterly profit distribution, if you have business debt, we are going to take 99% of the balance in your profit hold account and roll it out the principal of your business debt and take one 2% of your profit, hold account and celebrate even if that celebration is a venti Chanti quad, I don't know with extra width and mocha Starbucks drink that costs eight or $9 then then do that. But remember, we want to number one, celebrate number two, we want to pay down that business debt. And then once that business debt is paid off, and you have zero business debt, then what you're going to do at the end of every quarter with your profit distribution is you're going to take 50% to celebrate, you're going to take that money out of the company as an owner's distribution. And you're going to leave 50% of what is in that profit hold account in the profit hold account or maybe switch it to a vault account. adds up to you. And this is how it's going to work. So let's say at the end of q4 2021, you have $4,000 in your profit hold account. So if you have zero business debt, then what you're going to do is you are going to divide that and take 50% and put it into your vault account or leave it in the profit hold account. And you're going to take $2,000 and take that as an owner's distribution. If at the end of q1 2022, you have $5,000 in your profit hold account, then you're going to take 50% 2500 and add it to your vault account. So that brings your vault account balance up to 40 $500. And your owners distribution is the other 50% of 2500. And then it just continues, let's say at the end of q3 2020 to your profit whole balance is $6,000. Well, then $3,000 goes towards increasing the balance in your vault account, and $3,000 goes to owners distribution, and then q4 $8,000, you get the point. And so what that means is that after a year, you will have taken $11,500 in profit, cold hard cash that correlates to your profitability. This is the magic of profit first. Now the bolts account and the vault balance. What that does for you is that leaves money in your business for a rainy day. If clients don't pay if clients God forbid file bankruptcy, my first client filed bankruptcy two months after we opened our doors and had collected our first invoice from them. The Vault balance can also be you know an account that you start to accumulate cation so that you can hire new employees. So you might want to have 3456 months of future employee salary banked in your vault account before you make that hire. So this is how you manage the profit hold account and how you have keeping track of the cash in your business to correlate to your profitability. And that is step number 11. We are just shy of wrapping this up with step number 12, which is adjusting your current allocation percentages, according to your rollout plan at the start of each quarter. Oh, I'm sorry, I don't have my my money gun with me.
But we're at step number 12. The last step of implementing profit first, congratulations, you're here. And this is probably the easiest step, because you've already done the work for it. So this is adjusting your current allocation percentages. Based off your rollout plan, we did several steps back. So you're just going to refer to your rollout plan. And at the beginning of each quarter in your profit, first allocation day calculator, you are going to update those current allocation percentages with which wherever quarter you're in in your rollout plan. And you just make those adjustments at the beginning of each quarter. Now remember, it takes on average, six, eight quarters, some people do it in 45678 quarters, we're just moving those incrementally. And we're trying to really stick to this plan, because this plan will give you the success that you need to stay on the path to profitability. So how easy is that step number 12. We are done. Congratulations, I just have one more thing to leave with you. And that is that you are ready for the profit First Nation podcast. I invite you to join us on profit First Nation, just hop in to the most current episode when you download the podcast. And then from there, you know, you've already gone through a lot of the implementation steps and you have a really great foundation that most users have to start at the beginning of the podcast to get but you got the deluxe version here, thanks to john and him putting together this amazing course for you all. But I really, really encourage you to hop on profit First Nation, we talk a lot of different topics and subjects and go deeper and wider and farther down the path to permanent profitability. And so thank you so much, and congratulations to you. And cheers to another profitable day my entrepreneurial friend