First off, Happy New Year!
I talked about the notion that Business is all about the conversion of Time into Money last year. Because of the simplicity of this notion, I wanted to explore it deeply so that you see the power of this concept. Much of what I do is to tell people this message in many ways so that they can accept the notion in their context. Given the power of this notion, I want you all to be clear about it in its many faces.
Let me start with a very simple business. A Sole Proprietor Lawyer will be what I am discussing today. Why is that? Because the Time to Money conversion is so apparent. Lawyers sell their time to their clients. They get a premium on that time because of their license (their admittance to the Bar) which shows their expertise. So, it is a pretty simple business, right? Talk to a client or work on some documents or appear in a court and bill the client. Yes, I know there are collections issues. But those are the basics.
So, every lawyer makes 40 times the hourly rate that they charge right? Well, no, of course, they don't. How often do Lawyers actually get to bill full-time? Well, I know that the Law Dramas make it seem like they all work crazy hours. And in fact, in large law firms, the new Lawyers go through that process. But a Sole Practioner who throws up a shingle can't do that. They have to odd things like marketing, sales and administration. None of that is billable or is generally not billable.
So now the Time conversion to Money is more complex. Let us examine a single client and ask some questions. How did the client find the Lawyer? How much time did the Lawyer have to spend for free consulting with the client? How large was the case involved? Is this likely to be a repeat client or is this a one-time affair?
If I talk about this in standard business language, I am asking really two questions:
- What is the Cost of Customer Acquisition?
- What is the Life Value of the Customer?
I hope those two terms are self-explanatory. But these are the basic business issues in the operation of a very small business. There are more issues with larger ones and we will get to them. But these two questions are at the heart of all businesses. I hope this journey will be fruitful to my readers. I am big on pithy sayings to present issues to people. The biggest challenge with those statements is that they are sometimes not taken seriously. So, I want to explore the depth of this through this series of blog posts.
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