Invisible profit: How to build a business where others won’t

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Vinay’s note – Subscription based businesses are considered sexy and very much the in thing at the moment. However is it possible to start a business and succeed in a crowded marketplace?

In this post Gabe Arnold takes us through the step by step process he used to turn a service idea into a productized subscription business.

Passive income is one of the things that every entrepreneur dreams of, and I am no different. I first stumbled across Pat Flynn years ago and listened to his podcast Smart Passive Income. The idea of having steady and increasing revenue immediately captured my attention. In the beginning, I was afraid that I could never achieve something like that for myself.

As I write this post, I am shocked to realize that it has been 6 years since I first listened to that podcast, but my journey over these past few years has been incredible. Pat’s podcast sparked the desire for passive income, but when I heard Dan Norris on The Foundation podcast just over 2 years ago, that was the moment when I faced my fears and jumped off on my new idea. I decided to launch a subscription based copywriting service.

It’s taken me 24 months to get to where I am today, and we’ve just reached a big tipping point in the last 90 days. In April, Copywriter Today crossed $22,000 a month in recurring revenue and 180 business customers. It’s also worth mentioning that we do that with just over 1,600 unique visitors a month. It doesn’t always take loads of traffic to make a great income.

Copywriter Today existing traffic

In this post, I am going to share with you the step by step process I used to take a service idea and turn it into a “productized” subscription-based company. I’ll include all the strategies, sales scripts and also the technical pieces of software that have helped me scale up from an idea with no income to where we are today. I’m also going to share my background and story with the hope that it will inspire you to keep going forward in your entrepreneurial journey.

Where I got started

I haven’t always been an internet entrepreneur. Nearly 10 years ago, I was in the middle of one of the worst situations of my life. I was at the end of 4 years of explosive growth in the construction and remodeling industry. In a matter of 90 days, my multimillion dollar company was going out of business.

I was just 24 years old and to be honest, I had grown too fast and not managed my money well at all. In the middle of losing nearly $250,000 in payments from disgruntled customers, the United States housing market began to crash. That spiraled into some of the darkest times I have ever had. My first wife and I got divorced, my best friend became very sick, and then my best friend and grandfather died all within a very short time.

I can’t remember a time that was so dark and discouraging before or after that time. I went from making nearly 6 figures a year to being nearly homeless after declaring bankruptcy. I wouldn’t wish that type of experience on anyone, but I am glad to say that it has proved to be one of the most valuable experiences of my life.

In the middle of my hardest time as an entrepreneur when I lost my first business, I started writing every day on my blog. Many of the greatest internet entrepreneurs of today started with blogging every day, but my blog didn’t make me a single dollar for years.

However, the idea of writing became very important in my life, and years later when I met my future business and life partner Rachel, she said to me one day, “You should sell your writing.” She didn’t realize that when she made that statement, it inspired me to start thinking about ways to sell my writing which would become the catalyst for me taking action on a later idea.

I believe that all successful entrepreneurs have one thing in common: mental toughness.Click To Tweet

I believe that all successful entrepreneurs have one thing in common: mental toughness. That period of my life reinforced my mental toughness and gave me even more. I managed to scrape by and survive and at that moment, the idea for the business I have now was initially born.

No matter where you are today, I want to encourage you to keep pushing forward, keep working hard, and keep believing in your dream. When you commit to being tougher than the competition, tougher than the critics in your life and tougher than your weak moments, you can, and you will achieve success.

Build where others won’t

I remember a few years ago when I first heard Russell Simmons, the founder of Def Jam Recordings, share on an Inc.com talk that he liked filling the white space with new ideas.

That statement impacted me in a profound way and inspired me all at once (so much so that in doing more research recently, I realized I misquoted it for awhile as “gray space”). What his statement means to me is that you can find amazing opportunities in spaces and places where others haven’t been willing to consider as business opportunities before.

Russell Simmons - Fill the white space

The inspiration for Copywriter Today first came when I heard Dan Norris talk about his new business WP Curve on The Foundation podcast. I remember hearing that podcast and thinking, “If Dan is willing to do something so crazy in the technical support world, I can do it with writing, the work that I am most passionate about!”

The important lesson for me here was that being a successful entrepreneur often comes when you can identify a unique opportunity where there is a big need, but where others haven’t been brave enough or creative enough to fill the space.

In my case, I had seen how many writing services charged per word, or per piece, and a single white paper or blog post could cost an entrepreneur or marketing agency well over $300. That pricing makes perfect sense in a 1-to-1 model, but I hadn’t seen anyone explore building a 1-to-many model for writing.

Doing the impossible or, at least, doing something that defies the odds brings a huge level of excitement to me, and so this challenge was exactly what I needed. I was also in the middle of a period of doing tons of custom web development, which wasn’t my passion anymore.

You can find an amazing niche or a wide market opportunity! When it comes to finding a new idea, it’s important to focus first on creating value. Creating value for the marketplace can take many forms, but you can start to get your creative juices flowing by asking the following questions about your initial product or service idea:

  • How can I make my product or service more convenient?
  • How can I make it more affordable?
  • How can I it more powerful?
  • How can I change the perception of this product or service in the industry?

I knew from building websites for business owners that writing content for their new website was extremely time-consuming, personally painful, or difficult. I also knew that for many small businesses, hiring a professional copywriter for $1500 to $3000 just to write copy for their website was way more than they could afford.

Hundreds of website projects I had worked on were delayed by waiting for the page copy, and that got me thinking, and I began to answer the questions above. I did a little basic research and found that there was not a good option out there for a subscription-based copywriting service.

Focus on creating value and on reinventing the normal approachClick To Tweet

Once I had a basic idea, I started doing the work of mapping out a model that would work. The most important part of building a subscription business where others won’t is to focus on creating value and on reinventing the normal approach. I will share with you the exact steps and model that I took.

Pricing for your subscription model business

Pricing for your model is extremely important. In my case, I was very fortunate to have gone through the exercise of creating a pricing model with my mentor Glenn Allen on an idea that had flopped a year before I started Copywriter Today.

Related: Defining a winning subscription pricing model

The premise of the subscription model in my experience is that you have a large number of subscribers, but only a portion of them fully utilize your services. The customers who underutilize your services create more profit margin and leave resources left over for you. I have some complex spreadsheets that I created to think this through, but it comes down to a simple thought process like this:

  • If 10 people sign up for your service at $100 per month and
  • If your cost for delivery per account is $80, you would have a standard business model net profit of 20% on the service (not including overhead, taxes, and other business operations costs). So at this level, you realize $200 per month of net job profit
  • That margin is too low to be profitable but
  • If only 5 of the customers regularly utilized the service and the others rarely use it
  • You go from $200 net job profit to $600 effectively tripling your margin

Subscription pricing needs to be built with the 1-to-many mindset. In our case at Copywriter Today, I could never afford to hire the high-quality writers that I do if they were only working for one client exclusively. I would have to triple or quadruple pricing to make the profit margin that we do today.

Related: Why you should use a subscription business model

When I originally built my first pricing model, the subscription cost for our service was $79 a month. I built my model assuming that only 25% of the customers who signed up would use it fully, so 1 in 4 customers. That proved to be incorrect, so in a matter of just a few months in our first product year, I doubled pricing.

We’ve found over the past years that so many of our customers love the service that they are using it very frequently. On average, we see that 50% of our customers use their account capacity completely while the other 50% rarely use it at all. Maybe for 1 article every month or 2.

How do you protect yourself when you first create your model and launch your subscription business?Click To Tweet

How do you protect yourself when you first create your model and launch your subscription business? Starting out, you may not have any real world experience with what type of pricing model will work. You may not know how much usage each customer will take advantage of, and so your 1-to-many model will take time to perfect. That’s why you will want to take advantage of a tactic that has served me and many other entrepreneurs well: the “beta launch”.

When I first released Copywriter Today, I approached every single connection in my LinkedIn network with a private message and offered them the chance to beta test my new copywriting subscription at $79 per month. I highly recommend that you tap into your LinkedIn network if you have over 200 connections. It has proven to be extremely valuable to me time and time again.

Related: How I increased conversions from LinkedIn by 866% in 2 months

After having a few phone calls and email conversations, I initially landed 4 customers in the first 2 weeks, and within 8 weeks, we had 10 customers. Once I got to 10 customers and 120 completed orders, I did a simple analysis of how much time everything was taking and how much it cost me.

At this point, I created a flat rate pay rate for my writers so I had a fixed labor cost, and then I also realized that I needed to increase pricing since usage was at 50% as I mentioned above. My existing customers had the benefit of staying at the beta pricing, but all new customers signed up at a higher price around double of the original pricing. I could have increased pricing on the existing 10 customers, but early on it’s important for you to have loyalty over profits. Those early customer testimonials and early customer feedback are worth way more than money.

The beauty of having a single price point

My mentor Glenn advised me early on to stick with one price point for a single subscription level. That has turned out to be excellent advice. There are many studies that show having 3 price points that are designed to prompt the customer into buying the middle one. I do believe the psychology of that works, but keeping things simple has proved to be very effective for us, and so I’ve decided not to alter it as of yet.

Here’s a simple pricing strategy you can apply for any new product or service you create:

  • Set a “front page price” something higher than what you expect to sell at. In our case, that is $249 for a basic level account.
  • Constantly run promotions just above the real price point you need to be profitable for your basic level account. In our case, that floats around $159 to $199 per account at the time I’m writing this.
  • Promote a slightly lower price through affiliate partners so your affiliates can always offer a better price than you do.
  • Offer add-on options and back end sales to increase each customer value and profitability.

This approach has been extremely successful for me and my team. By creating add-ons and one-time offers in the cart and also offering upsells later in the account life, we have brought our average customer value up over time. I learned many of these techniques from studying the data that Neil Patel shares in his valuable e-commerce studies on his blogs.

Related: How to boost your revenue through upselling and cross selling

One of the most important shifts in my thinking over the past year is in regards to the value ladder. This is a concept that Russell Brunson introduced to me in his book Dotcom Secrets, and I highly recommend that you review it as well.

Initially, you are “buying” a customer by getting them into an entry level product or service. As you grow your relationship with the customer by serving them and providing outstanding value to them, they will want to engage more with your business and get more value. That is where your value ladder comes into play.

Today in our business, we offer additional valuable services on the value ladder, and our top level is a Platinum Level membership where you get full access to our creative team and personalized coaching and support from me and from our leadership team.

The Copywriter Today value ladder

This pricing approach allows you to have a single price at the front door and a never-ending value addition ladder once a customer is inside and part of your community. I strongly believe that if you’re starting up a new subscription business, you should consider this simple and effective approach.

How to measure success and profits in the first 30-90 days

Once you get started and you have your first group of customers on board, you need to pay close attention to many different areas. Starting up successfully is hard work, but when it pays off, it is very rewarding! Here are a few of the areas that I monitored early on and continue to monitor every single month:

  • Are the business processes clearly documented and being followed by all team members?
  • What are customers saying about the responsiveness and overall customer service they receive from the team?
  • Is the model profitable right this minute?
  • Will it be profitable if I do nothing and we grow 10 times larger in 90 days?
  • If we grow quickly, will I be able to recruit high-quality talent fast enough?

By asking those questions, you will have the ability to look forward into the future. When it comes to creating business processes, I start by doing each task myself. When I personally sit down and do the work, I screenshot it with Skitch and add notes. I create how-to videos with tools like Droplr, Camtasia, and GoToMeeting when we have a group training.

When it comes to creating business processes I start by doing each task myselfClick To Tweet

I time myself when doing each task, so that I know if what I am asking for is reasonable since our model is built on flat rate pay. Even in a high growth stage like we are in right now as I write this, I still invest almost half of my work week into process creation and improvement.

Long ago, I was interviewing a friend who owned a large manufacturing plant. While we were sitting there, he told me that he believed that he needed to know minute by minute how much he was producing, how much revenue he was generating and his hour by hour profits.

That thought inspired me to build very strong controls into all my processes, so that I can see what is happening right now and also see into the future with some accuracy. Along those same lines, another business mentor of mine told me that tracking every piece of labor with a job number would help me monitor and control costs at all times.

Today in our system we have 2 levels of tracking, the first is the order number. Everything has a unique and sequential order number. The second is a labor grouping. We have 4-digit numbers for all the labor assigned to each group. For instance, our writers’ labor cost is stored in our system under 1308 while our editing labor is stored in our system under 1313. This way when I look at financial reports, it’s very easy to drill down and see where my money is being spent. I always work to continue to refine the tracking and processes because it gives me insights that allow us to develop new competitive advantages and improve our existing ones.

We use Freshbooks and Xero for all of our accounting needs right now. They have proven to be very valuable tools with very responsive support teams when we do have questions or issues.

Profits may not increase with growth. They can easily decrease. The ideal in the subscription business model is where you increase profits as you grow your subscriber base, but a hard lesson I learned in my first company is that without controls and constant dedication to improving the process, the opposite often happens.

To plan conservatively, I’ve found that I like to take away profits in my future projection models. Today we float between a 53% and 58% profit margin at the job level, but when I look at projections of doubling or tripling the business, I build into the model a loss of 5-10% in profits. While your subscription level model may remain similar, more contractors, employees and technology services ultimately lead to needing more managers and additional support staff in many cases, and they can erode the profit margin.

Each industry has different reasonable profit margins expected, but you should make yours as high as possible in your subscription business. I once heard that, “If you double your prices today and lose half your customers you’ll be in a better position all the way around!” That concept may scare you a little bit, but consider this – if you’re not profitable, you won’t be around to serve a single customer after you go out of business.

Don’t be afraid to adjust pricing and make your business profitable. Test out your ideas and find a reasonable price that balances between having mass market appeal and also keeps you very profitable. You need both, and the entrepreneurial challenge is to create the right recipe for success.

Related: 36 essential A/B testing best practices to boost your conversions

It’s better to grow responsibly than it is to grow too fast and have big failuresClick To Tweet

It’s better to grow responsibly than it is to grow too fast and have big failures. Everyone gets excited when they hear about a startup blowing up really fast, but in my experience, the long slow crawl up the mountain of success is often the most successful in the long run. As I mentioned earlier, successful entrepreneurs are mentally tough. Easily gained fortunes disappear easily as well. When we work hard for steady growth and stable revenue and profits, we can build an empire that will last for decades rather than chasing a big explosion of growth.

Final thoughts

Creating a subscription model business has turned out to be one of the best things I have ever invested my time in. It has lead me to grow from barely being able to provide for my family to for the first time in my life reaching a 6 figure income and the flexibility to truly work when I want to.

When we first started out, I wrote every single customer order myself for the first 2 months. I then developed a recruitment system that we still use today. We now have a team of over 50 working with us.

There are many different components that have made this a successful venture and while I don’t have the space to write in detail about every single one, I do want to list them so that you can check them out yourself or ask me any other questions about them that you may have.

Software solutions we use:

  • WordPress for all our product sites (we originally ran our orders dashboard there as well with a plugin from Themeforest)
  • Wufoo for our first subscription payment setup and still to this day for our recruitment process
  • Gravity Forms with a premium add on that I highly recommend from Gravity+ for all cart functions and add on orders
  • Knack for our current orders dashboard
  • Stripe for all our credit card processing (for international businesses who want to base themselves in the USA, I recommend you check out their new Atlas program)
  • PayPal for subscription payments to open up our customer base internationally more
  • Pure Chat for our live web chat and customer support
  • Hipchat for internal team discussions
  • Google Apps for all document creation, email accounts, and team logins
  • Tapfiliate for affiliate click tracking

Affiliate marketing:

Affiliate marketing has been the biggest driver of growth for Copywriter Today. Done correctly with honest and trustworthy affiliate partners, you can dramatically increase the rate of growth by having an affiliate program. Over the years, I have learned everything I know about affiliate marketing from Pat Flynn, Glen Allsopp of Viperchill, and more recently from an amazing network marketer who gives incredible value to his audience, Ray Higdon.

I would recommend investing in growing an affiliate partner network before I would invest heavily in advertising. The payoff is much stronger and the leads that come in sell faster and stay on our service longer than cold traffic conversions. Nick Loper from Virtual Assistant Assistant and Ryan Cote from Sidepreneurial were some of the very first guys I partnered with, and they are incredible people who have been a huge part of our success. I can’t say enough good about our partners.

Learn to step back and work less at each stage of growth:

I’ve never met anyone who said, “I want to start my own business so I can work 80 hours a week and never see my family and friends,” but sometimes that happens to entrepreneurs. While you will have to work hard and invest blocks of time, personal discipline, solid processes, and effective recruiting should give you the tools to step back and work less over time.

If you learn to batch your work effectively like John Lee Dumas, you’ll be able to work hard and play even harder. Each month that we’ve grown Copywriter Today I have set a goal to be less and less involved in the day to day operations. I give more responsibility to my amazing general manager Tawnia, and we hire more and more talented writers with leadership ability.

Right now, I spend less than an hour a day on Copywriter Today operations, and this frees me up to work on other products and spend more time with my partner Rachel and my son. I hope you’ll set a goal to work less and delegate more effectively as you grow. Even though writing is a passion of mine, my intention is never to work when I should be spending time in other places that matter more in the long run.

What’s next? More growth!

It’s been a thrilling ride so far, and I’m excited to say that we’re planning on doubling or tripling our growth this year in a very stable and profitable way. Every day, new customers come aboard and find an affordable and high-quality solution to their content marketing needs.

In creating this post, I’ve realized that I could fill an entire book with the lessons learned. I do hope though, that with the time you’ve spent here with me you’re inspired to create a subscription business that will provide you passive income and financial freedom you want.

It takes hard work, strong processes and mental toughness to work through all the intricacies of creating a successful business, but in the end it is totally worth it! If you have more questions for me, just contact us here and we’ll help you out in any way that we can!

About

Gabe Arnold is the founder of Copywriter Today where you can get unlimited fresh content for all your marketing needs. If you want 250 free headline ideas for your next marketing campaign, use our free tool here.

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