How To Calculate Your Price To Freedom: The 50-25-25 Formula
Last week I shared with you that it's important to learn the price that you need to charge in order to achieve the freedom and flexibility in your business that you want.
Today I'm going to share where that all came from, why it works so well and how it completely changed my life.
How I came up with the Formula
I opened my book, ‘Badass Your Brand’ sharing the biggest turning point in the 13 years I've been in business.
And that was the day that I realised that we were $40,000 in debt with credit cards maxed out and literally negative dollars in my bank account.
And I shared how we had to fire our two employees, which was devastating.
And were forced to figure out a new plan because what we were doing hadn't been working clearly and how we switched our business model overnight.
And we went from selling these huge $30,000 branding projects to selling $3,000 One Day Branding Intensives and how, over the next 12 months, we generated $500,000 - just me and Steve as a two person agency.
Well, let me tell you that in order to make that much money in so little time, believe me when I tell you we were hustling.
Yes, I ended up raising our prices significantly over that year.
And our One Day did become a $10,000 One Day by year two, and I'll share why.
But if you do the math, you'll realise that we were working with tons of clients every single week.
And we were also often working with clients on the weekends.
And to be honest, we didn't need $500,000 to live, not at all.
We did not need that much money to have the life that we wanted.
Why did we make so much money?
Because I think I was just shell-shocked from the previous year and from having gone into debt and being forced to let our employees go.
I was taking everything that was coming our way.
I was basically just hoarding money because I was scared.
So I kind of realised this about eight months into this experience.
That was when Steve and I, for the first time since we started our business, took a real vacation.
We went to Maui for three weeks and I had two very big realisations on that trip.
Number one, I realised that I needed a plan that didn't just involve taking every single project I could get and hoarding as much money as possible.
Not only was it not sustainable, but also it wasn't giving us the lifestyle that Steve and I wanted.
And number two, I realised that even though I had a bunch of cash in my bank account, I actually didn't feel that much different than I did eight months before when I was in debt and backed up against the financial wall.
Yeah, of course, I felt a little more comfortable spending money - we went on this vacation.
But I was still terrified that it would all end and I was still so scared that I would not be able to continue this.
Well, those two realisations led me to two really important conclusions.
One, I learned that cash in the bank is not what's going to make me feel financially secure.
Instead, feeling like I know I can absolutely generate money when I want to, is the key.
And two, I needed to figure out how much money we actually needed to live and to support our businesses, and how much time we needed to make available to have the life that we wanted.
Both of these conclusions led me to develop what I call the 50-25-25 formula to profit and freedom.
I wrote about it in my book, and I'm going to share the backstory about it today.
Doing the math
In order to feel like I can generate money whenever I want, I knew that I needed to build a marketing machine, something that would generate an audience that created a lot of demand for my services.
This way, I could be in charge of picking and choosing clients instead of always having to go out and find them.
Up until that point, I had no authority.
I had no social media, and I had a pretty paltry email list that I emailed twice a month.
And all of the clients that I was working with that had me generate that high revenue, were all because I had just networked a lot a couple of years before.
And so I had a big network of people, all of whom I generated from the very beginning of my business.
I knew none of those people beforehand and I made all these contacts.
And so when I switched my business model, and I became extremely referral-based, that was all I needed.
I needed to go back to my network, and through them and people they knew plus, of course, I was juicing this number of people because we were literally churning out dozens of projects a month.
So there were so many people out there launching their brands and launching their websites, and that also gets a buzz going.
I wasn't doing any other marketing besides that.
But that didn't feel like a long term, reliable plan.
I knew that I would need to build an audience, if I wanted that long-term reliability, and to be able to feel like I can generate money whenever I want to have control over that pipeline.
And if I was going to build that net, I needed a significant amount of time to invest in my business and building that audience.
And all of that time I would invest in building that audience, I wasn't going to get paid for upfront, but I knew that it would bring in clients and higher paying projects later in the future, and for years to come. So it was worth it.
And Steve needed time to paint.
When we started our business, it was in large part because Steve is an artist, and he's a painter. And when we first met, we actually tried to live off of his art, we were selling his art on the street in Soho.
And we quickly realised that that was not gonna work for us trying to live off of your art. It’s not just hard financially, but even worse, it was really sucking Steve's soul to have to paint based on what I thought people would buy.
And it was not good for our relationship, either, because I would tell him, “Hey, I need like four more paintings with the Brooklyn Bridge in it, because that's what people want.” And he was like, “I don't want to paint that Brooklyn Bridge. That's not what I'm pulled to paint.” And it was very uninspiring.
So it became very clear very quickly, that we were going to have to make money doing something else.
And that way we could create time and space for him to paint. My long term goal was that he would have enough time and space to paint, that he could really develop himself and his work as an artist.
And you know, selfishly, I really truly believe in his talent.
And I thought this is going to take some time. But there is a long term financial benefit to this as well, because I think Steve is going to be a famous artist.
(Sidenote plug: if you want to go see Steve online, you can see he's thriving because of all of this, you can go to @stevewasterval on Instagram and see the career that he has built.)
So we were able to support that beginning part of his career by doing design and that was the intention behind building our business in the first place.
And in the very beginning, Steve had little to no time to paint, because we were just trying to survive and making enough money to live was our main priority.
But fast forward to this time in Maui, I realised that now that we were making more money than we needed, it was time to figure out how to create that time for Steve again.
So here's what I did.
I sat down and I ran the numbers about how much money we actually needed to live a comfortable life, pay for our business expenses, and pay for taxes.
The number I came up with being very conservative, and being very generous, was $240,000 a year.
So I knew that if we could generate $240,000 a year in revenue, that would pay for all our business expenses, it would pay for all our personal expenses, and we would have enough money that we would need for taxes.
Okay, so I had this number - 240.
Then I looked at our schedule, and in order to make $240,000 a year, that meant we would need to make an average of $20,000 a month.
Now I spoke recently about how staying in the monthly money mindset is not great for you.
And I learned that the hard way.
But at this point, I was still thinking monthly.
So I thought “Okay, I need an average of $20,000 a month.” And at that time, we were still doing $3,000 One Day Intensives and Two Day Intensives for $5,000.
So I thought to myself, “What if I could get those Two Day Iintensives up to $10,000?
And what would I have to change to make a Two Day intensive worth $10,000 instead of $5000?
And how much time would I need to deliver what I came up with?
I set an intention to make this happen. If I could create a Two Day intensive that would take us five days or less to complete, start to finish and I could charge $10,000 for it, we would only need to sell two of those a month and that would leave the other two weeks a month open for Steve to paint and for me to build my authority machine.
Once I figured that out, I had to practice restraint.
It meant that I actually closed our calendar off two weeks a month, and I would only book people in the two weeks a month that we're open.
Now it took me about five months to steadily raise our prices, and I also looked for ways to increase the value of our services and make our processes tighter.
By doing all of these things, in May of the following year, we did exactly that.
I got my Two Day Intensive up to $10,000, and it took less than five days to deliver.
And we were selling an average of two of them a month.
And that is what eventually became the basis for the 50-25-25 formula to profit and freedom.
50-25-25 in action
So here's the thinking behind it.
In order to continually invest in your business, so that you can build your skills, build the value of what you have to offer and build your audience so you can increase demand, you're gonna need time set aside to do that work.
And I believe you need at least 25% of your time to invest just in building your business.
A lot of people only work on their business “in-between” - when there's a free moment or nights and weekends.
They always put themselves last, but I think you need to put yourself first if you're going to invest in and think about the long term value of your business.
And you're never going to get out of that feast or famine cycle, if you aren't constantly investing in getting out of it.
So one of the 25 is based on investing in your business.
The second 25 is about personal flexible space.
Now, ultimately, my goal is to have a lot of freedom and flexibility in my life.
So I wanted to create a formula that already bakes that time in now. When I say 25% of your time, I mean working hours.
I already assume you are not working nights, you are not working weekends, and you're already taking four weeks off for vacation.
So this 25% of flexible personal time is available above and beyond that.
And then there’s the 50% the 50-25-25 rule.
The 50% represents the maximum amount of working hours in your 40 hour work week, for 48 weeks of the year that you should be working with paying clients.
And the idea is that you need to figure out what price you need to charge in order to make that formula work for you, and that will generate the profit and freedom and ease that you're looking for.
Now, why don't I just say to sell a five day project for $10,000 a piece, is because everyone's numbers are different.
And I think it's really important for you to find your numbers instead of just thinking that my numbers sound good to you.
Because frankly, you may not need $240,000 or $250,000 a year to have the freedom lifestyle that you want.
It doesn't mean you can't achieve it and it doesn't mean you can't go for it - you absolutely should.
But before you go for a number that doesn't have any meaning to you, you're going to be much more successful if you aim for your number first.
And then you can expand from there, once you hit your price to freedom.
As you continue to grow and increase your profitability, it's going to be your choice how you want to take that profit out of your business.
You may want to make more money, or you may want to take that time for yourself.
For me and Steve, we got that $10,000 Two Day intensive eventually to a $10,000 One Day Intensive, and then eventually to a $30,000 One Day Intensive.
And when we raise that price so significantly, we didn't keep taking an average of two clients a month, we just took more time to ourselves.
Because after a certain amount of income, time is much more valuable to me than income.
And to be perfectly transparent, yes, we have taken some epic vacations, we have travelled quite a bit.
But the more time that we've had available for ourselves, we've probably put a lot more of that time back into our hobbies, building our skills and building our business.
Because that's what we love to do.
I don't know if I've taken actually 25% of my time off, except maybe when my son was born and I took a few months off for maternity.
When I had the choice, I chose to spend months writing a book, I chose to spend many months learning about online courses, building an online course and learning how to sell it.
These were investments in my future self and projects that I enjoyed that took massive amounts of time.
But I couldn't have done it if I didn't have that time available.
And I wouldn't have had that time available and the money to support myself during that time, if I hadn't first built a business that offered services that were as profitable as they were, because that was how I generated the time and space to do those things.
So you absolutely must know your price to freedom.
Go get the calculator - it’s at nobsagencies.com/price and in under 60 seconds, you can fill in a couple of numbers and it will spit out exactly the price that you need to charge to hit your good, better and best lifestyle goals.
And this can change everything for you.
This is something that I look at at least once a week, if not every day sometimes.
And it's something that I teach people inside the No BS Agency Mastery Program to use as a tool to support your future growth.
If you want to learn how to think like a business owner and you want to grow your time freedom, your financial freedom and your profit, then now might be the time for you to think about implementing a system like the No BS Agency Mastery model.
Go to nobsagencies.com/apply and tell us a bit about you and your business.
You can get on a call with your team see if now is the time for you to level up, if you want to scale to $30k months and beyond.
So you can create that time and space to do things like I did, like have a GED or maybe write a book or just enjoy yourself and take that epic vacation that I know you've been dreaming of.
Here’s what you need to get…
If you want to build a sustainable branding agency, you need to take a step back, do the math, and work out your price to freedom, and make sure you allocate your time to get there. If you want to get off the ‘hamster wheel’ and build something long-term, adopt the 50-25-25 rule in your branding agency.
P.S. You can always jump on a call with my team if you want to fast-track your financial security, and learn all my other tools and strategies to scale up your agency - just go here to get started!