This is a really important topic and I want to start by saying this post will likely trigger you, because it’ll challenge everything you’ve hoped for your business and for yourself.

And that’s precisely the reason that I’m taking the time to write this.

I remember when I first started my first product company, Trefiel, I had huge dreams about what that business could be. I wanted to be in the biggest retailers in the world, I wanted to be a super successful company online and I wanted to be acquired by some behemoth company like L’Oreal.

Dreams are free, okay?

And of course, none of that really happened. I mean, for a company that was three years old and run by complete amateurs (myself and my business partner at the time), we did pretty well:

  • 10,000 customers in 18 months (that’s where 10k Customers comes from)
  • Tens of thousands of orders
  • Hundreds of thousands of face masks sold

When I look back at that company with the experience I have now – having helped literally hundreds of people build their product business up to a level they could have never dreamed of – I’ve come to learn the intricacies of product businesses on a whole new level.

Particularly around the finances of product companies.

The belief of most product owners is that once they get to $1m a year in revenue, their business will look really different.

I know that for many people reading this – whether you came to me through ads or from my email or from a social media post – that the $1m milestone is a huge deal. And look, I don’t want to take that away from you.

Making $1m in a year is a really big deal.

  • From a business owner perspective, you feel you’ve reached that stage where you think “I’m a real business now”.
  • As a woman, you put yourself into a percentile of the business population that most women never ascend to (sadly)

But it, without a shadow of a doubt, won’t give you the profitability you’re looking for.

As crazy as this sounds, $1m is not enough money.

I’ve seen this over and over and over and over again with clients that sit between $500k – $1m a year for the first time. This is the pattern I see in my clients:

  1. You make a shitload of money.
  2. You get really excited about how much money you’re making (this part is important – as soon as this happens, there is always a major meltdown on the other side of this)
  3. You start planning how you’re going to spend your money – usually on things like business growth and making more money.
  4. You start spending more money.
  5. You now have a bigger inventory load, so the cash requirements to replenish your stock are bigger.
  6. You start feeling like you’re not making enough money again.
  7. You have your million dollar meltdown (“I’M NOT MAKING ENOUGH MONEY?! WHAT IS EVEN THE POINT OF MAKING A MILLION DOLLARS IF I’M STILL SCRAPING BY??!?!?!?!?!”
  8. Then you dance with insolvency at $80k+ months

And so the cycle repeats.

The really fascinating part about seeing this cycle is understanding that there is no magical revenue number that will make this go away…

Unless you do something really specific.

How to create more profitability in your product business

This isn’t just a doom and gloom post. I have answers.

I’ve spent the last three years coaching and consulting product companies about the problems they’re experiencing. Some of those companies have been pre-revenue, some of them have been in their first $50k in sales, some of them have already been a $500k a year business, some of them have been $20m companies.

The problem is always the same.

And so is the two-part answer

  1. You are a distribution business, not a product business
  2. The profit isn’t in the product

You are a distribution business, not a product business

You see, where you’re going wrong as the CEO of your company is you think that what you sell is product. But actually what you have is distribution. You own an audience or a niche.

And there are many, many people who would pay to be in front of that audience. Good money, depending on how solid your audience is.

Let’s just say you are an industry leader in the ethical fashion space. You have an excellent relationship with your customers, they always buy off your emails and they love what you do.

Who else would like to speak to people like that?

This is where things start to become really interesting, because I’m not talking about selling out and jeopardising the relationship you have with your customers.

I’m talking about creating real, transformation value for them with the help of another business…

I’m talking about getting paid to do that work…

I’m talking about getting paid from the sales you make…

Can you see the power of this?

This is where profit in product businesses are truly made because a sale from this kind of strategy doesn’t come with any of the fixed or variable costs of your business. It doesn’t require you to manufacture, pack or ship. All it costs you is a bit of time, but you’re getting paid to do that.

If you’re not excited about what that actually means for a product business, go back through and read this again.

It doesn’t have to be an annoying thing where your customers hate you because you took the opportunity. I am absolutely 100% certain that there are companies you would love to create something special with, and that your customers woudl love it too.

This where the profit is.

The profit isn’t in the product

Because on one level, it’s great to do these collaborations with businesses and influencers. I highly recommend it – I’ve seen so many clients build insanely successful companies using this strategy.

But actually, there’s another level that the smartest business owners start thinking about when they realise they’ve got a solid foundation in a niche.

They start selling pure profit products.

Events, workshops, digital products, memberships, VIP access to the Founder of the company.

These are just a few ways to deliver life-transforming value to customers, without increasing the cost load of the business, while increasing the profitability of the company you run.

And yes, there is one prerequisite in doing all of this.

You’ve got to have a solid foundation built in a niche. They need to respond to every single email you send out and buy. They need to be raving fans of what you do.

If you don’t have that, that’s okay. Reach out to me and let’s talk about how you can create that, because that’s a 12 month journey if you’re doing all the right things and I have a 3 year history of helping business owners like you create platforms like this.

And if you do have that, well – let’s talk as well.

The strategy behind adding huge chunks of profit to the backend of your business is a complex one, and the person writing this post has spent three years building a highly profitable company (more than 20% profitability, cash in the bank, year on year) that sells information.