The Compound Interest Effect of Niching Down

When you first start selling your services, it’s common to hear yourself saying “I can do that!” to anyone with a dollar in their hands.

Anything to bring revenue in the door. 

You position yourself as the solution, even if you’ve never provided that particular service before.

And it’s easy. It’s easy to get sales when you can provide all things to everyone. Sales that bring in a nice little side-income. Momentum so you can finally quit your day job, and pursue providing services full time.

It’s what I did for years. I said yes to everything and came away with all kinds of experience.

To begin my freelancing career, I did the following gigs to make money:

  • Designed and programmed a website that provided NFL mock draft results
  • Campaign manager for direct mail campaigns sending baby formula coupons to expectant mothers
  • Manually added/removed contacts from a marketing automation system for a home-exteriors company
  • Scraped HBCU college listings from a website and built a better, search optimized version to sell AdSense ads
  • Took photos for a restaurant with my crappy point and shoot camera, and used them to build a custom-programmed 7 page restaurant website
  • Generated 100 variations of a landing page with keyword-specific URLs to try and drive favorable local Google AdWords results (i.e. domain.com/replacement-windows-st-cloud-mn.html)
  • Submitted websites to directories from my .edu email address, trying to game Google’s system. I took on the persona of “concerned college student” who just happened to be surfing the Internet one day and noticed a link to website A, and thought that a link to website B might be “relevant to your audience” as well. I was 3 years out of college by this point.

And those are just the things off the top of my head that I remember doing in my first 6 months as a freelancer.

$250 here, $500 there. Occasionally reaching 4-figures. Spending the money in my head before it was earned. Telling all of my friends how much I was killin’ it and that they should drop everything to be an entrepreneur like me.

I must have been insufferable. It was an incredible time in my life.

Treating the projects you choose as an investment vehicle

Starting with my laundry-list of services, I’m now reminded of someone just getting started in investing.

When most people are just getting started in investing, they try many investment vehicles to see which ones work. $250 here, $500 there. Occasionally reaching 4-figures. Hopefully taking off from there.

It’s common to try making several investments, to see what works for you. Most of them will fall flat. But the ones that succeed produce outsized returns. Might be market timing, might be dumb luck.

Eventually you develop momentum. That will turn into an investment thesis. You make fewer broad investments, and instead double down on what is working.

You find your niche, and you go in depth on that one area of focus. You start saying NO to any distractions, and focus on what you know works.

You might find that one niche is all you need to survive. Or maybe you hedge, and choose two or three niches where the majority of your investments go. Because you recognize the need to diversify. You may choose to invest in commercial real estate and emerging markets. Or cryptos and senior housing. Or biotech and municipal bonds.

Once you choose your investment niche, the fun starts to happen. You see the compound effects of your investments. With diligence (and a lot of luck, let’s be honest), things start to take off exponentially. Over time, real wealth is generated through focused, disciplined investing.

It works the same way when providing services

At some point in my journey, beginner Jeff started to realize that not all projects were created equal. Web design projects seemed to take forever, and I could never price them right (many times leading to getting paid $9/hour due to scope creep).

Other projects were true one-offs, like the baby database. There was no way to leverage that project elsewhere. It was truly one of a kind.

Then there were projects that took almost no work, and generated a ton of profit. Managing Google AdWords campaigns was the first service that fit this description. I was managing 1, 2, 5, 10, and eventually 20+ accounts at a time.

I was becoming more efficient with each new client. Within 18 months of going on my own, I was making $20k/month building niche landing pages and sending PPC Campaigns their way. It was basically copy + paste marketing, but the results were tremendous for clients. Their campaign performed 5x better than industry averages.

Selling new deals was a breeze. I could simply point to the results, sell my “knowledge of the industry,” and clients were faxing over signed contracts left and right. Yes, I built my online business getting contracts sent through a fax machine.

Managing PPC was the first service that I could provide at scale, and the money was coming in hand over fist.

Naturally, I started to phase out the other services, and double down on what was working. I niched down, and things started to take off. This niche checked all of my boxes for success, and I stumbled into it through dumb luck.

Your services are investments, but niches are what generate the big returns

When you look at the phases of your business, it’s important to understand how each client investment brings you closer to your end-game.

It’s OK to try many things. To throw things on the wall to see what sticks. To say yes to everything.

But at some point, successful business owners flip the switch and double-down on what is working. They concentrate their efforts.

They compound their results. 

And that compounding effect is what we all see when the iceberg surfaces. And we all assume it happened overnight. That someone got lucky with their niche. That the results came easy.

“It takes 20 years to become an overnight success.”

– Eddie Cantor

Nothing happens overnight. But you will get there much more quickly when you focus on the niches that work.

What is your investment thesis? What is your niche? Let’s hear it! 

Comments

  1. Callum

    Hi Jeff,

    Big fan of your work – I’ve got a lot of value from your analytics course!

    Thanks for writing this article, it’s really well timed as I’m currently considering Adwords management as a freelancing niche.

    How did you decide which businesses to help?

    I’m considering starting with local business, but I’m concerned that their budget may be too low and/or that they aren’t looking advertise on Google.

    Who was your target market, and how did you decide?

    1. Jeff Sauer Post author

      Hi Callum – In my case, the niche found me. It was home improvement, and it was one of the “random” jobs I took on. I proved I could do AdWords for them, then found another client in the same niche (I had been doing marketing automation for them, another of the “random” jobs) I took on. The second one loved the results so much they bragged to their consortium of owners, and things went crazy from there.

      So I didn’t choose them, they chose me. I might do it differently now, but probably not. It seems like the best way to really know what type of business will work with you is to try several things.

      The way I like to think about it is to be super-niche in outbound business development (targeting people on LinkedIn for example), and then let your inbound roll in however it comes (being strategic of course). And obviously there is a lot of nuance in between that we teach in Agency Course, especially in Sales Jumpstart. Hope that helps.

      1. Callum

        Thanks Jeff. That makes a lot of sense. I’m in the process of identifying different audiences and doing 1-2-1 customer research, so I’ll start with one and try another if it doesn’t work.

        Thanks for your time.

      2. Callum

        Jeff, if you’re happy to share… what pricing model did you use for your adwords management service?

        1. Jeff Sauer Post author

          Hi Callum,

          My most common pricing model for AdWords was $1,000 /month or 12.5% of spend, whichever was greater. Minimum started much lower, but grew over time. Percentage of spend could have been anywhere from 10-20%, depending on the actual work required.

          Charged 2.5x monthly retainer for setup to get the campaign off the ground. Since that is by far the most labor intensive part.

          Jeff

          1. Callum

            Your insight is so valuable – it’s helping me move forward quickly. I’ll keep you posted.

            May I please ask one final question? I’m conscious of taking up to much of your time (if I haven’t done so already).

            What size of company (by whichever metric you choose) have you found are best to target as a freelancer?

            I imagine that local businesses are likely to spend very little on SEM and advertising in general, which would mean managing a vast number of accounts to make it work. On the other hand, I suspect that companies with a very large ad spend are unlikely to outsource.

            Are those assumptions accurate in your experience? And if so, what size of company do you think occupies the middle ground?

          2. Jeff Sauer Post author

            The sweet spot is exactly as you say. They have a budget (eliminates most SMBs) and their budget isn’t so big that it’s cheaper to use in house resources (over $100k in spend/$10k in retainer, it makes more sense to bring in house). So it’s somewhere around $5k to $50k/month in ad spend that works well with an agency. Usually these businesses have at least a million in revenue, but probably much closer to $100 million. Going after $1 Billion+ companies generally has a lot of bureaucracy and sharks (agencies) to sift through.

          3. Callum

            Hi Jeff,

            That’s spot on. Thank you.

            I am interested in your agency course. I’ve invested in other business and freelancing courses in the last year and not yet turned that into income. I’m determined to make that happen before I buy any more courses, so I’ve set myself the challenge of replacing my income in 4 weeks when I get back from my honeymoon in mid-January. Once I’ve got a “validated” business idea, and start making some money, I’ll probably invest in your course to accelerate my progress.

            Thank you for all of your help — really appreciate you time and wisdom.

            Callum.

            P.s. I signed up for the agency course waitlist. When do you open access?

          4. Jeff Sauer Post author

            We just finished our last launch for 2017. Will likely open things back up in 2018 to people on the waitlist.

          5. Jeff Sauer Post author

            Hey Callum – also wondering if you considered Agency Course? If you think these posts are valuable, the contents inside the course are INVALUABLE to businesses like yours. Was there something that made you hesitant?

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