In this article, we are going to learn how to build an expert business that makes 10 lakhs a month in profit (not just revenues). To explain that I need to give you a few analogies and examples.
Probably the easiest way to make 10 lakhs per month in profit is to have so much capital that just putting the money in the bank will give you 10 lakhs a month to take home.
Considering that banks on average give 6% annual interest, you need to generate 1.2 crores per year in interest alone. 6%(x) = 1.2 x- 20
That's 20 crores in capital that you would need to generate 10 lakhs per month just from the interest payments.
Even if you have 20 crores of capital, it is not a good idea to put it in a bank because the value of this 20 crores will remain the same even after 20 years, and due to inflation, at that time, you would have lost so much of your purchasing power.
What is the next best thing?
Let's look at examples that will give 10 lakhs of profit right now and also keeps adjusting for inflation in the future to give you the same purchasing power.
The next best thing is real estate. Real estate gives you two benefits. The monthly cashflow will adjust itself according to inflation and also the capital asset will appreciate in the future because real estate is limited. So irrespective of inflation, your current wealth and cash flow will be preserved.
If you are investing in real estate in India, you can't expect 6% because the asset value also appreciates.
For Bangalore & Mumbai real estate, the practical yield will be 4%. To keep it simple, we will consider housing real estate because there are always tenants available in good locations in urban cities. You will not go out of demand ever.
Let's assume that 15-20% goes into repairs, upgrades, and management of the property. So you need to generate 12 lakhs a month in cash flow. That's around 1.44 crores a year in cash flow. At 4% it would need 36 crores of capital. Round it off to 35 crores.
Now most of us do not have 36 crores of capital lying around. We can't inherit it, win it in a lottery, or get married to it. What's the only alternative?
The only alternative is to build a business that generates the same amount of cash flow. And the best type of business is an expert business.
The Economics of Building an Expert Business that Generates 10 Lakhs per month (profit)
In the "expert business", you need to balance growth and profits carefully.
If you reinvest more into the business, you will have the business grow faster and the business will be more valuable in the future due to higher revenues and higher market share even if the margins are low. You are letting go of short-term profits for long-term equity gain.
First, let's look at what a 50% margin expert-led business looks like.
A 50% margin business
I know experts in India that make as much as 50% margins in their business. So this is real.
Let's look at the economics of it.
- Monthly revenue: 20,00,000 per month (20 lakhs/mo)
- Monthly profit with 50% margin: 10 lakhs
- Yearly revenue: 2.4 crores a year
In a 50% margin business, the business is closely tied to the expert in the business.
These are the people who will always be selling themselves, creating content, doing webinars, and consulting clients all by themselves. Without them the business won't work. They cannot take a one month vacation. But it's ok to get started here to build some traction, confidence and savings in the beginning.
We can do a simple math here to see how much an expert based business needs to sell to make this kind of revenue.
Let's say there are 4 levels of products at different price ranges. It can be:
- Self-paced course (courses that are just content being sold without any support)
- Cohort based course (Add community and Q&A sessions to a self-paced course)
- Mastermind (yearly membership with done-with-you support)
- Consulting/Agency (personalized custom services for clients)
The above chart shows a sample business-plan where you sell 100 units of your self-paced course, 20 units of a cohort based course and 24 people yearly in your mastermind program at 1 lakh per year membership. You will also be able make money directly with client work and personalized services. You can charge 4 lakh per year for this.
You can move the numbers around. You can think about having 200 customers at 5,000 for the self-paced course, 5 customers a month for a 50,000 cohort based course, and 1 customer a month for a mastermind that costs 2 lakh per year. You get the idea. This chart is indicative.
Now to run the self-paced course, the cost of advertising might be a lot and you might expect to invest 50% of the revenue back into CAC.
Considering other costs like a small team, basic computing power and office space, let me assume that 80% of the revenue from the self-paced course goes back into the business as investment.
With the other products, you can expect a higher profit margin and lesser costs.
Please note that this is rough math.
As an expert if you want to build a 50% margin business, you need to build the self-paced course yourself, run the cohorts with live Q&A sessions yourself with may be 1-3 team members, do the mastermind yourself (with 1-2 team members) and run the agency yourself where you spend a lot of time with your clients yourself (with 1-2 team members). Overall, you can expect to have around 3-5 employees.
If you had to have real estate that generates 10 lakhs in profit per month, you need 35 crores of capital. Your own expert business that generates the same amount of profit (after paying salary to yourself) should be worth the same.
At 2.4 crore per year in revenue we get a multiple of 14.58 (let's say 15x) to consider the business valuable at 35cr.
That means your expert business that generates 10 lakhs a month for you in profits is worth 35 crores to you.
If you generate 20 lakhs a month, your business is worth 70 crores. At 30 lakhs a month, it is worth 105 crores.
Now for you this business might be worth 105 crores but you will not be able to sell this business for 105 crores because it is completely dependent on you.
That's why I prefer that even if you can run a 50% margin business, don't do it because you cant become an employee in your own business that cannot step out and also you will not have any saleability of the business.
A 20% Margin Business
If you want to build an asset that can be sold in the future (just like real estate) and also gives you a lot of time freedom, you should be generating more revenue to reinvest significant amount of profits back into the business.
This involves having better talent, a work space and business assets. The brand name of the business should also be something that's not attached to the "expert". It should be able to grow larger than the founder.
If you think that consulting/agency is too much hard work and don't want to be involved, you can focus more on your mastermind to move your offer from Done-For-You to Done-With-You.
Tweaking the math a little bit, it looks like this.
You will be investing 100% of the earnings back into the self-paced course, and 50% in everything else.
This is a 6cr per year business easily and if you want to have a revenue multiple to get to 35 crores in value, it is just 6x and it is much more realistic if you want to sell the business.
At 12 cr per year revenue, your business would be worth, 70 crores and at 18 cr per year, it will be worth 105 crores.
If you can scale this to 2 cr per month, your business will generate 24 crores a year with a 20% margin which is 4.8 crores in profit. (Monthly profit of 40 lakhs now).
Now this looks like an asset that can be sold because you are reinvesting a lot in talent and setting up processes and systems for your business so that you can step away from it.
If you do not want to do any work, you need a lot of capital. If you have 35 crores of capital, you can make 10 lakhs per month with real estate.
If you do not have the capital and are ready to work VERY hard, you might want to get a job that pays 10 lakhs a month in salary (1.2cr per year in CTC), but you will not be building an asset for yourself and won't have any freedom at all.
As an expert-led creator/consultant/mentor business, you are mixing your capital, time and talent along with leverage points such as code (automation) and content (media). You are building something that is going to be worth 35 crores just through pure focus and generating the same kind of cash flow that 35 crores of capital would bring.
You are creating the intellectual property, brand, systems, processes and talent pool that becomes worth that much.
If you own 50% equity in such a business that generates 10 lakhs per month cash flow, you are still going to have a net-worth of 17.5 crores which is $2m+.
So for people who can't inherit the wealth, marry into wealth, rob it away from people or win in a lottery, the best chance that we have to become millionaires is to build an expert-led business.
I did not go too deep into how to build this funnel of self-paced, cohort and mastermind programs in this article because it demands an article of its own. This post was to show you the numbers and possibility of building a business that is going to be worth 10s of crores and how by being the owner of it you can become a multi-millionaire practically.
Valuations usually become more tangible when you attract investments. If you can take your business to 25 crores per year and expect a 6x valuation on the revenue then you are building an asset that is worth 150 crores.
If you sell 10% of the company, you will be able to have an infusion of 15 crores in capital which you can use to reinvest in the business or pay yourself for your hard work. You never need to sell your entire business. You can sell a part of it to have a pay day.
With startups, the basic rule is: Become rich with equity, not through profits. Because when you are leaving profits on the table, you are losing out on potential growth and market share.