Captain’s log, stardate 20180412
Sent by Jonathan Stark on April 13th, 2018
If you needed to lift a car without using machinery, you’ve only got a few options. Here are three:
Okay, I cheated a little on #3... a lever is technically a machine.
Here’s a quick definition excerpted from from Wikipedia (bold mine):
A lever is a simple machine consisting of a beam or rigid rod pivoted at a fixed hinge, or fulcrum. It is one of the six simple machines identified by Renaissance scientists. A lever amplifies an input force to provide a greater output force, which is said to provide leverage. The ratio of the output force to the input force is the mechanical advantage of the lever.
The concept of a lever can be used as a metaphor for business.
You can use your expertise to create a “lever” that allows you to create greater “output force” with less “input force”.
When you invest in things like these, you are creating “leverage”. The greater the ratio of “output force” to “input force”, the greater your “advantage” (to use the physics terms).
But here’s the rub:
To gain an advantage (i.e., increased profitability) for your business, you MUST charge for output force (i.e., business outcomes), NOT input force (i.e., your time).
If you are charging based on your input, creating leverage decreases your revenue because as your leverage improves, it takes less and less input (i.e., time) from you to create the same output (i.e., business outcomes) for your clients.
However, if you are charging based on your output, creating leverage increases your profits because as your leverage improves, it takes less and less input (i.e., time) from you to create the same output (i.e., business outcomes) for your clients.
Before you try to create leverage, make sure you’re charging for outputs, not inputs - otherwise you’ll optimize yourself out of business.