Aim for 2%

I have a simple Google Sheet that tracks The Mighty Mo!‘s recurring monthly revenue. By doing some simple math today, I learned that our average customer pays us around 2% of our total monthly recurring revenue. Let’s call that 2% our “Freedom Quotient”. 2% means that:

  1. No single customer gets to determine where I put our company resources.
  2. I’m in a position to say, “No”, to requests that fall outside of our core competencies.
  3. I get to focus on our Very Simple Boring Product – e.g. speedy WordPress support.

The lower the better – Anything over a 5% Freedom Quotient is a hallmark of an agitated company and puts me at risk of saying, “Yes, Sir! May I have another?”, to whatever the highest bidder demands. By keeping that Freedom Quotient low, I’m able to give customers personal attention when they need it and not sweat it too much if they decide to leave (which they’re doing less and less these days now that our product has become more clear to me and them).

Jason states it elegantly:

“If you have a small handful of customers paying you significantly more than most of your customers…you’ll do what they say — often at the detriment of your smaller customers — because the big companies pay the big bucks.”

Jason Fried in A static business is a healthy business

Notes:

  • The math is: Average Monthly Customer Payment/Total Monthly Revenue.
  • If I remove the top and bottom 10% of customers, based on amount paid per month, from the list, the remaining customers average a little over 2% of my monthly revenue each.
  • If I don’t remove the top and bottom 10% of customers, that percentage drops to around 1%.
  • My Google Sheet is manually-updated by me (no fancy tech stuff required to spin your own!).
  • My monthly recurring revenue represents about half of my total monthly revenue.
  • Some customers pay annually (and get a discount for it!) – I’ve averaged their annual payments into monthly for this calculation.

Toby Cryns

Toby Cryns is a freelance CTO and WordPress Guru. He also writes for WPTavern.com.