The title of this post might surprise you, but truthfully there are only 2 ways to make money. It really is that simple, and simply choosing which way is best for you is the first step to making the money you want.
The 2 Ways To Make Money Are:
1. Doing/Selling lots of things for little amounts of $
2. Doing/Selling a few things for large amounts of $
This is true in business, and this is true in life.
The first refers to making small money from multiple projects. For example, a dollar store makes a lot of money from selling a high volume of low-priced items. Likewise, a new freelance writer might take on many low-pay projects. In either case, you end up with a large profit. The second refers to selling a few expensive items for a high price, like exclusive art or couture. It can also be attributed to specialist consultants that charge a very high price per hour. Again, you end up with a really high profit even if you’ve only put in a few hours or sold a few products.
Then there is a holy grail of selling a huge volume of high priced items — like Apple selling millions and millions of $2,000 computers — but for the most part you will have to pick one strategy or the other when it comes to the 2 ways to make money. Thinking of money in this context will influence how you manage your career, any side projects, and your investments. When it comes to the 2 ways to make money:
Will you make money by completing many projects & investments for a low payoff?
Will you make money by completing a select few projects & investments for a very high payoff?
Fundamentally, this is at the heart of every money decision: Will you choose a career where you work many hours for low pay or few hours for high pay? Will you work only one job for a big salary or multiple jobs for a collection of small wages? Will you invest a large lump sum now or will you invest a small amount of money incrementally?
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It’s possible that you will get the same amount of money at the end, regardless of which option you choose. But it’s also more likely than not that each choice has non-monetary considerations that will influence your decision.
For example, a consultant can earn a large amount of money in a few hours, but becoming a consultant in any field often requires many years of professional training and career experience. In other words, it’s a huge time investment. A job as a barista, on the other hand, requires little to no training, but also warrants little to no pay. There’s also a risk of failure to be considered: it is easy to fail at something difficult (ie. becoming a highly sought after consultant), it is difficult to fail at something easy (ie. pouring coffee). (duh!)
Many people make the mistake of trying to grasp for both: trying to sell an over-priced item to many people, or trying to sell a cheap product to just a few customers. Given the time investment it takes you to create something awesome, it’s probably not worth it to invest tons of time and money into something you’re only going to sell for $12 to 40 people.
So this is an error of either not creating something valuable or failing to price yourself appropriately!
Price communicates value: selling your skills or products below cost tells your customer that that they’re not worth much! Truthfully, people don’t actually know how much anything is supposed to cost, so you have to tell them. To tell them you should know if if you’re taking the high-volume, low-cost route or the low-volume, high-cost route yourself.
In business, you can sell a luxury or high-end product to a few customers for a very high price. Or you can choose to sell inexpensive products to a large number of customers. There’s no point in aiming for the middle. Chasing low pay from few customers is akin to saving in an account that pays 0% interest. (Or worse, one that charges you monthly fees!) In other words, the middle is a waste of time.
Go after a handful of big fish, or grab bucketfuls of small fish. Do not grasp aimlessly for both.
Which option appeals most to you is entirely a personal preference, because one isn’t necessarily better than the other. Seriously. Whether you’re the CEO of Dollarama or Michael Kors, you’re still making a killing. I know I’m definitely a “handful of big fish” person. In my opinion, my time is so limited right now between working full-time and finishing up my MBA, I can only choose projects that pack a powerful (and profitable!) punch. If I have to manage a large amount of little things that hardly have any weight, I find myself prone to bumping them down my priority list and then not caring when they fall to the wayside because they weren’t worth much in the first place. I’m constantly faced the choice of whether to earn $20 here and there, or hold out for $200. Both options are hard: in one case you’re scrambling, in the other you have to be excruciatingly patient.
When it comes to the 2 ways of making money, I’m in for big wins.
This means I’m counting on most of my wealth to be built by one-off investments. Don’t get me wrong, a not-insignificant amount of my net worth will be accumulated by diligent saving and consistent growth. But in my mind, that’s very limited and I think I’ll see bigger gains from investing in small projects with big payoffs. As of right now, I earn approximately 20% of my gross income outside of my full-time job, but eventually I’m hoping it grows to more than 50% — and I’m hoping to get there with a few one-off successes rather than a myriad of little things. In other words, I’m looking for small projects with a big bottom line, rather than the other way around.
I feel inspired to pursue the right small projects with the biggest profit, because I’ve gotten hooked on my friend Sarah’s entrepreneurship website, Unsettle. If anyone knows about making it count, it’s her — and now she’s teaching us how to follow suit!
When it comes to the 2 ways to make money, what is your preference? What time or risk constraints brought you to your decision?