Thursday, July 5, 2007

Revenue Units

Earlier this week I sold my Sony stock. Today it gained over $1k. Figures! Now I'm selling WDC for my first profit, and buying EMC and TNE, on the Motley Fool's advice. I'm optimistic, but we'll see how this works out in a few days when I come back here to read the charts again.

What else is new: today I'm drawing up some marketing information and invoices for services that I perform regularly (I fix computers), and making a chart of my real expenses. Expenses are how you (the competition) get my money out of my hands, and that includes everything from the food that I eat to the rental costs for an apartment, office space, a car, gasoline, food, and yes: even entertainment. I think the average college newbie who probably doesn't track his expenses spends 30-50% of their money on what you could call simple entertainment.

Bearing this in mind, I've shifted most of my entertainment to the sorts of things that are free, or that help build value. Going over to a friend's house is building value in the form of a relationship. On that same vein, playing a video game is like getting to know the developers. You can either pirate these (bad, how will these poor artists eat) or you can play the freely available demos (this is good, for all parties involved). It's almost like going to a friend's house and taking a tour of the grounds. I've been visiting EA Games lately to play the Command and Conquer 3 Tiberium Wars demo in skirmish mode (GDI vs NOD). I look at it as building value in that I am honing my skills, so I don't get owned completely when one day my friends decide to pirate this game, leaving me with no choice but to play!

Building relationships on shared entertainment is very fulfilling, but it does not usually generate positive revenue for those involved. There are only a few different ways to generate revenue, if you don't count lottery winnings and similar techniques. (Don't laugh, paying diligent attention to your stock portfolio is just like playing the lottery, and it can really pay! Ask your grandparents.) So buying a computer is like buying a stock, in that you don't really need a computer to live, and also in that it's easily transferable. If you work diligently at a computer, you can make it more useful (valuable) over time, through manipulation of data bits in various ways. That's really why they're so popular, and this is exactly how Ken Kutaragi (formerly of Sony) described his vision for the PS3.

Step beyond entertainment and lotteries, into the realm of tangible services. You can receive payment for a one-time simple labor service without any property of your own. Make a capital improvement to a rental property, document your labor and make an appraisal of the value. Negotiate your way through the billing with the owner, and hopefully cash your paycheck. The value of your services (it's called making money for a reason) is a product of your investment of sweat and time, as well as the cost of materials and expenses. Don't shortchange yourself on labor: if your rates seem high and difficult to justify, consider the time that it took you to learn your skill. This is a part of your investment.

Here's my story: I fix computers. When they're not working how they should, my skill is to quickly identify the source of the problem and to fix it. That is certainly one way to make an honest buck. But remember: work smarter, not harder... big earners will set up a reliable delivery system for a valuable service and charge a recurring fee for access. Time Warner Cable and Internet, health insurance providers, and even Microsoft all work like this. If you can make a good one-time investment like one of these companies, then you are justified in charging a recurring fee for your services. If you manage to paint yourself into a heavy maintenance niche, then the service you're providing had better be worth your repeated time investment.

Meet the Wednesday Eve Landscape and Taxi Company: lawns in suburban neighborhoods usually require weekly maintenance in the warm Spring and Summer months, or the community of property owners will risk devaluing their investments as the area begins to look less suburban and more rural. A landscaping company should provide simple weekly maintenance as well as value-add services like building a garden. The difference between planting annuals and perennials is the difference between a yearly recurring revenue stream and a one time capital improvement. Of course that's assuming they hire you again next year!

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