So…this student of mine is earning $250,000/yr using qualification theory

Ramit Sethi

I love this story about one of my students.

If you’ve ever tried to sell your services (freelance writer, consultant, artist, even dog walker), tell me if you’ve heard this before:

  • “I’ll get back to you soon”
  • “This sounds great, but I just want to do a little shopping around”
  • “You’re great, and I really want to do this, but right now I just don’t have time”

Small-business owners use these excuses when your service isn’t the right fit. Excuses are more comfortable than just saying no. And because they don’t say a point-blank “no,” we keep obsessing over when they’ll call us back.

It’s a common trap to spend too much time chasing down leads that never materialize.

That’s why I teach qualification theory in my Earn1K course — one of the most powerful strategies you can employ. (I also use qualification strategies on my site every single day in over 5 different ways. See if you can spot them.)

By qualifying people — whether in your freelance business, your blog, your workplace, even relationships — you can focus your time on the ones most likely to say “yes”…instead of indiscriminately chasing people who will always have another excuse.

So when people say, “Ramit, I want to learn how to earn more, but I just don’t have time,” it’s amusing. Most of us try to reach EVERYONE, never understanding that you can actually get BETTER results with LESS time if you focus on qualified people. This is the 80/20 rule at work.

Today, I want to share a case study of one of my students, Kentaro. What’s interesting is he combined qualification theory with scaling. As he grew, he hired other people, something I don’t talk about very often on IWT. Kentaro went from his first $800-per-month retainer to a four-employee company earning $150,000 in less than 2 years. Now his online marketing business is on track to make $250,000 in 2012.

Here’s how he did it.

Tired and bored with no freedom

Back when he was an employee at the real estate firm, Kentaro had tried finding work on his own. “It was a contract every now and then. Maybe one project every few months. Nothing active or consistent.”

So he stayed in one place. Tired, bored and knowing that he needed a change. “I needed to jump off the path I was going on, 9-5 working at a small company, with very little freedom to do what I actually enjoy.”

But he didn’t know how to transition to working for himself.

“Then I found I Will Teach You To Be Rich. I liked the info on there, signed up for the newsletter, and started getting emails for the very first Earn1K class.”

“It sounded like exactly what I needed”, remembers Kentaro, “but it was a big investment.” After careful consideration, he signed up. “It was the 30-day money-back guarantee”, he said, “like if you don’t like the material you can get a refund, it’s hard to go wrong with that, the only programs that can offer that are the ones confident in their ability to provide value.” (NOTE FROM RAMIT: Since then, I’ve extended the guarantee period to 60 days, just because I thought it was the right thing to do.)

Earn1K helped Kentaro refine his business idea. “I understood real estate really well because I worked in it for a couple years”, he said, “so it was a good niche, and not a lot of companies were offering web marketing in the real estate industry.”

Soon after, Kentaro found the lesson that propelled his business to earn its first $150,000.

I just got too busy and had to hire more people.

Kentaro wanted to earn more, but he was wasting time pursuing prospects that didn’t convert. “It’s very easy to get carried away with someone that seems interested”, he says, “then a few days or weeks later I’d realize they couldn’t afford my services or they wouldn’t benefit from them.”

That’s when he completed the Earn1K lesson on how to identify your best leads by sending a short email pitch. “I haven’t studied sales, so the prospecting and qualifying modules from Earn1K were very important for where I was at.”

“Because I was in real estate I was able to access databases with all of the realtors in my area, and I could sort them by gross sales volume.” He prepared an email script, “and began emailing prospects who were grossing over $200,000 a year to be sure they could afford my services…. Emails worked better for me than making phone calls.”

Kentaro’s email was simple and to the point. “I’d identify the need, offer the benefit and say, “hey look, let’s schedule a quick meeting and I’ll show you how I can solve this problem for you”.

Soon he’d landed his first first contract, an $800-per-month retainer for web marketing.

“This was my system”, he said, “the first conversion was to get a response for the email, and the next step was to get a five minute phone call and find out if they had hired on these services before, try to figure out if we would be a good fit or if they could afford my services.” When working with local clients, he’d drive out to qualify them in person.

With a working system in place, Kentaro continued qualifying leads and sending out emails. Six months after starting, he had so many clients that he had to hire his first employee. “I found her on Craigslist”, he laughed, “I got lucky, and she’s still with us today.”

In the last few months Kentaro web design + seo has been featured in the media, “so we’ve been getting unsolicited leads coming in via calls and email. The more leads you have the more qualifying becomes important because you just can’t afford to waste your time on someone who won’t be a good fit for you.”

Now with three full time employees and one intern, Kentaro is still using Earn1K principles to build his business. “I taught my employees to use scripts”, he said, “and showed them the classes for fundamentals on how to present yourself to a prospect, how to identify their problems, and how to present solutions to them without being intruding.”

The result? Kentaro’s company grossed $150,000 in 2011.

I’m more of a manager, and I do a lot of the strategy for our web marketing clients.

“Money makes things easier”, said Kentaro, “once we had cash flow I had the option to continue freelancing or hire employees, I believe Ramit’s idea of “quick wins” should move an individual closer to generating cash flow so that these options open up for them too.”

Kentaro’s team now includes an account manager, a VP of development who pursues larger clients, a web developer, and an intern from his university. That leaves him more time to do the work he loves, crafting marketing strategies for clients.

Kentaro’s business is also giving back to the community. “I’ve gotten a lot of benefit from the university”, he said, “so we’ve funded a scholarship for the Cyber Security program, and have an internship program in place.”

Kentaro’s business is on track to earn revenues of $250,000 in 2012. That’s 781% of what he was earning at the dreaded 9 to 5.

“I’m enjoying every bit of it”, he added.

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  1. Desi Doll

    Aww Kentaro is cute! I like that his small business is giving back to the community. Large firms do that, so why not mirror them? It gives an impression of stability and longevity, like we’re serious, and we’re here to stay!

  2. Sunil from The Extra Money Blog

    cool story, and congrats Kentaro

    curious – what is the profit margin like in a business model like yours given staffing/overhead costs, etc?

    how does that compare to life before the business?

    • Kentaro

      Hey Sunil, the profit margin for a growing web agency isn’t quite cut and dry. We are responsible for hiring talent and offering our expertise as an agency to our clients, so the profit margin can fluctuate quite a bit especially for a company that is adding staff (and expenses). Back when I was freelancing, if I got a new $500/mo retainer client, most of that went straight to my bank account, now that’s certainly not the case 🙂

      The biggest difference between life before the business would be the hours and passion. We have an awesome team together which drives us to do excellent work and continue growing. I have never been happier doing what we do, even though the hours are easily 2x what they were at the 9 to 5.

  3. Justin

    I found this post really helpful and inspiring.

  4. JT

    Here are some of Ramit’s qualification strategies that I can think of… what am I missing?

    – He offers free “starter” material for most of his courses so that people know exactly what they’re getting into.
    – He asks for names and email addresses to get any of the downloads. This seems a fairly low barrier, but does indicate some level of trust on our part. (It seems like most of his paid material comes to the email list first. I wonder what conversion rates are between email list members and non-members.)
    – He’s always asking us to “do” something, to show that we’re not just passively taking in information. (Also, sometimes the “do” requires setting aside particular times like the webcast he gave. Again, I wonder what percentage of webcast/interview viewers sign up for paid courses versus those who do not attend.)
    And some that I’m not so sure of:
    – It takes no work to get on the mailing list, but some work to find other things. Links, pages of explanations, etc. Before anyone buys something, they’re already invested in it.
    – He seems to write in a way to actively push out people who just want to consume information, leaving those who might actually take action.

    • Ramit Sethi

      Very good. There are more. Anybody else?

    • Rob G.

      Other methods off the top of my head:

      * You cannot sign up for Earn1K if you have credit card debt.

      * Dream Job is $12,000. This clearly targets a market of high potential earners. If you pay this you are truly one of the few who is qualified and committed.

      * He writes to a specific audience (20- and 30-something males). Not that these are the only people who read the blog, but the language, topics, etc. are picked with this market in mind first and foremost. It’s like the iPod commercials; targeted at hipster 20-somethings as the idealized market, even though everyone bought one eventually (in that case the others wanted to associate with the coolness). I remember a post in which he mentioned a similar program to Earn1k specifically for women, a different but related market.

      * If your behavior fits a tear-down and you are offended, you leave. This keeps those that really want to participate in behavioral change around.

    • Ramit Sethi

      Good comments Rob, but just a correction: Dream Job is not $12,000 (it’s much more affordable). Dream Job ELITE was $12,000 but that is closed and not available any more.

    • Rachel

      Not only does Ramit write for a specific audience, but he tells his readers that if they don’t like it they should leave. He is very specific about who is not his target audience (penny pinchers, etc.)

  5. Desi Doll

    Reading Ramit’s Book (“RRB”) – Chapter 2 – Beat the Banks – I have a checking + savings at HSBC. I didn’t know they had an online savings account! Also my friend tells me ING Direct has referral programs like $50 if you get someone to sign up. Ramit, you helped me start discussions and provided a window where maybe I can help my friend out when I sign up.

  6. Daniel Elmore

    “Kentaro’s business is on track to earn revenues of $250,000 in 2012. That’s 781% of what he was earning at the dreaded 9 to 5.”

    Ah, revenue, the ultimate camouflage of true value. Why compare a single person’s salary to the revenue of a 4 person company? It’s a bit deceptive, don’t you think?

    • Ramit Sethi

      Hey Daniel, not trying to be deceptive at all. Keep in mind revenue vs. salary is a bit complicated, so if there’s a better measure you’d like to see in future case studies, let me know.

    • Jake

      I agree.

      Although Ramit’s reply below (this comment system does not allow me to reply to Ramit’s reply) says that revenue vs salary is a bit complicated.

      I agree, it is a bit complicated. But $250k (gross, I assume) for 4 people is definitely NOT the same as $250k (gross) for 1 person, regardless of how how you want to “play” the revenue vs salary “game”.

  7. Dean Saliba

    I alays enjoy reading success stories like this, it gives me a lot of inspiration to push on with what I am doing when I feel like giving up. 🙂

  8. Wes

    @Ramit #9 – that’s easy, profit is the better measure (gross if a sole proprietorship, net if not). In this case, net profit is the more appropriate metric. Since his team now includes three full time people besides him and he probably pays those people at least $50k/year each, that’s $150k off the $250k right there. Then he probably has to rent space, pay various bills (legal, internet, accounting, utilities, whatever), and just generally deal with the costs of doing business. We’ll call that another $25k/year all-in. So we’re down to $75k and he’s not personally seen a single dollar. Obviously he wants to make some money himself, but legally, he can’t just dividend out all of the earnings of the business to himself and take advantage of the favorable tax rate on dividends, so he has to pay himself a reasonable salary (call that $50k – a 56% increase over his old salary). That leaves $25k in the business (a 10% net profit margin). That goes down to more like $15-20k after taxes. Maybe he takes some of that off the table as a dividend, maybe he keeps it in the company to help grow in the future. But regardless, his own personal earnings are a lot less than the $250k of revenue the business is doing. All that said, he’s to be commended – starting and growing a business isn’t easy, and I’m sure he’s working his tail off.

    • Kentaro

      Keep in mind that the $250k is what we’re on track to gross this year, so it’s a little different than thinking there was $250k ready to subtract all of the expenses from.

    • Richard

      A business like this is a bit more uncertain than a regular job, but it’s still in the early stages. With incremental improvements he can increase the revenues and control the costs to grow the profit. Yes it might take a few years – but who in a 9-to-5 job can decide to get an extra $100k in sales next year and keep most of it for themselves?

    • Bill Seitz

      I agree with Wes, the headline is so mis-leading as to be depressing.

  9. Andrew @ Credit Card Andy

    Ramit, could you clarify what qualification theory is for those of us who have yet to take your Earn1K course?

    Is it the fact that Kentaro focused on qualified leads to build his business or that he made himself appear to be a qualified expert who could bring immediate value to his customers?

    • Anne-Marie

      I believe qualification theory has do with you determining your target market and pushing out a clear message of who you want to/are willing to work with. This enables the general population of potential clients to self-select – yes, this is right for me, or no, this is not right for me.

      Idealy, using qualification theory would yeild more qualified leads because presumable the people who are not right for you and/or who you are not right to serve do not bother to contact you. Michael Port calls this the “Red Velvet Rope Policy.”

      For example, in my business I’ve recently realized that I only want to work with proactive business owners who recognize the need to plan for business eventualities by putting legal, financial, insurance, and tax systems in place before external forces come to bear, e.g. lawsuits, $0 cash flow, accidents, and audits. If you are not a business owner interested in getting in front of these problems, my services are not for you.

  10. Jeremy Gollehon

    I love your stuff Ramit but I have to agree with others on this one. Kentaro saying “the profit margin for a growing web agency isn’t quite cut and dry” and you saying “revenue vs. salary is a bit complicated”. Those may be true answers but they’re a little sketchy.

    The inspiration of Kentro finding his passion and building something of value is awesome and, I get it, as the main point of the story. But the words and explanations used for the numbers are misleading.

    To see how Kentao’s doing vs his real estate salary just give us the 2011 or YTD net income of the Company and the salary he paid himself. With that people can get good idea for what he’s accomplishing.

    And, if those aren’t numbers he’s willing to divulge then then maybe the article shouldn’t focus so much on numbers. 🙂

  11. Daniel Duran

    Ramit – I believe this is an inspiring example.

    If we could have a room with 100 people and 10 of them open businesses like Kentaro and after 3 Years these companies hire 9 people each, we have created employement for all.

    Good Job!

  12. Mick

    Great story of a good hustle, but using your employer’s database to get personal clients is unethical, even if you’re not offering the not the same product/service. Just saying.

    • Richard

      Yes, the world would be a better place if no one knew where to find the products and services they wanted!

      If you’re not offering anything of value then by all mean you shouldn’t be contacting anyone in any form. But if you are providing something that people need, you have a list of people who are highly likely to want it, and you aren’t taking anything away from your employer, why not help a few people out?

      Good qualification means you figure out who is not interested and then you don’t waste their time our yours trying to beat them into buying from you. The reason so many people are scared of marketing and self-promotion is that there are too many dumb marketers and salespeople who don’t do qualification and spend hours trying to convince you to buy something without even asking if you’re interested.

    • Mick

      Richard, I wasn’t debating the merit or value of qualification. Marketing 101 teaches that your competitors can be classified into concentric circles—from those selling similar services all the way out to any player in the economy because you’re competing for the same disposable income dollars.

      When your employer spends lots of time and money building maintaining a customer/prospects database and grants you access to do your job, you do not implicitly have permission to use the information for whatever you want. Maybe Kentaro got permission, but in general it wouldn’t be a good idea to do something like that.

    • Richard

      It sounds like information that could mostly be collected from public sources anyways – not exactly a customized prospect list. The only thing mentioned that would be semi-private is the sales volume of each realtor, and if necessary that could be qualified after making contact. When you leave a job, using the industry knowledge and contacts you’ve gained is a great way to take the next step. And it’s not likely that your employer will be providing every possible service to everyone in the market unless it’s a tiny market. Of course if they can give you permission that’s always best.

  13. David

    While Kentaro’s ambition/achievements so far are to be commended, the title “So…this student of mine is earning $250,000/yr using qualification theory” is misleading. Revenues produced minus operating costs (employees, taxes, marketing, etc) plus doubling amount of work hours required can cause some business owners to work for less than minimum wage in the early stages.

    However, with Kentaro’s new found passion coupled with Ramit’s advice, I’m guessing the 7 figure level is not far from reach.

  14. Hubert Sawyers III

    Kudos to Kentaro for finding a niche he could launch his business. I wish I could help real estate folks in my area, but they are inundated with internet marketers. Those who are left have little to offer in terms of funds.

    I recently had an entrepreneurial “eureka” moment. Now that I know what type of business I want to build, I look forward to applying some of the techniques I found in Earn1K to see how they work in functional practce.

  15. Matthew P.

    I honestly don’t see what’s so misleading here.

    Kentaro applied qualification theory to leave his job and start a business that’s on track to earn $250k. Exactly as the title states.

    Unless he’s paying a handsome salary to the people who are working for him, he’s going to be better off financially, *and*, most importantly, he now has a system he can crank to produce as much money or as little work for himself as he wants.

    Seems a little silly to debate the symantics of numbers when we’re talking about (what I’m assuming is) a low-cost start-up, which offers a service, not a physical, manufactured, inventoried product.

  16. Jon

    I did somewhat agree with some of the other posters, but you nailed it in that the article is more about. This is an example where people are getting distracted and sidetracked about a technicality instead of focusing on the “big wins” which is mostly scalability in this example. He could not acheive any of these results with his previous 9-to-5 job.

  17. Jonathan

    Great story, congrats to Kentaro. Great to see someone finding their niche in the business world and doing it well!