The Arithmetic of One

What a Department Used to Cost

In the spring of 2005 I sat at the back of a fourteen-person export office in Pune, and one of my jobs was to collect the monthly bills from the department heads. Accounts sent theirs on a printed sheet. The designer sent hers by courier from Mumbai, with a drawing of a sad face if we paid late. I learnt more about business from those bills than from anything my manager said, because they showed what it cost simply to exist.

Here is what a comparable small British firm paid that year for four basic capabilities, using figures I have since checked against old invoices and trade surveys. A part-time bookkeeper cost about £14,000 a year. A design agency on retainer charged £1,500 a month, so £18,000. Someone to answer the phone and the customer emails, £16,000. Marketing meant an annual Yellow Pages listing and a print run of brochures, perhaps £5,500. Software licences and a small server in a cupboard added £4,000. Add those up and you get £57,500 a year, or roughly £4,800 a month, before anyone has bought a desk or sold a single thing.

Now the same four capabilities as I would buy them today. Accounting software is £33 a month, and a freelance bookkeeper reviewing it for three hours at £40 an hour costs £120. Design is six hours from a freelancer at £45, which is £270, plus a £10 design tool. Support is a £20 helpdesk and a £20 AI subscription that drafts the first reply. Marketing is a £30 email platform and £15 for a website. The total is £518 a month, about £6,200 a year.

That is less than a ninth of the 2005 bill.

The fall in price is only part of the change. In 2005 every line was a fixed commitment: a salary, a retainer, a contract for twelve months. Today almost every line can be switched off by the end of the week. A bad month in 2005 still cost £4,800. A bad month now costs whatever you choose not to cancel.

I kept one of those courier envelopes from Mumbai for years. The sad face was drawn in green ink, next to an amount we owed of 22,000 rupees.

The Year I Hired Four People

By 2016 my consultancy had been running for three years. I advised small British and American firms on pricing and operations, I worked alone from a rented room above a pharmacy on Prabhat Road, and that year the business brought in £140,000. Costs were about £22,000, most of it travel and software. Profit was £118,000. I thought this meant I was ready to grow, and in the spring of 2017 I hired four people.

Two were consultants in London, each on £38,000, because my best clients were there and I believed they wanted someone in the room. The other two were in Pune: an account manager at 14 lakh rupees a year, roughly £13,000, and a junior analyst at 7 lakh, about £6,500. I moved us into a small office in Koregaon Park and felt very grown up about the coffee machine.

Revenue rose, as I had promised myself it would. That year we billed £210,000, up by half. Here is what it cost to get there. The London salaries came to £76,000, plus about £10,000 in employer's National Insurance and pension contributions. The Pune salaries added £19,500. Recruitment fees were £9,000. The office was £6,000 for the year, and laptops, extra software licences and a second accounting seat came to £7,500. That is £128,000 of new cost, on top of my original £22,000, for a total of £150,000.

£210,000 in, £150,000 out. Profit fell from £118,000 to £60,000.

It was worse when I divided it. Alone, the business had made £118,000 of profit per person. With five of us it made £12,000 per person, less than the junior analyst's salary twice over, and none of that counted my own time. I had gone from about 45 hours a week to nearly 60, and the extra 15 were spent on reviews, rewrites and one-to-one meetings. I was no longer doing the work clients paid for. I was checking it.

I don't blame the four of them. They were capable people. The fault was mine: I had added salaries before I had written down a single process they could follow, so every task came back through me.

In January 2018 my accountant sent the year-end figures with a one-line note. "You have built a very expensive way to work longer hours," she wrote.

I printed it and pinned it above my desk, next to the coffee machine I no longer had time to use.

Revenue per Hour of Attention

The measure I wish I had used in 2017 is simple enough to work out on the back of a bill. Take the money the business brought in last month. Divide it by the hours you personally spent on the business that month: every hour, including the ones nobody pays for. The result is your Revenue per Hour of Attention. Attention here means your own time and focus, the one resource a one-person company cannot buy more of.

It is deliberately crude. It ignores costs, which you will deal with separately, and it counts an hour chasing a late invoice exactly the same as an hour of skilled work. That is the point. Your clients only pay for some of your hours, but you spend all of them.

Run it on my own figures and it is humbling. In 2016, alone, I brought in about £11,700 a month across roughly 195 hours: £60 an hour of attention. In 2017, with four staff, I brought in £17,500 a month across about 260 hours: £67. Four salaries, an office, a coffee machine, and the number moved by seven pounds while profit halved.

To see how the metric behaves in an ordinary practice, meet Meera Shah. She is a composite, drawn from several bookkeepers I have advised, and she will return throughout this book. Meera works from the back bedroom of a terraced house in Clarendon Park, Leicester, keeping the books for twelve small businesses: a florist, two cafés, a physiotherapist, a handful of tradesmen. She charges £35 an hour.

In a typical month she bills 110 hours, so her revenue is 110 × £35 = £3,850. On paper she earns £35 an hour. But when she kept a diary for four weeks, she found another 50 hours that appeared on no invoice. These included answering texts about receipts, reminding clients to send bank statements, reworking a café's muddled VAT records, and chasing her own unpaid bills. Her true hours were 160.

£3,850 divided by 160 is £24.06.

That is the gap between the rate she quotes and the rate she lives on, and almost every hourly freelancer has one. Meera's is £11 an hour. On the first page of her diary, in biro, she had written the florist's name three times and circled it: the client who sent receipts as photographs of a shoebox.

Who Should Not Do This

Some businesses cannot be run by one person, however good the software becomes. If the law requires a qualified person on the premises, as it does for a pharmacy, a nursery or a care home, you are buying staff along with the licence. The same goes for work that happens in a physical place at fixed hours: a restaurant, a salon, a building firm with three jobs on the go. Anything that needs heavy capital up front, such as a factory or a fleet of vans, also falls outside this book. So do clients who will only sign with a firm that has a compliance department. I lost a bank in 2019 for exactly that reason. Their procurement form had a box for "number of employees" and would not accept the number one.

The harder exclusion is temperament. Some people do their best thinking out loud, across a desk, with someone who pushes back. Take that away and they do not become more productive. They become quietly miserable, and the work suffers a few months later.

Daniel Okafor nearly made that mistake. He is the second composite in this book, a brand designer in Manchester who left an agency in the Northern Quarter to work for himself. In his first month alone he took his laptop to a café on Oldham Street every morning, just to hear other people talking. "I don't miss the boss," he told a friend. "I miss the arguments." Daniel stayed solo, and you will see how he did it, but he only managed it once he admitted what he needed and built it into his week on purpose.

If you need a regular salary arriving on the same date to sleep at night, and you have no savings to cover the gaps, wait until you do. Being alone at the top of the company has a cost, and a spreadsheet will not show it to you.

This Week

Keep Meera's diary for five working days. Log every hour you spend on your work or business, paid or not, and mark which hours a customer actually paid for. On Friday, divide what you earned by the total hours. Write that number down, then write the rate you quote next to it. The difference between them is where this book starts.

Meera's diary ran to fourteen pages. The florist appeared on nine of them.