Do You Understand Compound Interest for Your Coaching Business?
I've been focused on quite a bit of investing recently, both personal and people that insist on acting like I'm a professional and ask for financial advice, which I NEVER give. But after speaking with a few people who are starting to do really well on Skool this week, a similar pattern emerged, and my favorite way to describe it is to say you're getting compounding interest on your consistent, focused activities. So, I decided to explain, to myself and share it with you. I was hired to teach compounding to new financial advisors about 30 years ago, and I can't ever get this out of my head. Let's see if I can make a financial concept clear enough to adapt it to your coaching businesses. It's a long read, so the TLDR version: Compounding efforts are cumulative, but you need to actively engage 5 "levers" consistently to make this work. Honestly, I don't, yet. First, the classic explanation of compound interest (money version). Compound interest is often called “the eighth wonder of the world” because it makes money grow exponentially instead of linearly. The formula is: A = P × (1 + r)^t Where: - A = the final amount you have - P = the principal (starting amount) - r = the growth rate per period (usually yearly) - t = the number of time periods (years) Example with money: You invest $10,000 at 10% annual interest, compounded yearly. - After 1 year: $11,000 - After 2 years: $12,100 - After 10 years: ≈ $25,937 - After 20 years: ≈ $67,275 - After 30 years: ≈ $174,494 Notice that in the first 10 years, you roughly 2.6x your money, but in the next 20 years, you go from $25k to $174k. The growth accelerates because you’re now earning interest on your interest (and on the interest on the interest…). Now, the same formula is applied to growing a coaching business. A coach’s business compounds in almost the same way, but the variables mean something different: A = P × (1 + r^t) - P = Your starting number of clients (or starting revenue) - r = Your compounded monthly (or yearly) growth rate coming from multiple levers - t = Time (usually measured in months or years) - A = The size of your business in the future (clients, revenue, impact, freedom)