Why is it important?

Toon underscores the imperative for boutique professional service firms to diversify their revenue streams by strategically exploring passive income opportunities.

Although conventional wisdom has long advocated for boutique firms to specialise narrowly, Toon argues that depending on a single income source is unwise in any economic climate.

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“While, traditionally, we’ve been told to niche down and focus on one type of service, or client, the truth is it’s never wise to rely on one source of income – in any financial climate,” she said.

Toon advises that adopting passive income strategies not only mitigates financial risks but also supports firms in maintaining a stable client base while adeptly navigating prevailing economic challenges.

“But equally, as people struggle with the cost-of-living crisis, your pricing becomes a higher barrier to work with you, reducing your client roster.

“Now, of course, everyone will always need lawyers, but you could find your loyal regulars seeking other firms as they hunt for lower prices,” she said.

The biggest opportunities

Toon identified strategic opportunities for boutique professional services firms to generate passive income by transitioning from bespoke services to scalable, one-to-many solutions.

“Most lawyers work on a 100 per cent ‘done-for-you model’, so the opportunity lies in ‘done-with-you’ and ‘do-it-yourself’.

“It lies in discovering ways you can take your one-to-one model and offer it one-to-many. Whether as a lead magnet into using your services or as a product in its own right,” she said.

By shifting from a one-to-one service model to a one-to-many approach, Toon expressed, firms can significantly broaden their reach and attract a more extensive client base.

Additionally, Toon recommends that boutique professional services explore opportunities to offer lower-cost solutions for clients with limited budgets, expanding their reach and sustaining client engagement.

“Of course, there are boundaries, but if someone doesn’t have the budget to work with you as a client, try to think of ways you can still help them and still support them for less,” she said.

Examples of passive income streams

Toon discussed several effective passive income streams that boutique professional service firms can implement to diversify their revenue streams and bolster financial stability.

One of the effective strategies Toon outlined is the development and selling of legal templates and checklists, which offers a cost-efficient method to deliver continuous value to clients while generating a steady stream of income.

“Legal templates (downloadables) are an easy starting point, creating generic templates and checklists that your customers can buy to help them with some aspect of their legal journey. They take some initial investment to create and sell and are relatively low cost, but they can be a nice regular source of income,” she said.

Another promising avenue Toon highlighted is the creation of membership programs and online courses, which not only generate passive income but also cultivate a supportive community centred around the firm’s expertise.

“Memberships and courses are another option, teaching either other lawyers or potential clients how to prepare for or manage the legal process they are focused on.

“An example could be a divorce lawyer who has a group membership for those going through divorce. The community is not just about education or information; it’s also about providing a safe space, and the chance for a group to share their experiences,” she said.

What initial steps to take

Toon provides strategic guidance on the initial steps boutique professional service firms should take when exploring passive income opportunities.

She recommended “that the first step is to investigate the ‘done-with-you’ model, potentially running live coaching sessions and workshops – in person and online”.

By adopting this approach, Toon has recognised its potential to assist organisations in evaluating multiple factors, including whether “you’re a good speaker and can build connections,” if “there’s a market for the products you want to sell”, and if “you actually enjoy it”.

The potential risks

Despite the potential benefits of passive income strategies, Toon delineated several risks and challenges that boutique firms must carefully navigate.

Among the magic concerns identified by Toon was the prevalence of impostor syndrome.

“I think you’d need to be aware of impostor syndrome and worries that other lawyers might frown upon your efforts,” she said.

Additionally, Toon revealed another critical risk is the misconception that substantial passive income can be achieved rapidly. Unlike the allure of rapid financial gains, establishing a reliable passive income stream often requires years of consistent effort and patience. “It’s also not a get-rich-quick scheme; it can take several years to build up passive income to the level where it surpasses your potential earnings working one-on-one. Patience is often a problem,” she said.

The future of passive income

Looking ahead, Toon articulated her vision for how passive income will contribute to the sustainability and growth of boutique professional service firms.

Tonn observed that, regardless of one’s commitment to their firm, there inevitably comes a juncture at which stepping away from daily operations becomes desirable and appealing.

“I think no matter how much you love your firm, there will come a point where you want to step away from the day-to-day, and unfortunately, that day may come before you have the financial wherewithal to move on,” she said.

She explained that passive income can be instrumental in bridging gaps during periods of reduced client activity and sustaining a firm through challenging times while also presenting a potential pathway to achieve complete financial freedom.

“Passive income can play an important role in feeling the breach when client rosters are small and sustaining your firm in tough times. They can, however, also be a path to complete financial freedom,” she said.