Imagine you drop a penny in a jar. Every morning, the amount of pennies doubles. So, the following morning you have two, the morning after you have four, and so on. After 30 days, how much money would you have?
Most people would guess around 50 dollars, maybe a hundred. But in reality, by day 30, you would have $5,368,709.12. Over five million dollars! That’s the power of compounding.
If your eyes get wide just thinking about it, you’re not alone. As humans we’re wired to think in a linear fashion, so the idea of compounding is difficult – if not impossible – for us to wrap our heads around. But it’s such a vital component of success, in direct sales and in many other aspects of life. The good news is, you don’t have to fully understand compounding to trust that it exists and harness its power to meet your goals.
Where does compounding come into play?
We often think about compounding in two places: investing and direct sales. It has a huge impact there, but you’d also be amazed at how often it’s part of your daily life! Let’s look at a couple of examples.
Say you’re volunteering to help build a house for a family in need. There’s a hurricane forecasted, and you need to complete the house even more quickly. You’d probably call five friends to come help. Or, you can call those five friends, ask them each to call five friends, and ask all of those people to call five friends. That would give you a total of 125 new helpers, and the house would be done in record time. All because you asked a simple question!
Since investing is one of the most common – and most misunderstood – applications of compounding, let’s take a look at some basics. Imagine you invest $100 in an account that increases by 10% each month. Ten percent of $100 is $10, so after that first month, you’d have your original $100 plus another $10. Our brain likes to take shortcuts, so you may be tempted to calculate it by adding in another $10 each month, for $340 after 24 months. But in reality, you’re earning 10% of the month’s new total. So the math actually looks like this:
Month 0: $100
Month 1: $100 + ($100 x 10%) = $110
Month 2: $110 + ($110 x 10%) = $121
Month 3: $121 + ($121 x 10%) = $133.10
Month 24: $895.43 + ($895.43 x 10%) = $984.97
The difference starts off slow, but it ramps up incredibly quickly, for a return almost three times higher than you’d originally estimated.
How can I make compounding work for me?
Our brain plays tricks on us by driving us toward instant gratification. We let our emotions get in the way of the absolute truth of compounding, choosing to check easy things off the list rather than put the work in for long-term growth. Instead of investing $5 back into our business, we buy a latte. Instead of spending time learning a new skill that’s vital for our growth, we deep clean the kitchen (again). Remember, the benefits of our effort compound, too. The time we put in now grows exponentially to make a real, measurable difference in the future.
Time put in by your advocates will count, too! And it makes those benefits grow even faster.
Our LimeLife Beauty Guides know that when you run your own business, your customers are your greatest advocates. Asking a customer to share with 10 friends, and then asking those new customers to share with 10 friends creates a nearly limitless pool of customers. And it all starts with a simple question! Our LimeLifer customer loyalty program was created to help our Beauty Guides do just that while rewarding our customers for sharing what they love. This is the exact same concept as building the house before the hurricane. You don’t need to be running your own business to take advantage of advocacy and compounding!
In business and beyond, women, in particular, have a hard time asking for advocacy. We limit our potential because we feel like we need to do everything on our own. Read that again. As women and as role models for the next generation, we need to normalize compounding our potential by asking others to advocate for us.
Let’s set a goal for the coming week to put compounding to work for us. Will you invest your coffee money? Ask a friend to post about your latest project on Instagram? Complete your DIY goals with more polish by having a handy neighbor help? I want to hear all about it in the comments!