What You Love: More Profit Through a Pricing Increase & Internships
For our final chapter we discuss more about how to increase profit. It’s easy to see that an increase in revenue or a decrease in cost would make that impact.
To dive a little deeper, let’s look at increasing your revenue first. A fast and simple way to do this is to increase your prices. It’s a simple as that. When we talk with a lot of companies they have never tried to do it. Most of them are super scared to increase their price as they have a big fear around loosing customers. And that’s a real fear that’s associated with loosing the revenue and therefore business. We understand this well, so let’s check and see if this is really true.
For example, let’s say your product sells for $100.
And you choose to make a price increase of 10% to $110. Do you really think that the price increase to $110 will really cause that mass exit of your customers?
Maybe some might leave. And they are the price shoppers and they’ll always be hunting the cheapest option. And when they move to a cheaper company what happens when another cheaper company opens up? Yes, they go straight there! These customers have no brand loyalty and you’re honestly better off without them. You want customers who love and support you.
As you know, a big part of business is the numbers. And we can do a security calculation to understand how many customers you’d have to loose before it made an impact.
With an increase in price, the business is now making an additional $10 per sale. And this is all profit. So, if their profit margin was $30, it’s now $40 and this is a 33% increase.
So, to make a $1000 in profit at $100 each, they need to sell 33.3 items. And for them to make $1000 in profit at $110 each, they now only need to sell 25 items.
Now, here’s the clincher. To Break Even at the new price of $110, they would need to loose 25% of customers! That’s a huge drop in customers that would need to happen and do you really think that 25% of people will not purchase the product because of a price change from $100 to $110? No. Absolutely not! Most people aren’t that stingy.
So, you can safely assume a small price increase will have nothing but a NET positive impact. To determine the most lucrative price increase for your business we need to do an in-depth price analysis but for small increases, you can implement them immediately and see an immediate impact for your business.
To be honest, we don’t know of a faster or easier way to cause more revenue so quickly.
We suggested this in a business the other day and it took him 25minutes to implement. I asked him how much money that will make him over the next 12 months and he said “about $100,000”. He obviously loved the quick improvement we did for his revenue!
What about cutting costs? Yes, it’s a way to generate more profit and you need to be careful to not impact your product quality or internal culture. One of the fastest ways to cut costs is to look at labor costs. You know in your heart who is doing a good job and who puts in the effort for your business…and you know who doesn’t.
You need to be sure that what you cut out in labor costs won’t cause an impact as you implement the other strategies and your business starts growing as well. Then the current staff get overworked and overwhelmed and product quality and culture get impacted.
Having Interns in your business is a great way to reduce labor costs. It can be a bit tricky to find them at the start, and train them, but when you have a good system in place, they can walk right in and start working for you.
The benefit for interns is that you’re giving a junior person experience in the working world and this helps them get real world experience and references for future jobs. We hear of many interns getting hired after their internship because they do such a good job.
To find interns, there are a number of online organisations that specialise in finding interns work, or you can go to your local college or university – students are hanging out for good work experience to put on their resume and out compete the other students. Schools love it as well – it makes them look great for having the connection with industry and providing their students with real experience.
In terms of expenses, you’re generally not obliged to pay them as you’re providing them with training and being accepting of their limited working experience. We’re happy to pay for their lunch and transport and give them introductions to our network if we don’t have ongoing work for them. Having a number of interns throughout the year can save your business thousands of dollars.
- Do you think we could increase your price by a small amount and not be concerned about loosing customers? I.e. Maybe just 5%. Write down how much this would generate for your business over the next 12 months.
- With some of the significant revenue increasing strategies that we’ve mentioned in the book when would you see yourself needing additional assistance to implement? I.e. for operations, or sales, or other role.
- Write down an estimate of how much it might cost for this person(s) to assist you. And add any miscellaneous hiring costs that may be included.
If you don’t see any need for administrative assistance, do you see a need for an intern? If you do, calculate the savings they provide for your business.
In a Capital Raising business we worked with last year, we assisted with integrating 4 interns into the business over the period of 1 year. They supported the business in marketing and events and saved the business a significant amount of time and money – close to $15,000 for each intern ($60,000 for the year).
Add up all the revenue you identified for your business with each of the 8 strategies. Now remember that this is just a conservative amount and it will continue year after year.
The most exciting part of this is that what you’ve discovered is only a drop in the ocean. Why? Well, remember this image at the start of the book: (The Profit Growth Calculator):
The image shows that if you increase each of the 5 Profit Formula Areas by 10% then you see the annual revenue go from $62,500 to over $100,000. That’s close to doubling the profit with only a 10% increase in each.
And imagine what could happen to your business is you increased each of the areas by 50%! Your annual profit would be nearly $500,000. Your business would have some seriously good problems going on with it (i.e. Where to expand to, Who to hire and in what positions, How to keep quality consistent with larger numbers of customers etc).
Now, a 10% increase is nothing to sneeze at and we know a lot of programs and coaches that deliver those kind of results. But how can you seriously get ahead of the pack with those small increments each year?
You need to get in the 50% and higher game. That’s the league we play in. Can you imagine how your business looks with a 50% increase in each of the 5 profit formula areas?
Now, this type of revenue increase is actually NOT the most exciting part. It’s secondary and yes it’s great, but the most amazing part is that you’re turning your business into a machine that works with tried and tested SYSTEMS. Without systems your business doesn’t increase in value, continues to be hard work and is very difficult to sustain as it grows … and also as you grow.
Systems mean self sustaining. Systems mean you can replace yourself and have other people following procedures and processes and produce the same results as the past. The full implication of this is that you don’t need to be in the business all the time. You gain freedom! You can get others to do the work you used to do and you’re now financially free.
That’s how we generate big exits in business. The exit is another book and there’s a real art to it.
If you implement the strategies in this book then you will always have new orders in your pipeline due to emotionally attractive advertising, followup communication that builds trust and JV’s sending you customers and revenue.
Then you’ll have cross-selling, down-selling and up-selling generating additional revenue daily combined with affiliate revenue from alternative products and services. You’ll have higher prices that your customers are willing to pay as you have higher perceived value. And then you’ll have lower expenses and this increases your profit margins.
It’s all proven before in businesses and it’s 100% possible for your business too.
The only thing that’s in your way is getting it implemented in your business as fast as possible.
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