I’ve been thinking about things wrong. All wrong.
Well, maybe not completely, but my experience with this one client definitely shifted my thinking.
I sell products to small business owners and focus on one thing: optimizing their bottom line. And from my perspective, that mainly means lowering their costs.
Because after all, Profit = Revenue - Costs, so why focus on anything else? So until now, my goal has been solely to lower their costs, give them what they’re already buying, but at a better price, and have them save thousands and thousands of dollars over the course of a year.
And that was my thinking. And it stayed my thinking until I saw one trend repeating…
Some clients don’t want to tie up their money. Let me restate that. They refuse to tie up their money. They want cash on hand, and they want the perception of no risk. They want to do business how they’ve done it; and it doesn’t matter if you can save them 50% more. They want cash and not to spend anything until they absolutely need the product.
Now I know that might sound confusing, so let me explain further.
I have this one client. And he uses a lot of a certain product. For our purposes, let’s say his name is Jim, and he buys boxes.
My main competitor has been selling Jim a box for $80 a piece. Jim turns around and sells it for $160.
Now I can buy these boxes for $25 a piece. And whatever I sell for is my markup. In an ideal world, I’d sell for $160, but Jim already has all the clients and does volume.
So I approached Jim and offered him 500 of these boxes at $40 a piece. Half his costs! And I thought: ‘There’s no way he’ll refuse that!’
But he did. He refused, and he refused for one big reason: “I don’t want to tie up $20,000.”
And that left me with only a couple options: 1) Lower his costs so he buys; or 2) Get rid of his biggest reason for not buying (aka, tying up money).
So I came back and offered Jim these boxes at $35 a piece. That’s $10 profit for me. Not $15. But no risk. And $5,000 profit total. Not terrible.
Jim on the other hand gets a steal. He gets a $55 savings per box - when he’s been paying $80! Now he’s paying only $35. And so at 500*$55, he’s saving $27,500. Think about that. $27,500 in net value on a $17,500 order. That’s a 157% return! F*ck. He’s saving a lot of money, and will go through all of his inventory in 6 months. So in essence, he’s making another $55,000 a year by buying from me.
I thought, no way he turns me down again.
Yet he did. He turned me down again. And I became confused.
But I went back to the drawing board. I took two days to think about it, and came to one realization: I was giving him what he needs. But what I should give him instead is what he wants.
So I asked him: “If I invest in the inventory, and sell to you at $50 a piece, then will you buy from me?”
His answer, surprisingly: “Yea. Definitely.”
So now, I’m ordering 500 of these boxes for Jim. I’m paying $25 per each. And selling them to him at $50 a piece.
With my old model, I was profiting $5,000 total. $35 - $25 = $10 * 500 = $5,000.
And now: I’m profiting $12,500 total! $50 - $25 = $25 * 500 = $12,500. An additional $7,500. And if I do my job, then I get that $7,500 twice a year, so an extra $15,000 annually!
My capital outlay is $7,500 to buy the boxes. Meaning that by waiting to get that additional cash, I’m making a 100% return every 6 months on financing this transaction. If you look at my increase in profit, that’s a 150% return. Or in other words, an investment that you can’t get anywhere else!
Now of course there’s some warehousing costs, but overall, those costs are minimal, and the profit still stays close to the numbers above.
So what’s the takeaway? First, if your clients are stubborn, then stop giving them what they need, and give them what they want. Second, there’s a lot of clients out there that don’t want to “make the investment”. So make the investment on their behalf, and then charge your 150% “management fee” for doing so. Don’t just sell on price. Sell based on optimizing your client’s cashflow.
Footnote: Jim has bought product from me before and is a client I trust. If for some reason he backs out, I can easily sell at $30 a piece to others, recoup my costs, and make a tiny profit from dumping the inventory. Minimal risk all around. The 150% return more than justifies the assumed risk.
Well, maybe not completely, but my experience with this one client definitely shifted my thinking.
I sell products to small business owners and focus on one thing: optimizing their bottom line. And from my perspective, that mainly means lowering their costs.
Because after all, Profit = Revenue - Costs, so why focus on anything else? So until now, my goal has been solely to lower their costs, give them what they’re already buying, but at a better price, and have them save thousands and thousands of dollars over the course of a year.
And that was my thinking. And it stayed my thinking until I saw one trend repeating…
Some clients don’t want to tie up their money. Let me restate that. They refuse to tie up their money. They want cash on hand, and they want the perception of no risk. They want to do business how they’ve done it; and it doesn’t matter if you can save them 50% more. They want cash and not to spend anything until they absolutely need the product.
Now I know that might sound confusing, so let me explain further.
I have this one client. And he uses a lot of a certain product. For our purposes, let’s say his name is Jim, and he buys boxes.
My main competitor has been selling Jim a box for $80 a piece. Jim turns around and sells it for $160.
Now I can buy these boxes for $25 a piece. And whatever I sell for is my markup. In an ideal world, I’d sell for $160, but Jim already has all the clients and does volume.
So I approached Jim and offered him 500 of these boxes at $40 a piece. Half his costs! And I thought: ‘There’s no way he’ll refuse that!’
But he did. He refused, and he refused for one big reason: “I don’t want to tie up $20,000.”
And that left me with only a couple options: 1) Lower his costs so he buys; or 2) Get rid of his biggest reason for not buying (aka, tying up money).
So I came back and offered Jim these boxes at $35 a piece. That’s $10 profit for me. Not $15. But no risk. And $5,000 profit total. Not terrible.
Jim on the other hand gets a steal. He gets a $55 savings per box - when he’s been paying $80! Now he’s paying only $35. And so at 500*$55, he’s saving $27,500. Think about that. $27,500 in net value on a $17,500 order. That’s a 157% return! F*ck. He’s saving a lot of money, and will go through all of his inventory in 6 months. So in essence, he’s making another $55,000 a year by buying from me.
I thought, no way he turns me down again.
Yet he did. He turned me down again. And I became confused.
But I went back to the drawing board. I took two days to think about it, and came to one realization: I was giving him what he needs. But what I should give him instead is what he wants.
So I asked him: “If I invest in the inventory, and sell to you at $50 a piece, then will you buy from me?”
His answer, surprisingly: “Yea. Definitely.”
So now, I’m ordering 500 of these boxes for Jim. I’m paying $25 per each. And selling them to him at $50 a piece.
With my old model, I was profiting $5,000 total. $35 - $25 = $10 * 500 = $5,000.
And now: I’m profiting $12,500 total! $50 - $25 = $25 * 500 = $12,500. An additional $7,500. And if I do my job, then I get that $7,500 twice a year, so an extra $15,000 annually!
My capital outlay is $7,500 to buy the boxes. Meaning that by waiting to get that additional cash, I’m making a 100% return every 6 months on financing this transaction. If you look at my increase in profit, that’s a 150% return. Or in other words, an investment that you can’t get anywhere else!
Now of course there’s some warehousing costs, but overall, those costs are minimal, and the profit still stays close to the numbers above.
So what’s the takeaway? First, if your clients are stubborn, then stop giving them what they need, and give them what they want. Second, there’s a lot of clients out there that don’t want to “make the investment”. So make the investment on their behalf, and then charge your 150% “management fee” for doing so. Don’t just sell on price. Sell based on optimizing your client’s cashflow.
Footnote: Jim has bought product from me before and is a client I trust. If for some reason he backs out, I can easily sell at $30 a piece to others, recoup my costs, and make a tiny profit from dumping the inventory. Minimal risk all around. The 150% return more than justifies the assumed risk.
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