Increase income without increasing production level
One of the first things that always come to mind when we deal with scenarios where there is a restriction in place is the 80/20 principle.
Pareto principle:
The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes. In other words, a small percentage of causes have an outsized effect.
This concept is important to understand because it can help you identify which initiatives to prioritize so you can make the most impact.
Basically, with any business scenario that has constraints (which is all of them) you look at the 80/20 and the next most viable most important obstacle.
In any business, a certain type of product or customer or service that you sell (to) will be a responsible for a disproportionate percentage of profits.
Could be 70/30, could be 80/20, 95/5, 65/35.
Easiest way in every business to increase profits is to increase prices.
Second easiest way is to identify the prospect type or the service or the product that makes you more money and figure out how to sell more of that.
In a simplified sense this is the way this works:
Increase price = probably less customers but more profit per customer. Which allows you more marketing budget to reach the type of customer you want anyway.
Which allows you to fill up your roster again. Which allows you to increase price again and the whole thing starts over.
Price is much more elastic than you know. You think you have a sense of how elastic price is. But you don’t. It’s similar to realizing how BACK we are. We are the backest.
According to a reliable source (the first Google result) Ronaldo makes 22k/hour. So price elasticity is real.
Now if we want to increase profits without increasing production there’s only two sides of the coin here. Either we make more per customer or we spend less per customer. And the probl;em is that spending less is always more limited than making more.
How do we increase prices without pissing off your customers?
And potentially alienating them
The only reason this question pops into your head is because of BROKE PEOPLE.
Broke people are the most annoying people to sell to anyway. So if you increase price and they leave? Good riddance! Awesome!
They suck up most of your margin anyway.
If you find your niche or your customer base that you can serve best and you sell more stuff to them, you will discover that their price elasticity tolerance is much higher than you selling a commodity.
So the right way to test is probably in relatively normal increments that wouldn’t kill you or the relationship immediately. Let’s say you’re charging $500 now, it’s quite doable in almost every scenario to change pricing to $575. Or $600. See how many people get a heart attack. Replace the dead ones. And now you’re making more money!
This is also why discounting is such a long-term losing proposition. Discounting really hurts the bottom line.
“Selling a premium burger for $1 negatively impacts the bottom line”
If you’re a hero to your client and they LOVE your product… it’s easy to charge more. And they’ll happily pay.
And in some cases they will even tell you that they didn’t understand why you were charging so little.
Bottom line = money you pocket. Money after expenses.
So, in summary:
Increasing price is the quickest way to increase profits (and vice versa)
Do the Pareto analysis on your current customer base and the services you sell and the products you sell and figure out what is making you disproportionately more money. If you can’t find it, it means you’re not looking hard enough. IT IS ALWAYS THERE.
DON’T SELL TO BROKE PEOPLE. IT WILL SUCK THE JOY OUT OF YOUR LIFE LEAVING YOU A LIFELESS HUSK OF A HUMAN BEING
I don’t go to low cost and discount places because it makes me physically uncomfortable. Go there tomorrow, spend 30 minutes browsing and you’ll see what I mean.
