Make More Money: Three Areas Of Focus To Generate Profit
As an entrepreneur, unless you have investors, you’re most likely bootstrapping your venture. Looking to the startup world as an example, we’re often shown that it’s important to focus on growth over revenue. We’ve seen plenty of startups 2-3 yrs in business with no revenue due to the fundraising abilities of its founders.
However, as Entrepreneurs of Color, we’re not often afforded the same funding opportunities as our counterparts, it’s almost always crucial for our ventures to make money from launch; it’s sink or swim. This isn’t the case for every EOC, but it’s the case for most of us, so revenue and profit is often how the success of our venture is judged.
Three key areas of focus for generating profit for your venture.
- Price your product/service in relation to the benefit it provides, not to cost of producing it.
- Offer customers a limited range of prices
- Get paid more than once for the same thing (subscriptions/reoccurring revenue)
Lets break down each area of focus.
Key 1: Price based on benefits vs cost
We often talk about the features of our products or services, but truthfully, most consumer purchases are emotional, making it much more persuasive to talk about the benefits of your product/service instead.
Features: “These clothes fit well and look nice” vs. Benefits: “These clothes make you feel healthy and attractive”
For the same reasons that you would highlight the benefits of your service or product, you should be setting your pricing based on benefits instead of the actual cost or time it takes to create, produce, fulfill, what you are selling. According to Chris Guillebeau, author of Side Hustle and $100 Startup, the wrong way to decide on pricing is to think about how much time it took to make it or how much your time is “worth”.
When pricing based on benefits, it is important to stand firm in your decision as there will always be those who feel your prices are too high, or not worth what you’re offering. What works for Walmart or Amazon isn’t always going to work for you, so competing on value is better than competing on price.
Key 2: Offer a limited range of prices
Now that we’ve chosen to price our product/service based on benefit, it’s time to ensure profitability. One way to create optimum profitability, or to build a cushion into your business model is to present more than one price for your product/service offerings. With this method you can usually increase your bottom line without drastically increasing your customer base.
Apple is the king of limited variable pricing, check out the lineup for their new Macbook Pros
You can see price jumps ranging from $200-$300 dollars, but if you look at the specs, the differences in machines aren’t that drastic. the additions of a port here, or .1 GHz there gives buyers that illusion that they are getting more for their money, they’re almost always likely to choose the highest option.
The key to this strategy is to offer a limited rang of prices, just enough to to provide buyers with a legit choice; Offer too many price ranges, and it can create confusion. What happens when you offer your customers a choice is: instead of asking them whether or not they would like to buy, you’re asking them WHICH product they would like to buy.
Key 3: Get PAID! More Than Once
The final key for making sure you maximize your profitability is to ensure that you payday is everyday (or weekly/monthly). I’m sure you heard the terms continuity program, membership site, and subscriptions; They all mean the same thing: reoccurring revenue.
Creating a system for reoccurring revenue is important because it can generate a lot of money, and it’s a reliable source of income. Let’s look at an example based on a $20/mon subscription service:
100 subscribers at $20 = monthly revenue of $2,000 ($24,000 yearly)
1,000 subscribers at $20 = monthly revenue of $20,000 ($240k yearly)
See what i’m saying? as your subscriber base grows, so does your revenue, and it exponential. A little tweak to either price or the number of subscribers can yield dramatic improvements. Adding 50 more subscribers generates $1,000 more per month ($12,000 more per year). Raising the price to $25/month with 1,000 subscribers generates an additional $5,000 more per month ($60,000 more per year). Now you see why Netflix keeps raising their prices.
One thing to be aware of with a subscription or reoccurring revenue model is that customers can sometimes be wary of them, fearing that they will be billed for services after they’ve stopped using them. Its extremely important that you make its super easy for them to cancel at any time. A hassle-free cancellation process will help boost purchasing confidence because they customer know’s they have an “out” and wont have to jump though hoops to get there.
Entrepreneurship is a constant game of tweaks and adjustments to ensure that you’re hitting that perfect medium of happy customer and profitable business. There’s no 100% correct way to do it, but the key is finding the system that works best for you and your specific business.
What are some techniques or systems that you use to boost profitability in your business? Share them with us in the comments.