For several years I have heard successful business leaders say that profits are earned on the margin, meaning that profit is earned on the outskirts of your business, or not necessarily on the core of your offering. It could be your competitive advantage, your unique core differentiator, or your value added product or service that really creates the profit in your business. I have witnessed this in businesses of all types, and if we look around we can find plenty of examples.
I was in a meeting with a client recently and they were showing me a new product they have developed for their customers. It is small product that sells for about $3.00 and it cost them less than $0.25 to have it produced. That puts their profit margin at $2.75 each (or 1,100%). Given their industry and customer traffic, they are selling more than 2,000 of these per week to their current customers that are already coming in to buy other products. Putting pen to paper, that new product is increasing their profits by over $100,000 per year. A simple add-on product that their customers didn’t know they wanted generates an additional $100,000 per year in profit.
We can find examples like this in many industries. It does not cost the theater more than $0.50 to provide you the $7.00 popcorn, yet many of us buy it. When you go to buy a car they are willing to sell you service warranties, special sealer wax treatments, tire warranties, etc. The dealer may not make much margin on the car itself, but there is a decent profit margin on the rest of the add-ons they provide. When you go to a restaurant a soda typically costs $2.75 to $3.00 and it can surely be poured for $0.40. In each of these scenarios the businesses are foregoing profit in other areas and picking it up in the examples that I provided.
Looking at your business, what opportunities are there for you to earn greater profits on the margin of your business? As you are reading this, you may be saying “there aren’t any,” or “we already have figured this out and there is nothing else to add.” I suggest you gather some of the people on your team, either internally or externally, and ask them the same questions. Quite possibly there are products or services that would really increase your bottom line.
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