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Know Your Numbers

Say what? I thought business was supposed to be fun.  It is; especially if you’re still in it, making a profit twelve months after you begin.  The fault with most businesses is what I call the watermelon problem.

You have of course heard of the watermelon problem haven’t you?  OK, this is the story….two guys start one Saturday morning with a truck full of watermelons, a good location and a sign.  By four p.m., they sell all their watermelons.  They’re ecstatic!  “Sold out by four,” says one to the other.  The other replies, “but we only got enough to cover expenses.”  The answer from the first guy…”I guess we need a bigger truck!”

Funny, isn’t it?  A whole episode of I Love Lucy was once dedicated to this very subject.  Lucy went on TV with a mail order product, sold out in minutes, fulfilled her orders and then Ricky did the accounting.  It turned out that Lucy lost money on each order.

How can this happen?  It’s simple.  Most people mark up their products with too little mark up.  Or, they’re fat with expenses and overhead.  Either one of these oversights will put you into the poorhouse fast.

Always remember that you have to get at least a four-to-one mark up or better from your cost to what you sell for.  When I speak to people who will tell me that they are going to buy something for $10 and sell it for $15, I explain to them that firstly, they haven’t read, listened, or watched what I teach.

Sure, some products have low mark ups because they’re looking for long term customers.  Some people lose money on the first sale just to get new customers.  They of course know that they can lose money up front to get customers.  Music subscriptions, health clubs, vitamin companies all use this technique.

My advice is to make your profit in the first sale when you begin, for two reasons.  One, losing money on the first sale works well if you have enough money to lose, and you know for certain that people will buy more from you.  Secondly, you know how much you can afford to spend to get a new customer.

Until you know these things play it safe.  Make money on the first sale.

Always start with little overhead and then build from there.  A lot of people build monuments to their egos.  They spend a fortune on start-up and then can’t sell snowshoes to Eskimos and then wonder where they went wrong.  I live in a community where a lot of folks move to for the lifestyle and great weather.  Many that move here want to start a business and they are very capable of spending money, yet they are incapable of getting customers.  Anyone can waste money.  A smart person starts small, and realizes…

  1. How many sales are needed daily to cover expenses.
  2. Each dollar spent in advertising has to return at least three dollars.
  3. Everyone is asked to buy, and gives them a reason to do so right now.
  4. The need to get the name and number of each customer and to try to sell them something else.

This is so important to understand.  Start small, buy low, sell high, then once you know what you can afford to spend from each sale, expand.  Watch out for fast expansion; it can kill you.  I’ve doubled sales month after month, in many cases, for three or four months and every time I learn from it.  The one lesson I can share with you above all else, is know your numbers.