How to Make a Dollar Out of Fifteen Cents!
How to Make a Dollar Out of Fifteen Cents! Or How to Sell a Criminal Search for $7.00 and Earn a $14.00 Profit
How many times have you been pushed out of a competitive situation because you didn’t feel you could compete on price?
There is no reason you can’t be competitive at just about any price level and still make a handsome profit. Lets take a look at one example:
Your standard retail price for a county criminal search is probably in the $9-$12.00 range. Your average cost is probably around $5.00, all depending on volume and how much work you do yourself vs. outsourcing to wholesalers.
Let’s say in order to be awarded a competitive bid you need to get your selling price down to $7.00. Is this still worthwhile? Well, sure it is. Even if you can only make $2.00 on each search, why not make $2.00? Not worth it, you say? Well, look deeper. You can achieve much more than a $2.00 margin because the larger volume should get you lower costs. You can turn what looks like a “puny” $2.00 profit/search into a healthy $14.00 profit/search.
What? I can sell it for $7.00 and earn $14.00 on each search??????????????
Yes!! When you have your own network of direct sources. By doing so, you can get your average data acquisition cost down under $2.00 per county (and that includes still doing a lot of volume through a wholesaler). But you need volume to achieve or even beat this $2.00 target.
Still confused? Look at the following example.
Let’s say you are doing 30,000 county criminal searches per year and selling half at $12.00 retail and the other half at $9.00. With your cost per search at 5.00, your profit (actually your Gross Margin) for this is $165,000.
Now you add a new client who generates 10,000 additional county criminal searches a year, but to get this volume you have to cut your price to $7.00 each. Bad idea? Not hardly!
If you leverage the additional volume to obtain less expensive sourcing, your gross margin per new search will, with only a $3.00 reduction in the average cost per search, jump to $14.00.
Huh? How can I get a gross margin of $14 per search if I am selling the search for $7.00? Well, let’s take a look:
|Current Customer Base|
|Clients||Volume||Retail Price||Old Cost||Profit/search||Total profit|
|Total Profit from existing clients||$165,000|
Add a New High Volume Client
|Clients||Volume||Retail||New Cost||Profit/search||Total profit|
|Total Profit from Old Customers at New Cost||$255,000|
|Total Profit from All Customers at New Cost||$305,000|
|Incremental Profit from all customers||$140,000|
|Value per search from new customer||$14.00|
So, because this incremental volume allowed you the leverage to get better costs, your incremental profit attributable to this one new volume customer is $140,000 or an extra $14.00 earned for each of the 10,000 extra searches.
The amazing power of volume. Sell a search for $7.00 and earn $14.00.
To obtain your free copy of this spreadsheet formula so can put in your own numbers or to get more information on reducing your costs, call Berg Consulting Group, 561-712-1277