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
ClientsVolumeRetail PriceOld CostProfit/search
Total profit
A-M15000$12.00$5.00$7.00$105,000
N-W15000$9.00$5.00$4.00$  60,000
Total Profit from existing clients  $165,000
 

Add a New High Volume Client

ClientsVolumeRetailNew CostProfit/searchTotal profit
A-M15000$12.00$2.00$10.00$150,000
N-W15000$9.00$2.00$7.00$105,000
Total Profit from Old Customers at New Cost$255,000
New10000$7.00$2.00$5.00$  50,000
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