Let’s begin with a story. A humble fisherman in the mountains of northwest Arkansas came into possession of a five and dime in the little town of Bentonville.
The fisherman had an idea. Why not take a smaller profit margin in order to offer customers lower prices? Wouldn’t the increased number of customers drawn by the lower prices more than offset the lower profit margins? After all, a 20 cent profit from three customers is actually better than a 40 cent profit from one?
A Fish Story
Everyone told the fisherman he was out of his mind. He would never get enough customers to offset his smaller profits, they said, not in Bentonville. The town was too small. The thing to do was to get as much profit as possible out of each customer and forget this crazy idea. But the fisherman was not so easily deterred.
The fisherman had a quality in his character that was unusual among business people; he wasn’t aiming to strike it rich. But he absolutely loved what he did. He loved retail and he was interested experimenting with new forms of it. More than that, he actually cared about his customers and wanted to do what he could for the cash strapped people of northwest Arkansas. Sam Walton went ahead with his crazy idea and the outcome was Walmart, the biggest company in the world.
The Law of Supply and Demand
As a home based business person you can take a page from Sam Walton’s book. Shift your focus from getting rich to focusing on your customer’s needs and, ironically, you will prosper. In today’s economy far too many people are enamored of the idea of striking it rich. Too many people are trying to work an angle to make a sudden, rapid killing, whether that be in the stock market or in a sensational “why-didn’t-I-think-of-that?” business proposition. Of such things are pyramid schemes born.
A more humble approach, executed with careful forethought, is much more likely to make you happy. Remember, it all comes down to supply and demand. And keep in mind, you yourself are a commodity. There is certainly no easier way to make money in any business than to supply an unmet demand. When it comes to picture framing, it doesn’t take a genius to figure out what customers really want is picture framing at a reasonable price. Yet reasonably priced picture framing is not generally available. This is a text book example of an unmet demand. The question you should be asking yourself as a home based picture framer is, “How can I supply that demand?”
Your Single Biggest Advantage
The answer takes us back to Sam Walton. In order to supply a demand for lower prices Walton had to be willing to take a risk that he could get more than enough customers to offset his lower profit margins. Walton was taking a big risk because Walton’s bricks and mortar presence on Main Street meant he had substantial overhead. If his gambit failed, he would not be able to pay his bills and would be forced out of business.
Home based business people, by comparison, do not have substantial overhead. Arguably, they have little or none, which makes it less risky to reduce prices to generate a customer base. Home based business people should view this as an opportunity, one not easily available to business people who are operating out of a commercial storefront. Home based business people should seize this opportunity.
How Your Lack of Experience Helps You
Novice framers justifiably cite their lack of experience as one of their biggest handicaps. Seen another way this can be considered an advantage. Home based framers in their first year of business need experience more than they need profits; they cannot justifiably expect to prosper until they have gotten that experience; and the best way to get that experience is to perform actual frame jobs – as many as possible.
So the first year framer needs customers, and he cannot expect to attract them if he doesn’t set himself apart in some way from the commercial shop down the street. So out of necessity many home based framers offer lower prices. Many customers see this as a fair trade off; they are getting a lower price in exchange for taking a chance on an unproven commodity – you.
When you perform the frame job well, they perceive it as a bargain. You have won a loyal customer.
Tipping the Scales
But there’s a downside. You didn’t make much money on the frame job, certainly not what you could’ve gotten if you’d charged what a typical frame shop charges. This is where you must shift your focus. Like Sam Walton, don’t get hung up on squeezing the maximum profits out of each customer. Instead, focus on getting more customers. And how can you do that? By charging lower prices.
Six customers in three hours generating a mere $25 each is every bit as good as one customer in three hours generating $150. Actually, it’s better because a.) you are getting more experience; and b.) you are generating more potential return business; and c.) you are beginning to build leverage with your suppliers. One of the unforeseen advantages to having lots of customers is arguably the thing that made Sam Walton so rich, economies of scale.
When to Raise Your Prices
In today’s economy buying goods in larger quantities brings you lower costs. It’s the whole secret to how big box stores exert such a powerful influence in the marketplace; they use the leverage of the entire chain to win lower costs from suppliers. And then, when the big box store reduces what it pays to suppliers but charges regular prices to it customers, it enjoys substantial margins and prospers. And eventually you can do the same.
As soon as the demand for your services outstrips the supply, raise your prices. Think about it like this. Your effort to build a thriving customer base has its limits. Eventually you will have more customers than you need. Once your hours are filled with customers and you can’t take any more, the demand for you is greater than the supply of you. Then you can start raising your prices. You should keep calibrating your prices upward at intervals until demand and supply come back into balance.
At the same time you will be enjoying the lower costs that come from buying in larger quantities. Your prices will be going up as your costs come down, and you will be prospering.
Yet none of this is possible if you are focused on squeezing every last drop of profit out of every customer. Each frame job may be profitable, yes, but there won’t be as many frame jobs, and you will lose the economies of scale that come from greater volume as well as the ability to create a demand for your services that can outstrip supply.
Remember, you are a commodity too. When customers bid your value up by their loyal patronization, that’s success by any measure.
So forget about striking it rich. This is not an overnight formula for success. But if you focus on your customers needs and strive to provide it you will, in time, prosper.