One of the keys to shifting from increasing your profits to multiplying your profits is to employ innovative strategies in your business. If you want to add a zero to your current bottom line, rather than continuing to grow your profits incrementally, you’re going to need a new strategy to achieve that. You’re going to need to rethink your business model so that it can generate multiplied profits.
Here’s a true story of two business owners, both selling the same commodity but with completely different results. One of them approached his business with a traditional business model and made just enough profit to scrape by on. The other used a completely different business model and made his fortune.
No Profit No Loss
Both business owners were poor young men living in rural India twenty years ago who decided to migrate to a big city to seek their fortune. They both set themselves up as sugar retailers; they bought large bags of sugar from the mills and then sold the sugar in small quantities in the local markets.
The first man calculated the cost price of a kilo of sugar and added a ten per cent profit margin to give him his selling price. There were a lot of other sugar sellers selling at the same price so it was a constant fight to attract business, but he managed to make a small profit each week.
The second man also knew the cost price of a kilo of sugar, and sold it to his customers at that price. He was undercutting everyone else in the market, and so gained a large turnover. He went on to become a wealthy man.
So what was his innovative strategy for multiplying profits?
He was selling at cost, so where was his profit coming from? When I ask this question at talks and workshops, the audience give many bright ideas – maybe his large turnover enabled him to buy at a lower cost? N0 – because he was determined to sell sugar only at cost, so buying at a lower cost than his competitors enabled him to sell at that lower price. .
Maybe he set up partnerships with his customers in their businesses by selling them sugar at his cost price? No – because he made money from what he was doing only.
Maybe by selling sugar at cost he became a favourite of the people, stood for election in the Government and became a minister. No – he kept his focus only on growing his business.
The answer is so innovative but simple that no-one guesses it.
The sugar was delivered from the sugar mills in large jute bags, and the clever business man was able to sell these bags at a profit that was far higher than the profit from the sale of the sugar. Because he was selling the sugar at cost, he gained a large turnover of sugar sales, which resulted in a large supply of jute bags. It was the sale of the bags to customers in the packaging industry that gave him his multiplied profits in the long run, not the sale of sugar. He then set up a system of buying small quantities of jute bags from the other less successful sugar sellers, and selling these on at a profit to his packaging industry customers. His innovative business model made him a wealthy man while selling a very traditional commodity.
Age old innovative concept
What he did was to generate a huge database of primary loyal customers by not charging them profit on the cost of their day to day needs; he made his profit from his secondary customers. There are many examples of businesses like this today: Google, Facebook and LinkedIn are a few online examples who are giving their primary customers maximum benefits at zero cost and yet have become very wealthy organisations. Their primary customers are not where they get their profit from. There are examples in the offline world too. Costa Coffee’s main profit generator is the sale of coffee machines and not cups of coffee. McDonalds’ main profit generator is their real estate holdings and not selling burgers. Newspapers are sold at nominal cost, the main profit generator being the advertisements; the higher their circulation figures, the higher the cost to advertise becomes.
Could this approach be applied in your business? Where is the true profit in the product or service you are selling? Just like for the sugar salesmen, it may not be where you think it is. Just focus to be innovative and creative and add value to your customers.
Working with a mentor like Dr Chopra, the Profit Mentor, who is an expert in innovative strategies, could help you explore where the true profit in your business lies. To explore the possibilities for increasing your profits and for creating innovative strategies, book a Strategy Session with Dr Chopra by filling in the form http://www.angloindia.co.uk/book-your-strategy-session/