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The 5-Step Profit Formula Explained with Adrian Ulsh

by | Adrian Ulsh, Business Coaching Fundamentals | 1 comment

In several of our previous posts, we’ve been discussing the 5-Step Profit Formula.

There are five critical steps that every small business owner MUST address in order to attract new clients and generate more revenue… leads, conversions, average sale value, number of transactions and profit margins. We want to show you how to increase each of these 5 critical metrics for your coaching practice as well as your client’s business.

In our last post, we discussed various ways you and your clients can generate more transaction; in other words, getting them to buy from you more frequently than they do now. We discussed upselling and cross-selling along with some creative and innovative ways you can apply this strategy.

Today, let’s discuss average sale value… aka pricing. I like to use a “bundling” strategy here. Bundling is simply the process of grouping together certain products to create ‘packages’ which are then sold to clients. When you do this, you completely eliminate the biggest complaint small business owners have these days… competing on price.

Every business would love to increase their pricing, but they NEVER do as they fear alienating their customer base. Bundling removes price from the equation by creating an “apples to oranges” comparison. You have to remember that customers today shop value… NOT PRICE! Unfortunately, small businesses are LOUSY at conveying their “value proposition”… so therefore, price becomes the only value proposition left to consumers.

The real key to success in marketing is to offer more value than your competition. Prospects will pay twice the price if they believe they’re receiving four times more value. Unfortunately, most businesses… in a vain attempt to increase their value… begin to offer discounts, and that often destroys their margins. Did you know if some businesses discount their price by a mere 10% they now have to sell 50% more just to break even?

For example, if you sell a widget for $100, and you have a 30% profit margin, you make $30 for every widget you sell. That means your cost basis for that widget is $70. If you discount that widget 10% and sell it for $90 instead of $100, your cost basis is still $70. Now you’re only making $20 in profit instead of $30.

For this business to make $1000 in profit selling their widgets at $100 each, they would need to sell 33.3 widgets ($30 X 33.3 widgets = $1000). But by discounting their price 10%, now they need to sell 50 widgets ($20 X 50 widgets = $1000). They now have to sell 50% more widgets just to get back to their original profit margin.  (33.3 X 1.5 = 50).

But consider this… when was the last time you saw a business offer a measly 10% discount? Most of the time they offer 20% to 40% discounts… and then they scratch their heads wondering why they’re going broke. And to add even more bad news on top of this already bleak scenario, did you know that the latest research shows that discounting doesn’t actually impact a prospect’s buying decision unless that discount is for 40% or more?

Want to know the closely guarded secret that successful businesses DON’T want you to know? STOP discounting!!! Instead, innovate your business so you offer more value than your competition… even if that means increasing your price. When you discount your price, you lose the full value of every dollar you discount. Bundling increases the perceived value so prospects buy more.

Consider a home builder or remodeling contractor. They typically contract with certain suppliers that offer them huge volume discounts… especially for electronics. One builder agreed to buy multiple packages of a whole house entertainment and security system including… a 50 inch HDTV, a complete high quality surround sound system, a complete home security system including surveillance cameras at all entry points to the home and a complete fire protection and monitoring system.

The retail price for this package was $22,800 installed… but the builder acquired them in volume for around $6500 since installation would not be part of their costs. Since the builder already has the home stripped to the studs, installation can be handled during the actual project by their crew for pennies on the dollar. Now imagine this builder competing with other builders in a moderately priced neighborhood. All the builders offered homes in the $150,000 price range.

Our builder offered their home for $156,500… which included the additional $6500 out of pocket expense to the builder… and their home comes standard with a $22,800 home entertainment and full security system for FREE! Which builder would you buy from? In fact, what if this builder offered that new home for $160,000? Do you really believe that additional $3500 would prevent anyone from buying this home?

And does it still look like a MUCH better deal than the $150,000 home without the system? If the additional $3500 increase did make a difference due to loan qualification standards for certain prospects, the builder always has the option of reducing the price back to $156,500. They could even maintain their original price of $150,000 and lower their profit margin on each home sold.

This would allow them to possibly double their normal sales volume and practically double their overall profits every year. After all, they’re still making around a 30% profit at $150,000. A home remodeler could use this same type of positioning for every remodeling job they bid on. Are you starting to see the potential here?

But consider this fact. In the case of the builder, the home security and entertainment system wasn’t something they normally dealt with. It wasn’t a product they typically carried. They simply discovered that this was something their prospects wanted to have included in the homes they were purchasing… so the builder went out and created an affiliate relationship with the home electronics provider and wound up doubling their sales and profits.

As you work with your clients, look for various products and / or services they could bundle together with their main offering. Assign a fair price for it based on the new value it offers, and watch the sales soar.

Until next time,

Adrian Ulsh

 About Adrian Ulsh

Adrian Ulsh is the CEO for Leader Publishing Worldwide, the largest online provider of coaching services worldwide. Adrian currently works with more than 500 coaches in 24 countries advising them on building 6 and 7 figure coaching practices.

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1 Comment

  1. ww88ap.com

    That is a good tip particularly to those fresh to the blogosphere.
    Simple but very precise info… Thanks for sharing this one.
    A must read article!

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 About Adrian Ulsh

Adrian Ulsh is the CEO for Leader Publishing Worldwide, the largest online provider of coaching services worldwide. Adrian currently works with more than 500 coaches in 24 countries advising them on building 6 and 7 figure coaching practices.

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