Seth Godin wrote an interesting post yesterday on how to make a million dollars in which he breaks down the numbers on how many sales you need at what price point to earn that million.
One popular method is to make a dollar in profit from each of a million people. Or a penny from a hundred million. This is the China strategy. It almost never works.
The China strategy is akin to competing on price, which is generally a bad idea for all but the largest of organization. Wal-Mart can compete on price. You and I can’t. Someone can always price things lower and in truth people don’t buy based on price. They buy based on their perception of the value something offers.
Seth’s point, though is more about the difficulty in reaching so many people. The internet does expand how far we can spread our message, but most businesses know how difficult it can be to turn someone into a customer. It’s usually far easier to convince someone who’s bought once to buy again than it is to convince someone new to buy the first time.
Far easier to make a thousand dollars from each of a thousand people, or even $10,000 from a hundred organizations. You can focus on a small hive of people, a group that talks to itself. You can push through a smaller dip and reach a level of recommendation and dominance that makes incremental sales far easier.
Many people buy cars, fewer buy sports cars, and far fewer buy Ferrari’s. Now I have no idea the profit margins for the auto industry, but I’m going to play a hunch and say the sale of a Ferrari results in more profit than the sale of Volkswagen. Even at its lower price a Volkswagen will only appeal to so many people and only sell to so many people. More than the Ferrari given the prices, but still there will only be so many people Volkswagen can convince to buy no matter what they do.
More people means a more diverse group which means more marketing messages you need to deliver to make all your sales. Let’s take Seth’s idea further for illustration and consider making $1,000,000 from one person. That person isn’t me, but there are people who can afford to spend that much. If you only had to make one sale it would be easy. Find the person you’re going to sell to and tailor your message specifically for him. Whoever that person is there’s something he wants and some way to reach him. One person, one tailored message, one sale, instant millionaire.
Now consider making $500,000 from each of two people. You’re still targeting the same economic class of people, but now you have to craft two messages. There’s likely some overlap between the two messages, but it’s probably close to twice the work to convince that second person to buy. Neither is buying any quicker because the price is lower. If you can afford to spend half a million you can afford the whole million.
Back to the case of selling many people for $1 profit each. How many different marketing messages do you need? Less than a million certainly, but a lot more than one. People have different personality types and need to be persuaded in different ways before they buy. Some people won’t buy a Volkswagen until they know it costs less. Some won’t buy one until they know it gets better gas mileage. Some need to know that an influential person bought one. More people means more marketing messages that you need to create.
How hard was it to make your last sale? How much work went into making that one sale? How much work goes into making 1000 sales? A million sales?
You can find someone to buy at most any price point. As long as they perceive value in your product or service at that price point you can make a sale. It’s really not any easier to sell something for $100 than it is to sell something for $1000 or $10,000. The steps in making the sale are still the same.
In the end it’s far easier to compete on value than it is on price. You can make the same amount of money with less sales. The internet makes it easier to get your message to more people. It doesn’t make it any easier to convince them to buy.
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