The Profits Can Be In The After Sale

Go out and buy a computer peripheral in a High Street or Mall shop.  If you haven’t done it for a while you will be amazed at how cheap things have become.  You buy a colour laser printer for just over a hundred pounds. Think how much it would have been even two years ago.  What happens next? You take it to the checkout counter and the salesperson asks you if you want extended warranty cover for a price that is not much less than 30% of the price of the printer.  It’s very good business for the retailer and gives you reassurance that you will have the printer with no further expense for, say, three years.  It’s a win/win.

Now think about the price you will pay when the ink runs out; it could be again up to 30% of the price of the printer.  It’s still a win/win; you got the printer for a pretty bargain price and the retailer and supplier got their profit from the after sales, the ink.
Interesting to think that this way of doing business started with that everyday item the razor blade.  A man called King Camp Gillette, I’m not making his name up, invented the disposable razor and dealt with customer suspicion by more or less giving away the handle that the blade fits on to.  Before Gillette, everyone re-sharpened their razor blades when they got blunt, a tedious and slightly hazardous occupation.  Gillette made them thin enough and inexpensive enough to produce that everyone could simply throw them away when their edge dulled.

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Tip from Shaf – If you’ve covered your fixed costs, the rest is profit.
Many businesses cover their costs with their core business and make very profitable deals out of their add-ons.  It’s pretty much true that a pub covers its costs with its drink and fattens the bottom line with its food, while a restaurant covers its costs with its food and makes its real profits out of the wine list.  Make sure you are squeezing all the available profits out of potential add-ons to your business.

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Cheap package holidays are sold on extraordinarily tight profit margins; so they sell travel insurance amongst other services.  And so it goes on.  Hotels regard the room price as just starters; using the rooms gets the guests into the bars and restaurants.  More or less giving away compost-collecting bins to go in the kitchen allows all the big supermarkets to sell recyclable bin liners.  Shoe shops sell expensive waterproofing cream to go with the shoes, hairdressers flog the same potions as they have just used for their client’s hairdo and… I think you’ve got the idea.
Harking back to a previous blog about breakeven analysis, any manager or business owner needs that vital piece of information to enable them to find other activities whose gross profits go straight on to the bottom line.
Thank you King Camp Gillette, you had an idea that all entrepreneurs can use and customers get value from.
Thinking outside the box is how entrepreneurs find new sources of income separate from their original idea.