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Do You Have A Large Enough Profit Margin?
Profit margins are important for success. Businesses operating with low profit margins are destined for failure, because with any little glitch that may occur, such as new competition, or an unexpected lack of sales, etc., the business will not have the capital to survive.
The lower you profit, the higher the probability of failure. The only way you can operate on a low profit margin successfully is if you are using the low profit product to draw business for a higher profit item or service. A classic example of this is gasoline stations. If you are depending on profiting only from the sale of fuel, then you have to sell thousands of gallons an hour just of cover your basic expenses.
On the other hand, if you sell back end items like coffee and groceries, if you have a fast food outlet incorporated into your station, or a carwash, etc., then the gasoline is used to draw the people in and you make your profit on the other items.
Lets look at another example:
Your selling a "How to Video" and you cost is $3.29 (this includes duplication/and production based on 1000 units). Say you are selling the video for $39.95 retail . You have a profit of $36.66 per video tape. This gives you a huge advantage for success because you can afford to market your product effectively and still make money.
Lets take the same example using a different strategy:
Your cost is the same $3.29, but to sell more videos faster you price the video at $9.95 retail. This leaves you with just $6.66 profit per unit. Your chances of success are much slimmer now because you can't afford to do as much advertising. Neither can you you afford to try new advertising techniques, which being experimental by nature, contain inherent risks of low response that you now can't afford to test.
Now both examples show different profits. But you have to keep in mind that you still have fixed operating costs. You have to pay rent, utilities, interest, wages, etc.
The bottom line is if you are marketing a product with low margins, your chances of success are slim. Look for products with HIGH profit margins so you can easily market them, pay your operating costs and have enough money left for yourself.
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