Gain a Competitive Advantage: Get Your Numbers Right
Do you know how to be successful? The name of the game is “profit.” Everything you do in your business, every number that you calculate and consider, every point of focus and concentration must be aimed at generating profits of some kind in order to gain a competitive advantage.
Your profit margin can be defined as “the excess of revenues over costs.” You earn profit when you sell a product or service at a price that is greater than the total cost of bringing that product or service to market.
How to Be Successful: Pricing Your Products and Knowing Your Profit Margin
Sometimes I ask a group of business owners, “Who sets your prices? Who determines your profit margin? Who determines what you offer, to whom you offer it, and how much you sell? Who determines the entire course of your business in a competitive market?”
Almost invariably, the first response I get is “I do!”
Then, I gently point out that this is not true. I tell them, “In reality, your competition determines how much you charge, how much you sell, who you sell it to, your profit margin, how fast you grow, and almost everything else about your business.” If you know this, you will then know how to be successful.
Gain the Competitive Advantage
Business is like warfare in a certain way. In warfare, most strategy is determined by the enemy. It is determined by what you need to do to defeat your enemy and what your enemy is likely to do to counter your actions in order to defeat you.
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In order to know how to be successful, you must be looking in two directions simultaneously. You must be intensely focused on your customer service and customers, on who they are, where they are, what they want and need, what they will pay for, how they buy, and every other factor about them. At the same time, you must be intensely focused on your competitors. Remember: your competitors get up every single morning and think all day long about how to put you out of business. They think about how to undercut your prices and steal your customers. Just as you are focused on sales and profits, so are they. From the day you begin thinking about being an entrepreneur, your competitors will have a major influence on every decision you make and how successful those decisions turn our to be.
Your Goal in Business is Excellent Customer Service
Your goal in business is outstanding customer service and to achieve a “meaningful and sustainable competitive advantage.” This means that you build into your product or service specific benefits and advantages to the customer that no one else offers and provide excellent customer service while doing so. You create or discover your “unique selling proposition.” You then seek out those specific customers in the marketplace who want, need, and are willing to pay the very most for what it is that you do or offer better than anyone else. This is the key to business success.
Nonetheless, you need to think carefully about your prices. Prices are subjective. There are no hard and fast rules for setting prices on a product or service. There are only “guesstimates” of what customers will pay and of what the market will bear. Your job is to determine a price that is the very highest price possible that you can charge without losing your customers to your competitors.
The Market Clearing Price
In economics, there is a concept called the “market-clearing price” This is the price at which all buyers can purchase all the products or services of a particular kind that they want and at which all sellers can sell all the products or services that they offer. At the end of the day, everyone is satisfied: all buyers have purchased everything they want and all sellers have sold everything they have offered. This is the ideal price, the market-clearing price, in any market.
Whenever you see a discount sale at any business, and especially in retail operations, you see an example where the people who priced the products guessed wrong. They set a price that was too high to enable them to sell all they had offered to buyers at that price. As a result, they are forced to guess again. They must lower the price and attempt once more to clear their stock and recoup their investment.
Never Be Overstocked
To understand how to be successful, take a look at other successful businesses. One of the reasons that Walmart is the most successful retail operation in the world is because of their policy of “Always low prices.” Because of their highly sophisticated, satellite-controlled inventory and distribution systems, they are never overstocked in any store.
When you shop at Walmart, you know that it is unlikely that Walmart will be discounting that product in a clearance sale a couple of weeks from now. You also know that. Because of Walmart’s ability to purchase in massive quantities, you are probably getting the best price possible for that particular item. As a result people shop at Walmart with complete confidence, to the tune of almost $300 billion per year.
Always remember the Japanese proverb, “Making money is like digging in the sand with a pin; losing money is like pouring water on the sand.”
Your ability to do accurate costing for your products and services, and then to set proper prices for what you sell, can make all the difference between profits and losses, success and failure.
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How to be Successful
About Brian Tracy — Brian is recognized as the top sales training and personal success authority in the world today. He has authored more than 60 books and has produced more than 500 audio and video learning programs on sales, management, business success and personal development, including worldwide bestseller The Psychology of Achievement. Brian's goal is to help you achieve your personal and business goals faster and easier than you ever imagined. You can follow him on Google+, Twitter, Facebook, Pinterest, Linkedin and Youtube.