Low Margin Products vs. High Margin Products
As I observe people looking to start a new business, too many times they shoot for the mass markets, commodity markets and no-margin markets.
They ignore the niche markets, low-volume, low-competition and high-margin markets.
Going back to my experience as a sales rep in the industrial equipment space… at any given time, I had only 10 to 15 customers with only three to five competitors. And in that seemingly small market, with seemingly no competition, over $100 million in sales was produced.
This very experience flies in this in the face of most of the business advice currently being doled out in the marketplace.
Money is not made in the commodity space unless you are able to produce large volumes of sales and transactions. To make significant earnings with a $10 profit margin will take a long time. However, leveraging $100 profit margin gives a business owner room to market. More importantly, larger profit margins allow the business owner room to make mistakes as offers are being tested in the marketplace.
Using that argument, if I were starting a business today, I would look for larger profit margins and the products that I sell, and not concern myself with the cost-to-gross earnings ratio.
For example, if I can buy for one dollar and make three dollars, that's a great return on investment. I will also have a marketing budget built into the product. But if I can buy my product for $100 and sell it for $1,000, I have $900 to play with in terms of marketing, fulfillment and delivery of this product to the end user.
See the difference?
This distinction of profit margin is huge, and makes or breaks businesses every day.
Take this thinking and evaluate your business accordingly. See just how much room you have in each sale for marketing and promotion. I believe that you'll be surprised with what you find as you look within your business.
Til Next Time,
Filed under Blog, Marketing, New Thinking, Sales by David Bullock
Comments on Low Margin Products vs. High Margin Products »
Once people find about the high-margin niche, they are going to jump into the market in no time. How do you find marketing for low vs high margin products?
Which is harder? Are they exactly the same?
Hi Henry:
*How do you find marketing for low vs high margin products?
The sequence is the same. No more effort. Just more leverage. The high margin (high profit) products are more forgiving in terms in marketing budgets
*Which is harder?
Neither is hard. It is a matter of matching the offer with the market. All of it wil take time and expertise.
*Are they exactly the same?
Never exactly the same. Some transfers in technique. But again it is all about matching the offer, product and market. The best policy is to approach every market as new and not have any hard and fast fixed ideas. Otherwise, you may make mistakes based on your thinking and not market observation.
Thanks David. I appreciate that.
I enjoyed your post and stumbled it. One thing about your post that I notice is that the niche markets are too often seen as just in your own country. An American selling to an American. There is a big old world out there, loads of countries with loads of niche markets that are open for business. Russia is starting to spend big time and Central/South America is a primarily Spanish speaking area - translate your site and sell in Spanish (or Chinese, French or…).
I stopped by to tell you that I’ve just published your article on the most recent Marketer Review Blog Carnival. Come by to vote on the best post of the 31 posts this week. Use the social media of your choice to help get traffic back to your site.
Remember that Friday is our deadline for new articles, so mark this Friday on your calendar as the latest that you can get to Blog Carnival to submit for next week.
Cindy,
Thanks for the stumble.
You make a great point. We in the US are very much in a fish bowl. Only a small percentage of the world speaks English as compared to the other languages. There is a wide world out there that is looking for good information.
The foreign markets are the true profit opportunities. I will look into the translation of the site. Thanks for the suggestion. I am in the mist of massive upgrades and this will be added to the list.
I will check out the Blog Carnival. Sounds interesting indeed.
That is totally true. Despite what some people seem to think, there are still many tight niches with little or no competition, and to make it even better, most of these niches are for fairly expensive items.
That means more profits, and in this slowing economy, the rich still get richer, so it can mean more sales also.
Jeffs last blog post..Zenith
@Jeff
I have always been a fan of going where the other guys are not paying attention. Couldn't agree more.
Expensive is better for sure.
Hello David. Great post. How do I go about findin the niche markets, low-volume, low-competition and high-margin markets? Thanks