Low Margin Products vs. High Margin Products

by David Bullock

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,

David Bullock

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