Friday's.. philosophical 🍸

No company has ever died from high profits.

That makes one of my observations in the "Obvious but Counterintuitive" column all the more interesting.

Let me start with the obvious..

Revenue is price multiplied by sales volume. And profit is revenue minus expenses.

So, every business globally has only 3 parameters to manage profit: price, sales volume, and costs.

BUT!

The trick is that these parameters affect the final profit in your pocket differently.

And here we start approaching the non-obvious part..

When a business is in deep trouble with profit, teams (from my experience) first try to cut costs. Save money, so you've earned it.

The second most popular line of thought is to increase sales volume. We tweak funnels, hire more salespeople, launch promotions more actively.

And price..

The idea of "raising the price" consistently ranks last on the checklist for getting out of a crisis.

(rather, the opposite - prices are often lowered)

Ultimately, this priority ranking looks something like this:

- 65% of time thinking about costs
- 25% - about sales volume
- 10% - what about the price?


I won't burden you with numbers on Friday (I'll definitely write a case with math later)

To convincingly show you that..

In many cases, the priority of team actions should be exactly the opposite!

Finding ways to increase the price should take up a significant portion of the team's attention.

Because price often has the biggest impact on profit. And its optimization is a very powerful growth driver.

And founders, unfortunately, underestimate this power.

- raise price by 1%
- increase sales volume by 1%
- reduce costs by 1%

can differ significantly in the amount of money at the end


It's just that not many people still love Excel..

They much prefer "trends", "uniqueness", and "scaling". No growth means no prospects.

But an obsession with only market share and revenue size leads even experienced entrepreneurs to forget about the sad consequences of growth without profit.

Of course, there are different niches
Yes, a lot depends on the product
Goals can also be different

There are no universal answers

Today I wanted more about the logic..

First price, then sales, and only at the end - costs

Excel to help us all!

Have a counterintuitive weekend

PS: if you need help tweaking a model or want to know how to raise the price without actually raising it - write / call, invite me for coffee

#willingness_to_pay