Making money

There are thousands of businesses operating on low mark up.

These are the places selling you an item for $1.05 that they paid $1.00 for or maybe you’re paying $5.25 for an item that cost the business $5.00.

Ever wondered how they make money?money_wads

The answer is turnover.

Consider a supermarket. This is a business that people visit at least every week. Some people, like those addicted to fresh food, might visit every day.

Let’s do some maths based on a weekly turnover of items that the supermarket pays a million dollars for and sells to us with a five percent mark up.

Five precent of $1,000,000 is $50,000, so by the end of the week the supermarket has recovered the million dollars, which it uses to replenish the shelves, and put fifty thousand dollars into the account for paying costs and storing profits.

At the end of the year, after fifty-two weeks of trading, the supermarket still has the million dollars required to replenish the shelves for the next week, and it has put 52 x $50,000 into its account to cover costs and store profits.

Now, just in case you missed it – they have put $2,600,000 into that account over the year.

Even if it costs them $1,000,000 to operate the business for the year (around $20,000 a week) they have still accumulated another $1,600,000.

If they borrowed the original million dollars, the annual tax deductible borrowing cost is going to be around $50,000 at 5% per annum, given today’s low interest rate environment.

But the owners would be happy to pay 10% per annum or $100,000 if they had to, because they are making 260% per annum on the million they started with – these guys are making 5% per week on money that’s costing them 5% per annum.

imageIf you think that’s rich, think about the implications if you pay for your supermarket purchases with your credit card. Even if you clear the balance every month to avoid paying interest on the money you borrowed, the bank is still making money.

Banks charge businesses like supermarkets something called a merchant fee. Some businesses absorb the fee in their cost structure while others pass it on, which is why when you buy things online you sometimes find yourself paying a surcharge.

Point to consider is, it doesn’t matter who pays it, the bank gets its merchant fee. When you consider the billions of daily credit card transactions you can see how a low mark up of less than 1% per transaction can be multiplied into massive earnings by turnover.

Okay, you and I are not operating a supermarket or a bank. Can this work for us?

Of course it can. It’s only an operating model and it’s not a secret.

Anyone of us with a low cost item like an ebook, a training course, an mp3 music file or an App can play the turnover game, provided we can present our items to the billions of people shopping online – at a price they’re prepared to pay in exchange – and attract the attention of a small percentage of those shoppers.

What do you think businesses like Amazon, Apple and Google are doing? They’re providing us with the platforms we can use to sell our low cost items – so they can make money on our turnover. Yep, they do what the banks do. They charge us a fee that’s built into the price.

That’s what’s called a win – win.

Share this – so a few more of those billions of online shoppers get the opportunity to consider buying my lost cost items.

Thanks for dropping by, Peter.

Free ebook fantasy

ebook_penguinDo you download free ebooks?

Do you actually read the free ebooks you download?

Do you write reviews of those same free ebooks?

Do you buy any of that author’s other books?

I suspect there are people who only read free ebooks.

That’s their prerogative.

I’m not writing for them.

I’m writing for people who value what they read and willingly pay a reasonable price for a quality book.

The advent of the ebook has certainly lowered the price of access to information and entertainment in book form. Even print on demand books are relatively inexpensive, when you compare today’s prices with those of a decade ago. I don’t have an issue with that. I think prices were unreasonably high in some parts of the world, and not for the benefit of writers, prior to the arrival of online book retailers.

Readers have always had the option of sampling a book before buying. In a bookstore, you always could, and still can, take a book off the shelf and have a bit of a read before making your buying decision. Online book retailers provide a sample that lets you do the same.

Writing is a business for most writers. Books are the products they have for sale. Once writers sold books to publishers, if they were lucky. Now they can sell them to readers as well, and bypass the publishers altogether if need be, using online retailers.

The challenge for most writers is being discovered by readers, both in bookstores and online, and that’s where the free ebook game got started. Some writers believed that by giving away their product for free they would become known, and readers would come back and pay for their next book.

It doesn’t look like a sustainable business model to me. 100,000 downloads at $0.00 per download still equates to zero income, for both the author and the retailer, with no guarantee the free ebook readers will be back to hand over their cash for any other titles.

In my opinion, the free ebook strategy does little more than undermine the value of books.

I’m happy to provide a sample for readers where books are available for sale, and I’m happy to provide free content to showcase my writing through blogging, and to promote my books through available channels.

I understand that ‘word of mouth’, whether it’s face to face or through social media, is still the most effective marketing strategy for books. That’s right, it’s about readers telling other readers about the book. That’s why online retailers encourage readers to write reviews.

My business plan is to publish quality books people are happy to pay for and tell their friends about.

I’m not doing it for the buzz of seeing 100,000 downloads of a free ebook.

Thanks for dropping by, Peter