Margin Madness Ep 219

Summary Notes


In the Gym Secrets podcast, the host emphasizes the importance of understanding and protecting profit margins in business, particularly for service providers who often overlook the cost of time. Through a personal anecdote from his youth working at Smoothie King, he illustrates the lesson learned about revenue not equating to profit. He warns against the common pitfalls of new business owners who negotiate prices and undervalue their services, suggesting instead that they should focus on improving sales skills and maintaining price integrity. Additionally, he advises on strategies to increase margins without increasing overhead, such as offering payment plans that cover potential losses. The host concludes by underscoring the critical difference between revenue and profit and the necessity of adhering to one's determined worth.

Summary Notes

Understanding Business Margins

  • Awareness of margins is crucial in product-based businesses like selling smoothies.
  • Service-based businesses often overlook the cost of time for themselves and employees.
  • Margins are essential for profitability; discounts can eliminate them.
  • The story from the speaker's past job at Smoothie King illustrates a lesson on margins.
  • Revenue does not equate to profit; understanding this is vital for business success.
  • Businesses, especially new ones, should avoid unnecessary discounts.

"When people have a cost of goods, when they are like, you know, selling smoothies or they're selling products, right, they usually tend to be more aware of their margins in service."

This quote highlights the tendency for product-based businesses to be more margin-aware compared to service-based businesses, which often forget to account for the cost of time.

"You just gave away our margin. He's like, that's all I was trying to make on these drinks, he's like, we don't make 100% of the money that we bring in, right? He's like, this business runs on 15% margins."

This quote emphasizes the impact of discounts on profit margins, using an anecdote where a manager inadvertently gave away the entire margin as a discount, leading to zero profit from that transaction.

Revenue vs. Profit

  • The speaker had a realization at a young age that revenue is not the same as profit.
  • This is a critical distinction for anyone in business, particularly in the service industry.
  • The anecdote from Smoothie King serves as an early lesson on the importance of understanding financial basics.

"Revenue isn't profit."

This succinct quote encapsulates the essential business concept that generating sales does not automatically result in profit, which is a common misunderstanding among new business owners.

The Value of Time in Service-Based Businesses

  • Time is often overlooked as a cost in service-based businesses.
  • The speaker urges businesses to recognize the value of time and not to treat it as free.
  • Grouped services, like fitness, can lead to clumped work and undervaluation of services.

"In service. We just exist as though time is free, right? Our time, our employees time is all free."

This quote points out a common oversight in service industries where the time investment is not adequately accounted for in pricing and margin calculations.

Business Negotiations and Discounting

  • New or inexperienced business owners often make the mistake of excessive discounting.
  • The speaker advises against negotiating prices down too easily, which is a sign of a "green" business owner.
  • Maintaining firm pricing is important for the financial health of a business.

"My first, biggest ask to you right now is, stop. It's such an easy sign of a newer green business owner that you negotiate with terrorists, right?"

This quote is a strong recommendation to business owners to resist the urge to offer discounts too readily, as it can be a sign of inexperience and can harm the business's financial stability.

Value Perception and Pricing

  • People often claim they can't afford a product or service when in reality, they don't perceive it as valuable enough to justify the cost.
  • The skill of selling is crucial in convincing customers of the value of a product or service.
  • Prices should be non-negotiable and based on desired profit margins.

"Your price is not negotiable. Your price has been predetermined based on what you want to make per product, XYZ, right?"

This quote emphasizes the importance of setting and sticking to predetermined prices that align with the seller's desired profit margins, rather than adjusting prices based on customer pushback.

Operating with a Margin Mindset

  • Avoiding a fixed cost mindset is essential; extra revenue should not be considered just an addition to the bottom line.
  • Discipline is required to maintain awareness of the profit margins for each customer or sale.
  • Protecting price points and margins is a key aspect of business strategy.

"If you can keep the discipline of every one of these $100 a month customers that I'm bringing in right now... I know that I'm only making x on it, right? You know what your margin is at the end of the month."

This quote highlights the importance of being disciplined in understanding and maintaining the profit margins for each sale, which in turn protects the business's overall financial health.

Handling Price Negotiations

  • When faced with price pushback, it's crucial to reinforce the costs of doing business and the non-negotiability of pricing.
  • Payment plans can be offered, but the risk associated with delayed payments should be factored into the pricing structure.

"When you're looking at your pricing and someone does have some sort of pushback to you, you should be able to push right back and be like, do you think we make 100% margin here? I have cost of doing business here, right?"

This quote suggests a strategy for handling price negotiations by reminding customers that businesses have costs and margins that must be met, and that pricing reflects these realities.

The Importance of Protecting Profit Margins

  • Protecting profit margins is essential when discussing discounts or price adjustments with customers.
  • Offering discounts that eliminate profit is akin to running a nonprofit or working for free.
  • The ultimate goal is to maintain profitability for every transaction.

"If you're at $100 and you know you make 15%, then $15 is all you've got. Got, right? And so like, hey, can I just get 15% off on this? And you're like, so do you want to run a nonprofit? Do you just want to do work for free?"

This quote conveys the importance of protecting profit margins by illustrating the direct impact of discounts on profitability, and rhetorically questions why a business would operate without making a profit.

Promotion of "100 Million Dollar Offers" Book

  • The speaker has authored a book titled "100 Million Dollar Offers" which is available on Amazon.
  • The book is presented as a valuable resource to the community, with the author having invested significant time into its creation.
  • The promotion of the book is tied to the speaker's desire to establish a positive relationship with the audience and potential future business partnerships.

"I put over a thousand hours into writing that book, and it's my biggest gift to our community. So it's my very shameless way of trying to get you to like me more and ultimately make more dollars so that later on in your business career, I can potentially partner with you."

This quote serves as a promotional statement for the speaker's book, highlighting the effort invested and the intention behind offering the book to the audience as a means to foster goodwill and future business collaborations.

Understanding and Protecting Business Margins

  • Reassessing business margins is a critical practice for profitability.
  • Increasing top-line revenue by 10% without adding overhead is a strategic goal.
  • Strategies for boosting margin include improving sales skills, offering payment plans, and adding fees.
  • Studying established businesses like rental car companies and telephone companies can provide insights into margin enhancement.
  • Protecting margins is essential for small business owners to make money and avoid overworking.
  • Consistency in pricing and avoiding discounts can lead to higher margins and growth.

"And I think it's one of the things that we do very well, is that we look at what our margin is and then we say, okay, now we're running at x percent. Let's say it's 30. We're like, what could we do to get this top line up by another 10%?"

This quote emphasizes the importance of regularly evaluating and understanding current profit margins to identify strategies for increasing revenue without incurring additional costs.

"Number one thing is just learn how to sell better, right? Number two, provide a payment plan that actually covers your losses that happen on the back end."

These points suggest that improving sales techniques and implementing well-structured payment plans are key strategies for enhancing business margins.

"You could add a fee or an activation or an enrollment. Like all of these things are things that you can tack into your business to boost margin, right?"

The speaker suggests adding fees or charges for services as a tactic to increase the overall margin without significant cost increases.

"And so the reason that I think small business owners many times do not make money and work all the time is because they do not protect their margin."

This quote highlights a common issue among small business owners: failing to safeguard profit margins, which can lead to financial struggles and excessive work hours.

Consistency in Pricing and Revenue

  • Inconsistent pricing and discounts can significantly reduce actual revenue compared to listed prices.
  • Successful businesses often maintain uniform pricing without special deals or discounts.
  • Avoiding negotiation on prices ensures that the business maintains its intended profit margins.

"There was a study done by... wadify, and they were looking at the gyms that were the best and had the highest prices and highest margins and highest growth, and the ones that had. That did not have any price discounts."

The study mentioned suggests that gyms with uniform pricing strategies, without discounts, tend to perform better financially and grow more effectively.

"So you got 100 customers. Awesome. So you're doing 18,900 a month, and they're like, no, we're probably closer to, like, ten or eleven."

This quote illustrates a common discrepancy between theoretical and actual revenue due to inconsistent pricing and discounts, which can undermine a business's financial health.

"So you have, like, ten people at 189, and the rest of your business is at 100 on average?"

The speaker points out the inconsistency in pricing where only a fraction of customers pay the full price, while the majority are on discounted rates, which decreases overall revenue.

"If you want to make the money, you have to want it more than the person that is trying to take it from you by negotiating away."

The speaker implies that business owners must be firm in their pricing to maintain their desired profit margins and not give in to pressure from customers seeking discounts.

Negotiation Tactics for Small Business Owners

  • Small business owners often do not protect their margins, allowing room for negotiation.
  • A mentor taught a tactic where you point out minor imperfections in work done, such as a nicked corner or a crooked door.
  • Use the cost they state for fixing the issue as a starting point for a discount.
  • This tactic exploits the service provider's inflation of the repair cost.
  • It is also possible to negotiate for additional services at the same price.

"You can always negotiate the price because they do not protect their margins."

This quote emphasizes the vulnerability of small business owners in negotiations due to not safeguarding their profit margins.

"So it would cost us at least $500 in time and labor just to fix that, right? Like, well, that sounds like a good place to start for a discount."

This quote illustrates using the service provider's estimated repair cost as leverage for negotiating a discount.

"I'll pay that price, but I need a little bit something extra to sweeten this deal, right?"

This quote suggests the possibility of asking for additional value or services to be included without increasing the original price.

Understanding Profit and Revenue

  • Many small business owners confuse revenue with profit.
  • It is crucial to distinguish what you gross each month from what you actually take home.
  • The amount taken home should be considered the actual profit margin.
  • Knowing your profit margin allows for better pricing strategies and financial decisions.
  • Adding a small amount to a client's monthly fee can significantly increase profits without extra work.

"Most business owners just don't make money because they don't understand profit, right?"

This quote underlines the common mistake among business owners of not comprehending the difference between profit and revenue.

"If you know what you gross every month and you know what you take home every month, that is what in your mind should be your profit margin."

This quote highlights the importance of being aware of the actual profit margin, which is the amount taken home after expenses.

Maintaining Integrity in Pricing

  • Business owners should not lower prices upon request for discounts.
  • Prices and value should be set with conviction and self-worth in mind.
  • Committing to prices is seen as a matter of integrity.
  • Strategic price adjustments can be made, but these should be planned and temporary.
  • The speaker encourages maintaining firm pricing and margin policies.

"Do not negotiate with terrorists. Do not lower your prices when people ask you for discounts."

This quote metaphorically refers to standing firm on pricing and not succumbing to pressure to offer discounts.

"Your price is your price, period. And your margin is your margin."

This quote reinforces the stance that business owners should have fixed pricing and profit margins and should not easily alter them.

"And everything else is madness."

This quote concludes the discussion by stating that deviating from set prices and margins leads to chaos in business operations.

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