Learn
How To Take What Looks Like A “Puny”
$Profit/Search
Into A Healthy $$Profit/Search!
How many times have you been
pushed out of a competitive situation because you didn’t feel you could compete
on price
There is no reason you can’t be
competitive at just about any price level and still make a handsome
profit. Your standard retail price for a
county criminal search is probably in the $12-$15.00 range. Your average cost
is probably around $5.00, all depending on volume and how much work you do
yourself vs. outsourcing to those all-important wholesalers.
Let’s say you get into a
competitive bid that drives the price down to a $7.00 level. Is this still worthwhile? Well, sure it is. Even if you can only make $2.00 on each
search, why not make $2.00? Not worth
it, you say? Look deeper. You can achieve much more than a $2.00 margin
because the larger volume can get you lower costs. You can turn what looks like a “puny” $2.00
profit/search into a healthy $14.00 profit/search.
What? I can sell it for $7.00 and earn $14.00 on
each search??????????????
Yes!,
when you have your own network of direct sources. And, let me emphasize, this is not the
correct path for everyone. But, by doing
so, you can get your average data acquisition cost down under $2.00 per county (and that includes still doing a lot of volume
through a wholesaler). But you need
volume to achieve or even beat this $2.00 target.
Still confused? Look at the following example.
Lets say you
are doing 30,000 county criminal searches per year and selling half at $15.00
retail and the other half at $12.00. With your $5.00 cost per search, your
profit (actually your Gross Margin) for this piece of the business is
$255,000.
Now you add a new client who
generates 10,000 additional county criminal searches a year, but to get this
volume you have to cut your price to $7.00 each. Bad idea? Not
hardly!
If you leverage the additional
volume to obtain less expensive sourcing, your gross margin per new search
will, with only a $3.00 reduction in the average cost per search, jump to
$14.00.
Huh? How can I get a gross margin of $14 per
search if I am selling the search for $7.00?
Well, let’s take a look:
|
Current
Customer Base |
|
|
|
|
||
|
Clients |
Volume |
Retail |
Old Cost |
|
Profit/search |
Total profit |
|
A-M |
15000 |
$
15.00 |
$
5.00 |
|
$ 10.00 |
$
150,000 |
|
N-W |
15000 |
$
12.00 |
$
5.00 |
|
$ 7.00 |
$
105,000 |
|
|
|
|
|
|
|
|
|
|
Total
Profit from existing clients |
|
|
$
255,000 |
||
|
|
|
|
|
|
|
|
|
Add a
New High Volume Client |
|
|
|
|||
|
Clients |
Volume |
Retail |
|
New Cost |
Profit/search |
Total profit |
|
A-M |
15000 |
$
15.00 |
|
$
2.00 |
$ 13.00 |
$
195,000 |
|
N-W |
15000 |
$
12.00 |
|
$
2.00 |
$ 10.00 |
$
150,000 |
|
|
Total
Profit from Old Customers at New Cost |
|
$
345,000 |
|||
|
New |
10000 |
$
7.00 |
|
$
2.00 |
$ 5.00 |
$
50,000 |
|
|
Total
Profit from All Customers at New Cost |
|
$
395,000 |
|||
|
|
|
|
|
|
|
|
|
|
Incremental
Profit from all customers |
|
$
140,000 |
|||
|
|
Value
per search from new customer |
|
$ 14.00 |
|||
So, because this incremental
volume allowed you the leverage to get better costs, your incremental profit
attributable to this one new volume customer is $140,000 or an extra $14.00
earned for each of the 10,000 extra searches.
The amazing power of volume.
Sell a search for $7.00 and earn $14.00.
To obtain your free copy of this
spreadsheet formula so can put in your own numbers or to get more information
on reducing your costs, call Asysha Hogan at Berg
Consulting Group, 561-712-1277, ext 3#
Berg
Consulting Group--Improve your business with creative thinking.