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Give Away Gross For Increased Profits

By Bob McElwain
Posted Saturday, October 18, 2003

Suppose you produce a super widget that sells for $50.00. If Charlie comes along and says, "Hey, I can sell the heck out of these. How's $20 bucks a sale sound? Wanna deal?"

If you have a successful business, chances are you will say, "Sure thing." Smaller businesses or those lacking marketing experience may answer with, "Why should I give away 40%?"

Such people will run from this offer. But it is an awesome mistake. For readers who have not thought about this approach, here's why you should say yes.

Consider a computer program or an information product, something which once produced, costs virtually nothing to reproduce. (The same idea holds for manufactured products, but greater production costs need to be factored in.)

If you sell 100 copies a month at $50 each, you have a gross of $5000. Your net is close to this, for you have minimal fullfillment costs. Suppose costs are $5/copy. Then your net is $4500.

If Charlie hits the bricks and sells another 100 copies, you pay him $20 per copy or $2000. So your gross is down to $3000 and your net is down to $2500. You have indeed "given away" 40% of gross.

The key is not in what you gave away, but in your increased net. You are $2500 ahead and it cost you nothing to generate. In fact you made more than Charlie did without lifting a finger. So why do some people say no to such an offer?

A common reason stems from believing they could have made the additional 100 sales themselves, at least over time. In the brick-and-mortar world in which territories are assigned to sales representatives, there may be merit in this belief. But the Web is a whole different kind of place. Assumptions such as this are incorrect. There is simply no way a small business can even hope to make their product available to all the people who would like to buy it at the time they decide to buy.

Regardless of the position of your product in a given market, a person seaching for it may find a competing product first. If so, your product may not even be presented for consideration. In which case, your competition gets the sale. Extending the presence of your product on the Web increases the chance of it being found.

Charlie can help in this by adding your product to his website and product list. His marketing efforts bring visitors who are added to the set of those aware of your product. If he sells 100 copies through his site, it is quite possible that every sale is one the producer would not have made. While one might expect some overlap with brand name products from large firms, it just does not apply to lesser known products produced by small businesses.

The Web is so vast that no one person sees a significant part of it. Thus most netizens will never even encounter your product unless you can get it out and about the Web. You can profit greatly by "giving" gross to Charlie. And for even greater profits, show Joe, Bill, and Pete how to do what Charlie did.

I market a computer program at $39. I will pay you 50% for each copy you sell. I'm ahead by $19.50 and it takes only a minute to send the purchaser a license code. Any takers? I will be delighted to work all day long for $19.50 per minute.


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