How To Run A Profitable Business & Make Money

Introduction

In this section, Chris introduces the topic of pricing and thanks some supporters. He also mentions an upcoming business boot camp.

Topic Introduction

• Chris introduces the topic of pricing and explains that he will be discussing cost, price, and value.

• He thanks some supporters who have sent him money on Venmo.

• Chris mentions an upcoming business boot camp that will be offered at a discounted price for early birds.

Understanding Cost, Price, and Value

In this section, Chris defines cost, price, and value and explains how they differ from each other.

Definitions

• Cost is measured in time, effort, materials, salaries, rent, interest taxes duties etc. It is the amount incurred on inputs for producing any product or service.

• Price is what people ask when they want to know how much something costs. It is what you charge your clients for your product or service.

• Value is what people get in exchange for their money. It is subjective and varies from person to person.

Differences between Cost, Price and Value

• If you only charge your clients what it costs you to produce a product or service then you can only hope to break even.

• When billing hourly you are giving them the cost of your time but not accounting for things like using your own laptop or creative cloud subscription.

• The value of a product or service depends on how much it benefits the customer.

Understanding Profit and Pricing

In this section, the speaker talks about his experience with pricing and profit in his first business venture. He explains why charging only for the cost of production is not sustainable and how to calculate profit.

The Importance of Profit

• Charging only for the cost of production can lead to losses.

• Price should include both the cost of production and profit.

• Profit is arbitrary but necessary for a sustainable business.

Calculating Profit

• Value is not just based on labor but also includes profit.

• Profit comes from adding value beyond labor costs.

• The amount of profit included in pricing is subjective.

Applying Profit to Freelance Work

• Clients expect profit to be included in pricing.

• Freelancers should consider their time, expenses, and industry standards when calculating prices.

• Forgetting to charge for gear or other expenses can lead to losses.

Understanding Profit and Cost

In this section, Chris explains the concept of profit and cost in business. He emphasizes the importance of accounting for profit when estimating costs.

The Value of Equipment

• Equipment loses value over time.

• Building only for your time without considering equipment can lead to financial strain when replacing or upgrading equipment.

• Management and administrative time should also be accounted for in estimates.

Adding Profit to Estimates

• Profit needs to be added to estimates in addition to cost.

• A reasonable amount of profit is around 25% but can vary depending on the business.

• Profit margins can range from as little as 5% to as much as 80%.

Questions and Further Discussion

• Chris encourages questions about how to make more profit and what factors drive it up.

• Learning about business is necessary for understanding profit and cost.

Reward for 50,000 Views

In this section, the speaker offers a reward to viewers who help the video reach 50,000 views within a week. The reward is leaving the video up on the channel for as long as all other videos.

Reward Offered

• The speaker offers a reward to viewers who help the video reach 50,000 views within a week.

• If the video reaches 50,000 views in one week, it will be left up on the channel for as long as all other videos.

• The speaker believes that reaching 50,000 views in one week is achievable because he is teaching something without any sales pitch.

Profit and Risk

In this section, the speaker discusses how risk affects profit and gives examples of high-risk investments with high returns and low-risk investments with low returns.

Profit and Risk

• Peter Drucker said that all profit comes from risk.

• Low-risk investments promise low returns while high-risk investments promise high returns.

• Safe investments are considered low-risk while volatile ones are considered high-risk.

• High-risk investments can yield returns of up to 20,000 times investment or more.

• Twitter was an example of a high-risk investment that yielded millions in return.

Taking Risks in Business

In this section, the speaker explains how taking risks is necessary when starting a business and how entrepreneurs assume risks to make profits.

Taking Risks in Business

• All entrepreneurship involves risk.

• Clients take the risk in hourly billing while entrepreneurs assume risks when giving fixed fees.

• Entrepreneurs must consider all possible ways a job can go wrong and add more profit to accommodate the amount of risk they are taking.

Understanding Value

In this section, the speaker talks about the concept of value and how it is subjective and dependent on the buyer. The seller determines the price, but the buyer determines the value.

Price vs. Value

• The buyer determines the price.

• The seller gets to determine the price.

• The buyer gets to determine value.

Determining Value

• Value is determined by the buyer based on their needs and wants.

• Some people may see a product as too expensive while others may find it fair.

• If a customer doesn't see value in a product, they won't buy it.

Pricing Strategy

• Sellers can set prices high or low depending on their profit margin goals.

• Customers won't buy products they don't see value in, even if they are priced low.

Example of Determining Value

In this section, the speaker uses an example of buying shoes to illustrate how determining value works in practice.

Buying Shoes

• Nike sets the price for their shoes (e.g., Air Max).

• Some people may find $99 for Air Max too expensive while others may not mind paying that much.

• Buyers determine what they consider a fair price based on their needs and wants.

Understanding Value and Price

In this section, Crystal explains the concept of value and price. She emphasizes that buyers determine the value of a product, and if they perceive more value than what they pay, a deal is done.

Value vs. Price

• Buyers determine the value of a product.

• When value exceeds price, buyers give you money.

• The buyer gets to determine the value.

Keystone Model

In this section, Crystal introduces the keystone model and explains how it works in the context of manufacturers, retailers, and customers.

The Keystone Model

• The manufacturer sells to the retailer for less than half of what they sell it for.

• Manufacturers need to make products for less than half of what they sell them for.

• Retailers add their profit to what they paid for the product from the manufacturer.

• Customers pay double or more than what it costs to make a product.

Overall, Crystal emphasizes that understanding value is key in determining pricing strategies. She also highlights that buyers ultimately determine whether a product is valuable or not. Additionally, she introduces the keystone model as an example of how pricing works in different stages of supply chains.

Understanding the Double Keystone Model

In this section, Chris talks about the double keystone model and how it can be applied to creative services.

The Disconnect Between Price and Cost

• Manufacturers are starting to sell directly to customers via Kickstarter campaigns.

• This benefits both parties as customers can buy goods for less while manufacturers make more profit.

Applying the Double Keystone Model to Creative Services

• Bigger agencies or studios may need subcontractors for their projects. They determine costs together and then sell it to the end customer.

• By sidestepping middlemen, creatives can sell directly to customers and make more money while customers spend less money.

Doubling Your Income

• Learning how to brand oneself, market, provide customer service, and sales can help double one's profit.

• Setting a goal of doubling one's income by applying these principles is achievable.

The Value of Branding Yourself

In this section, Chris discusses the value of branding oneself in order to stand out in a crowded market.

The T-Shirt Example

• Hanes three-pack t-shirts cost around $10 at Target but people still pay more for branded t-shirts because they perceive them as having higher value.

Building Your Personal Brand

• Building a personal brand helps you stand out in a crowded market and allows you to charge more for your services.

• A personal brand should be authentic, consistent, and focused on the value you provide to your customers.

The Value of Premium Products

In this section, the speaker discusses the concept of premium products and how they can command a higher price despite being objectively similar to cheaper alternatives.

Premium Cotton T-Shirts

• Pima cotton is considered the most premium cotton due to its softness and quality.

• Despite being objectively similar in function, a t-shirt made from pima cotton can cost significantly more than a regular t-shirt.

• The difference in price is due to subjective value placed on premium products by buyers.

Emotional Value

• The biggest driver behind the value of premium products is emotional rather than technical differences.

• Buyers assign different values based on what they want to feel when using or wearing a product.

Understanding Profit Margins

In this section, the speaker explains how profit margins can vary widely for seemingly similar products and why understanding this is important.

Wide Range of Profit Margins

• There is a wide range of profit margins for products, ranging from 5% to 80%.

• Understanding why some products have higher profit margins than others is crucial for businesses.

Adding Value

• By using premium materials and branding, companies can add value to their products and justify charging higher prices.

• Emotional factors also play a role in adding value to products.

The Importance of Logo Design

In this section, the speaker discusses logo design and how it can impact the perceived value of a business.

Logo Design Costs

• Logo design costs can vary widely depending on the designer's experience and skill level.

• Buyers assign different values based on their perception of what makes a good logo.

Perceived Value

• A well-designed logo can add perceived value to a business and justify higher prices for products or services.

• Emotional factors also play a role in the perceived value of a logo.

Convincing Buyers of Value

In this section, the speaker explains that it is not possible to convince a buyer that something is worth more than they believe it to be. Instead, the focus should be on helping them understand the value of what they are buying.

Helping Buyers Understand Value

• It is not possible to invent value in a buyer's mind.

• By asking questions and doing discovery, you can help buyers realize the value in their mind.

• If buyers agree with the value presented, then the price will go up.

Pricing Strategies for Coca-Cola

In this section, the speaker discusses how pricing for Coca-Cola varies depending on where it is purchased.

Factors Affecting Price

• The same 12 fluid ounce 140 calorie cans of original Coca-Cola Classic can have different prices depending on where they are purchased.

• Buying from a wholesale place like Costco costs around 30 cents per serving but requires driving out and waiting in line.

• Vending machines charge a different price than wholesale places or movie theaters.

• Movie theaters charge yet another price for the same amount of liquid.

Determining Factors

• Location and convenience may affect pricing.

• Purchasing habits may also play a role in determining pricing.

The Cost of Convenience

In this section, the speaker discusses the cost of convenience when purchasing items from vending machines and movie theaters.

Vending Machines

• Vending machines are usually priced at $1.75 per serving.

• The high cost is due to the convenience factor of being able to purchase a drink on the spot.

Movie Theaters

• Movie theaters charge $4.50 per serving for drinks and snacks, which is significantly more expensive than buying them wholesale.

• Movie theaters have a monopoly on food and drinks, as outside food and drinks are not allowed inside. This allows them to charge higher prices for their products.

• Concession stands are where movie theaters make most of their money, not ticket sales.

Emotional Benefits of Purchasing Items

In this section, the speaker discusses how emotional benefits can influence our purchasing decisions.

Emotional Benefits of Purchasing Snacks at Movie Theaters

• Purchasing snacks at movie theaters triggers an emotional response because it creates a shared experience with others in attendance.

• Buying snacks at movie theaters can also create a sense of accomplishment or success in being able to afford these items.

Increasing Prices by Attaching Emotions

• Companies can increase prices by attaching emotions to their products or services that people value most, such as convenience or a sense of accomplishment/success.

• Exclusive monopolies can also allow companies to charge higher prices for their products.

Designing for Status

In this section, Chris Do talks about how clients often want their website to reflect the status they feel they have, and how designers can help them achieve that feeling.

Clients Want to Reflect Their Status

• Clients often hire designers because they feel like a multi-million or billion-dollar brand but what they put out there is not reflective of that.

• They want to look good and feel good about themselves.

Attaining Greater Social Status

• People are looking to attain greater social status.

• Designers can help clients achieve this by making them feel good about themselves.

• The goal is to make the client's business stand out and move the needle for them.

Understanding Cost, Price, and Value

• Cost is the sum total of what it costs to make something without including profit. Price includes profit and depends on how much risk you're taking on and how well you understand what is valuable to the customer.

• When a customer comes with a problem, ask if it's big and important because that's what you want to focus on - something that will have material impact on their business.

Business Boot Camp

• The Business Boot Camp is for entrepreneurs who want to grow their business and make more than $75k per year.

• Watch free content before joining if you're not ready yet.

Conclusion

• "Price is what you pay; value is what you get." - Warren Buffet