08.Aug.2009 Volume is Key

One of the most important contenders in growing any business, is having plenty of volume. Let me start off this blog post by giving you a good example of why Volume wins overall.

Imagine Site A, who sells their product at $10 each. Then you have Site B, who sells their product at $5 each. Site A has 10 recurring customers. Site B has 20 recurring customers.

Now, Site B has more customers because it has a cheaper product. Site A has less customers because it has a more expensive product. But they both make the same amount of money… currently.

Which has more potential for succeeding? Site A and B are making the same amount of money right now, 10 customers x $10 = $100, and 20 customers x $5 = $100. Well, when you get down into the details of it, you will find out that Site B will probably succeed a bit better than Site A, due to one simple fact. 20 customers means 20 people to word of mouth advertise. The 10 customers to word of mouth advertise is half the success rate. And when you think about it, if they get 10% new customers from their existing user base at the same time (10 * 10% = 1 … 20 * 10% = 2), they are still getting the same amount of profit ($10), BUT… but but but… what about when Site A and Site B customers try and refer eachother? Even with loyalty in mind, Site A customers are far more likely to convert to Site B customers than vice versa, ESPECIALLY during hard times like the current economic situation going on right now, which really means Site B is Key. =)

So, in the long-run, even if you aren’t making much profit initially – it is usually better to ride on the volume than ride on higher prices just so you make “more money”. So if you can afford to cut your prices back a bit, and you feel that it will help you start getting more customers when you compare yourself to the competition. Go for it! You’ll probably do a lot better, and your customers will be excited by the great deal.

That’s all I have to say for today, check back later for more insight from me.

Phil