Yes you did read that right.
Ever heard the saying “you have to spend money to make money”. I believe this statement to be 1 million percent true. When it comes to business you have to be willing to go one step further. You have to be willing to lose money to make money. Losing money through smart long-term marketing is better than making a quick few thousands with a smart slogan that your product doesn’t live up to. We see this so much nowadays but with the internet connecting everyone so fast, if you have a poor product you will receive negative reviews and you won’t sell anything…. Seriously you just won’t.
Instead you should be willing to lose money to make money. For example an old client of mine used to sell fitness logo t shirts these were very plain but they sold them for a cheap price and the product was good! Why in the heck would sell a product at a loss! They were selling these at a loss! Seriously I didn’t know at the time so I had to ask why and the response was something that has stayed with me, well the concept has anyway.
The Compound Effect.
I’m paraphrasing here but it was along the lines of: “If I can make a £2 loss selling 1 t shirt, this means I have a happy customer let’s say… Now this customer is pretty much an employee, I’ve only paid them £2 but that’s the cheapest employee I’m ever going to have, so if they are happy with the product they are going to wear it, and guess what? It promotes our brand, which means the more they wear it the more people see it! If 1000 people see it and only 1 person decides to search the brand and visit the site then that’s fine, I got a new visitor which I’m happy with! Now multiple this by 5-10 a day and we have lost maybe £10-£20 but our brand is out there and growing, more people see it and the brand image is improving by the day. It’s the viral illusion.
So I lose £30,000 in my first year of business? Selling 15,000 t shirts. Now guess what, I raise the price slightly and I order a higher quantity which reduces MY COSTS. This means I can raise the price by £2 but I’m now making £1 profit per shirt…. The brand image continues to grow and I make £15,000 profit this year, remember that conversions would decrease but we have more people wearing them by the day and this leads to more people through the site anyway.
But 100% the kicker to this technique is the cross-over. If I sold 30,000 t-shirts in 2 years, I would have 30,000 people on my email list that I can contact when we release our next product, let’s say its another fitness related product such as a hoody, we release it in September when it just starts getting cold and its well designed, the quality is there and we can offer it “for sale” but at a price we can still make a £5 profit per unit…. Guess what happens now?
We send an email to these 30,000 people. If we get a 10% conversion rate and a 5% CTR that’s 1,500 “viewing” the item. Even if only 10% of people decide to purchase the item that’s 150 sales in a matter of days = £750 in profit (from a sale item.) The branding effect currently now we have another 150 brand ambassadors, more people see the brand and purchase a t-shirt… Now the ball is rolling. Year 3 we make a small profit of £5,000 but have 45,000 people on the email list.
Year 4 begins and we dive further into marketing and advertising the brand, we slowly build the lists further and keep our £2 profit per tee and £5 profit per hoody.. It’s getting big now, the list is growing and we sell some awesome stuff, building the range up and engaging with the audience through social media and email marketing. At the end of year 4 we’ve got 80,000 people on the list but we didn’t make much profit, only £25,000 as a lot was re-invested into stock and marketing.
Year 5 is what I like to call the pivot, this is when you become a hugely profitable business. Let’s say we launch a tracksuit bottoms range, it costs us £10 to produce a unit but we are going to sell it for £20 with a “limited stock levels” offer to drive sales in the early days. As we now have a loyal following we can send this offer to all 80,000 people on our email list. At a 10% conversion rate and a 10% sales rate that means = 800 x £10 profit per unit. We just made £8,000 pure profit in a few days. If you relate this back to the very start, if we raised our prices to where they should be (market price) we would have had no sales at the start as no one knows the brand!) Instead in year 5 we have a half a million pound business with only 4-5 products.
Year 5 should continue on this route, you can also utilise your audience now, emailing offers, creating new products ect. Getting a 1% sale rate from your email list shouldn’t be difficult if its built on previous sales. By the end of year 5 you have a 100,000 email list which converts at 1% for similar products. You launch 1 new product every 2 months and you make £500,000 in pure profit this year.
Live in the compound effect. Money lost now is 10X in a few years time.