How to make extra profit in your business without spending more

There are two ways to create value with your offering. You can charge people based on putting a markup on the cost. This is a cost-focused approach. Or you can charge people based on a discount on the value of the product to them. This is a value-based approach.

What is the essential difference between these two paradigms? The cost approach is thinking about how to make a profit without really considering how much value the product offers the customer. This is not necessarily a bad thing, it just means that sometimes the customer may lose, but the seller will still make a profit. The seller, however, will never be able to maximize his or her value from a cost-based approach. The value approach needs to think clearly about how the customer benefits. This forces the seller to always raise their game and ensure that what they give is valuable. It also means that the producer can maximize profit by giving little that means much.

Now, if what you sell is a commodity with lots of competition, you cannot but charge based on costs. If what you are offering is a niche, however, and cannot really be available on a mass market, then you had better understand the value and charge based on this.

Let’s leave the cloud we are on for a bit and look at practical ways to execute this.

1. How much does it cost to run a strategy session for your business? Strategy consultants will charge you millions to run a session, looking at the costs, it always feels expensive, but imagine what can happen if that strategy session is the reason your business makes an extra N100m this year? Counsel is expensive only when it’s useless counsel.

2. How much does it cost for a married couple’s therapy session to get their family back in line? Family life consultants will charge what will seem like an arm and a leg, but what is that cost compared to the potential of what can be lost in a divorce? (Divorce is not even cheap, by the way, let alone the emotional costs to the family and the children.

3. How much does it cost to run a personal financial assessment? Ask, rather, what is lost in time when one doesn’t set out on the right financial foundations?

4. What is the cost of mentorship? What is the value of having a mentor when you have projects you are doing that can benefit from their insight? What is the cost of training in leadership, creativity, sales etc.?

5. What is the value of a book that costs the author billions to document and the reader hours to read? Value-based selling is more patient selling, but it is more rewarding selling.

Imagine if your business is doing N50M turnover per annum and a net profit of N5m. What will you be willing to pay me if I can help you turn it into an N200m business this year with a profit of N30M? What you are willing to pay me is based on the value of my service. What you normally be inclined to pay me is based on how many hours the training or consulting intervention will take. If we are sure of the value we are adding, charging value-based is good.

As you go about buying or selling this year, think about the value of things, and prioritize the value over the cost.

Kind Regards,

Adeolu Akinyemi