I’d rather own a business that sells a $500 product with a 5% closing ratio and has 100,000 sale opportunities per month, than have a business that sells a $2,500 product with a 20% closing ratio but only has 1,000 sale opportunities per month (In case you’re wondering, you’re looking and a monthly income difference of almost $2,000,000).
Again, bigger is better. Always. Companies like Twitter aren’t even profitable but they’re so big that they are worth billions. A business that generates monthly profits (revenue minus expenses) of $1,000,000 against a revenue (income) of $5,000,000, is worth nothing if compared to a business that generates the same monthly profit of $1,000,000 against a revenue of $500,000,000. Bigger, is, better.
Now let’s talk about dividing the revenue pie. Another reason why bigger is better is because you have more “meat” as I like to say, to share. The bigger the revenue the more you can slice parts of it as expenses towards employees, marketing and more.
Once you get to big enough pies, and this could even mean making $5,000 sales for examples, you can basically start assigning percentages to different players that help you rather than rely on yourself. When you have a bigger pie you can share and people will help you without a salary.
For example, if you sell a product for $100, even if you give 50% of the income as a commission to salesperson, it’s still not a good offer, especially if you just offer commissions without a base salary.
Let’s say that you set the price at $1,000. Now if you give just 20% of the income, you’re already looking at a $200 commission with 20% of $1,000 vs a $50 commission from a 50% slice of $100.
If you jump really high to a sale of $10,000, now you can even give 5% commissions and you’re already providing a $500 commission. This is the reason the great real-estate agents sell houses for the rich, not the poor. Would you rather have a 2.5% commission of a $200,000 house, or a 2.5% commission of a $4,000,000 house? Do you honestly think it’s 20 times harder to sell this house? For some reason almost all the people who managed multi-million dollar businesses have stated that it takes roughly the same energy making $20,000 a month as it does making $2,000,000. Bigger is better.
When you sell a $2,000 product you can effectively pay 15% for the marketing efforts and ads that’ll generate the leads, another 15% to the salespeople who do the selling, and another 15% to the people delivering the service – all based on commissions only, which means almost zero risk!
That’s why it’s always smart to think big from the start. You don’t need a big business to start thinking bigger, you could just sell a big idea and use that as your “slice of the pie”.