Prices, Expenses, and Margins

Price determines how much value enters the business. Most businesses focus heavily on getting more customers while ignoring pricing. That's backwards.

If you charge $100 for a product and have a $10 profit margin, a 10% increase in your price doubles your profit margin to $20 with no additional customers, advertising, supply, labor, etc.. It’s a small difference for the customer, but a huge difference for you. At the end of the year, $100,000 in revenue that leads to $10,000 in profits could just as easily be $110,000 in revenue that leads to $20,000 in profits. 
Without changing the price, you would have to double your entire business to $200,000 per year to achieve that same $20,000 in profits at the original margin. 

The key is delivering enough value that customers gladly pay more, which is a big part of what I do when building a Demand Engine. The strongest businesses rarely compete on price. They compete on value.

Fixed costs are the expenses that exist whether customers show up or not.

Rent. Insurance. Software subscriptions. Administrative salaries. Equipment payments. Facilities.

Every dollar spent here increases the amount of margin required to break even. The goal is not to eliminate fixed costs. The goal is to ensure every fixed expense creates meaningful value. If your business runs on monthly payments, your profits can be impacted substantially by volume. The first week(s) of each month may just exist to cover the fixed costs. Everything after that is where profits are generated. So getting the fixed costs covered earlier in the month gives you more opportunity to get ahead of the curve and increase retained value.

Healthy businesses are intentional about what they carry. Unhealthy businesses accumulate overhead without realizing it.

Variable costs increase as activity increases: Materials. Labor. Fuel. Supplies. Commissions. Merchant processing fees. Subcontractors.

These costs often appear small when viewed individually. But they scale with growth. A business can become busier every month while seeing very little improvement in profit if variable costs are not carefully managed.

In general, we like variable costs. They are low risk because we don’t pay them until we earn the revenue it takes to pay them. They also compound. If you can reduce a variable expense by $1 per transaction, that $1 turns into $100,000 of savings after 100,000 transactions. It’s the economy of scale. 

The goal is simple: Do more with less. Not by cutting corners. By improving efficiency.

Waste is the silent killer of profit. Unlike fixed costs and variable costs, waste creates no value.

Duplicate work. Unnecessary steps. Avoidable mistakes. Poor communication. Rework. Failed experiments. Bad purchases. Unused software. Underutilized resources.

The most profitable businesses aren't always the busiest. They're often the businesses that waste the least. One of the fastest ways to improve profit is simply avoiding mistakes that someone else has already made. And the fact is, owners who are ambitious and want to grow are the most wasteful. Not because they’re irresponsible, but because they don’t know what is going to work until they try.
 
They try an SEO specialist. They build a new website. They print new business cards. Every attempt to grow, to get new customers, break into a new niche, get past a plateau, or hedge a risk comes with a decision that may not pan out as expected. This is the owner’s job to make these investments and to learn these lessons because for most owners, this is the only way.