Why Business Is A Game Of Margins

with Dan Lok

In the age of start-up companies, fast-paced advancements in tech, and testing new business models, finding the appropriate sales package has become not only critical but an evolutionary role within an organization.

Some companies have become notorious for their fast sale-cycles and large customer attrition even though customer attrition has been taught to mean a weak business model. So how are these companies still making money? They’re closing large amounts of deals at incredibly low rates, and their customer pool is still full.

On the other hand, other companies, generally start-ups and small businesses, make significantly smaller quantities of deals with higher costs and pay more attention to customer satisfaction in order to preserve a high profit margin. Consider brands like Apple or similar tech companies—their product prices are generally very high. While there are market competitors and their customer isn’t purchasing often, they’re not that concerned because a single sale is worth the slow sales cycle.

Most people are under the impression it’s incredibly more difficult to do business like Apple—with high price tag products and similarly high margins, but it’s not. Dan Lok, Chinese-Canadian business magnate and global educator, insists selling high ticket products and services may be your key to a successful business.

High Ticket = More Profit, Less Hassle

Lok’s number one reason for selling high-ticket is simply gaining more profit with less hassle. “When you sell a high ticket item, you make higher profit margins,” he explains. Selling low ticket may be easier—seemingly less difficulty and a wide array of customers. However, there is a major downside to blindly sticking with these low margin products according to Lok: “Stores selling low margin products have been around a long time…like Wamart. But if you notice, before Walmart there was K-mart. And where’s K-mart? Gone. Before that there was Sears. Where’s Sears? Gone.”

The problem with selling at a low price to the general public according to Lok is that it isn’t sustainable It’s easy for someone else to come into your business space and charge less for the same product or service. But this would be silly—you’re barely making a profit, so how can they afford to charge less?

Simple. They use their own capital to grab market share and acquire customers at a loss to put you out of business. Once you’re gone, they can increase their prices. And with more customers, there is more hassle.

These companies will need a more complex company infrastructure—more customer service, offices, staff, shipping & handling, etc. When you sell high margin products and services, you enable your company to require less infrastructure, less hassle.

Lok prefers to keep his businesses simple: “If I can hit my financial goal with 1000 customers versus 10,000, I prefer 1,000 customers. If I can hit my goal with 100 customers, I prefer 100 over 1,000. More profits, less hassle.”

Business is a Game of Margins, Not Volume

Reaching higher volume is enticing, and it seems like the key to a successful business strategy. But that’s not always true, as we’ve discussed. Even if you are currently pulling in a million now, and your margin is X, even if you make three million, you can’t assume your margin will increase. Lok explains this is because business isn’t a game of volume but instead of margins.

Lok explains this concept simple: “Transaction size matters. To make a million dollars, you need 40,000 customers to buy a $25 product. You need 10,000 customers if you are selling a $100 product. Or you can sell a $10,000 product and make a million with only 100 customers.”

But does it require more effort to sell at a higher price? Not really. You still require the same marketing efforts regardless of your margin. If selling a $100 product, you still need to acquire 10,000 customers. And if you’re product sells at 10k, you still need a way to market to your 100 customers.

According to Lok’s logic on profit margins, you need to take a serious look at your company’s standings. If you increase your prices, how would it affect your business? Would you lose customers but maintain the same profit margin? If you lose customers, would you enable your company to downsize staff and save money on overhead? Think about it.