THE PROFIT MOTIVE

THE PROFIT MOTIVE

What makes someone want to be in business and continue in business? If you don't know, then you probably don't need to consider owning your own business. It's money! Some people think the word "profit" is a dirty word. It's not! Nor is it a four-letter word (obviously). What's the point? Well, when you think about it, everybody in business has to make a profit, otherwise they don't stay in business very long, do they? If they don't close voluntarily, their creditors will bring legal action and force them to take bankruptcy, so they (the creditors) can get part of their money back.

Let me give you an example. I once bought a new car, drove it a few months, and became dissatisfied with it. Now that I'm older, I realize that I was dissatisfied with having to make those payments every month. Since it was many years ago, I think I paid around $2,600 for the car plus I traded in an old clunker just to get rid of it. After driving the new car a few months, I took it to a used car dealer and asked him what he would give me for it. When he told me $1,200, I was very disappointed. I told him that I owed more than that on it! He said that I probably needed to drive it a while longer, until I established more of an equity in it. I thought he was trying to cheat me, but now I realize that he made his money this way, by buying low and selling high. I know you have heard of this formula. All businesses follow it. They have to buy whatever it is for less than they sell it for, and the difference is their profit.

I once sold some 8-track stereo tapes to stores. I found that, after awhile, many of them had some tapes left in the bottom of the display case that they couldn't sell. So, I traded them out for some new tapes and took the "duds" down the road to another store. After awhile, I found that some of the "duds" wouldn't sell anywhere! I even made a point of trying to find stores that had a display case full of "duds" that had been left by another wholesaler who had quit servicing them. Often, the owner of the store would ask me what the "duds" were worth. I usually told them that they would probably throw me out if I really told them what they were worth. Why did I make a point of trying to find stores that had a display case full of "duds"? Because usually this was a fellow who had sold tapes in the past and knew that his customers would buy them again, if he could find some good tapes. So, I would try to make some kind of exchange arrangement with him, where both he and I could make a little money. I would usually offer to exchange about ten percent of his tapes each time I came around, if he would agree to buy an equal number of new tapes. If he had 100 tapes, for example, I would put in 10 new tapes in exchange for 10 of his "duds" plus I would sell him 10 more new tapes, so he would get 20 new tapes each time. When his customers found out that he had some new music, he would start selling tapes again, and both he and I would make some money.

After awhile, I found a pawn shop that would buy all the "duds" I could find, but he wouldn't pay me very much for them. Since the tapes were retailing for around $1.99 to $3.99, he wanted to sell them for $1.00 each, so that his customers would get a bargain. Since he wanted to make a profit, he wouldn't pay over 50 cents for a tape. When I would go around looking for stores that had a display case full of "duds" that had been left by another wholesaler who had quit servicing them, and when the owner of the store would ask me what the "duds" were worth and I usually told them that they would probably throw me out if I really told them what they were worth, I worked it into my "sales pitch" that I had found a pawn shop that would buy all the "duds" I could find, but that he wouldn't pay me very much for them. I would tell them that, since the tapes were retailing for around $1.99 to around $3.99, the pawn shop wanted to sell them for $1.00 each, so that his customers would get a bargain. Since the pawn shop owner wanted to make a profit, he wouldn't pay over 50 cents for a tape. So, since I wanted to make a profit, too, I couldn't pay over 25 cents for a tape. Some of the store owners really did want to throw me out at that point, until I became "Mr. Nice Guy" and offered to take the "duds" off their hands.

I once knew a builder who told me he tried to make $5,000 on each house he built. He didn't care what it cost, or what it sold for, just so he made his $5,000. At that time, in 1948, he said that he tried to build one house a month. You can figure out the rest. Was he entitled to this much money? What kind of service did he perform? The people who bought his houses, my parents included, felt that it was certainly worth it, as he built a top quality house, he didn't use any knotty pine in it, and he handled everything from start to finish, so they could continue their job and not have to stop working to deal with sub-contractors, city inspectors, clean-up people, suppliers, etc. This was the service he performed, plus he drew the house plans the way the buyer wanted them, had the blueprints made, and took care of all the little details, like turning a closet around that was facing the wrong bedroom, repainting a room when the paint didn't look quite right, etc. If the builder couldn't make anything on a house, he would lose his incentive to build more houses. Wouldn't you?

You be the judge. Which way is better? Personally, I would rather spend the money to pay some of these folks their profit rather than hassle with some of their problems. Some fellows like to work on their car. Fine! But I don't. I am not mechanically inclined, and I don't have any patience with mechanical gadgets that won't do what I think they should do (or people, either). I don't like to get greasy and dirty, and I would prefer to make my money some other way, and when my car needs some work on it (or breaks down and won't go), I would prefer to pay a mechanic whatever he wants for fixing it. I realize that I am letting myself in for being "taken to the cleaners" but I still don't want to work on my own car, or anybody else's car. I just try to find a mechanic I can trust and hope he is in a good mood that day!

I found that many people are interested in getting a bargain. This is why pawn shops and auction houses stay in business. They offer a bargain to their customers, plus they help others get rid of items they don't want. I found that store owners are also interested in getting a bargain. In fact, if I could find a really greedy fellow who owned a store, I found that I could sell him anything! One of the more successful "sales pitches" involved the investment of his funds. At that time, banks were paying around 3 percent on money left with them (they never paid very much, did they? Wonder why! Do you think it's because they want to make a profit, too?) so I would show Mr. Store Owner how he could take that money out of the bank and double it in 90 days by buying my tapes (or whatever else I was selling). It's really surprising how many of them actually did take their money out of the bank and buy from me. You might try this "sales pitch" yourself. It works with individuals who have a little money stashed away somewhere, too. If you are selling something to individuals, like I did for many years, you can show them how they can save money, make money, get a bargain, etc. by buying your product. If they are the kind of folks who like to own big new cars, big new houses, boats, the latest electronic gadgets, etc., then it is easy to appeal to their ego and show them how buying your product would really make them look like they had a million dollars!

Everybody likes to "get something free." Most people don't realize that they are paying for the "freebies" when they buy whatever else it is that they have to buy. It seems that most stores, television offers, radio offers, newspaper offers, etc. are in the business of giving away free stuff, selling items at a discount, or below cost, or wholesale. How do you think they can stay in business if they sell below cost? Is this a legitimate offer? Many stores, especially groceries and discount stores, will sell a few items at an extremely low price, then raise the price on some other items to make up for their loss. Most folks know this, but they still fall for the "free" or "discount" ads. Lately, I seem to receive a lot of mail saying that I won a million dollars or ten million dollars, or some other such nonsense. I am tempted to do like a friend of mine did. When he received a magazine offer saying that he had won a few million dollars, he wrote back that they should send him all the magazines, take the cost out of his winnings, and send him the difference. He said that he never heard from them again, nor did he receive any magazines or millions of dollars.

As you begin your journey into the world of owning a business, remember the story of the used car dealer, the pawn shop owner, the greedy store owner, the home builder, the folks who give away something "free" and seem to offer a bargain, and the fellow who won millions of dollars with the magazine offer. Then remember the fact that every business has to make a profit, and that nothing is really "free." Or is it? You be the judge.


Copyright 2011 by Preston Smith, Walker Enterprises/Silver Dollar Press. All Rights Reserved.

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