The 3 Lines Of Business

Summary

• In every business, focus on three key lines: value, price, and cost.
• Aim to spread these three lines as far apart as possible.
• Ideally, find something that costs you very little but can be sold for a lot, providing even greater value to the customer.
• The gap between your price and the value you provide is called customer surplus. It's how much more the customers feel they get over what they paid.
• The gap between your cost and your price is your profit.
• Separate recurring costs and one-time costs to better align value, price, and cost for each product or feature.
• Aligning these elements properly helps maximize both customer surplus and profit.

Video

How To Take Action

I would suggest implementing a few key strategies that you can start right away without spending too much time or money. These will help you maximize both your profits and the value you provide to your customers.

First, identify the core value of your products or services. Think about what makes your offering unique and how it solves a problem or fulfills a need for your customer. Make a list of these value points.

Next, look at your costs. Break them down into two categories: recurring costs (things you have to pay for regularly) and one-time costs (things you pay for once). This will help you understand how to price your products more effectively.

Now, evaluate your pricing. Ask yourself if there's a way to increase your prices while still providing great value. Remember, the goal is to create a significant customer surplus—the difference between the value the customer feels they get and what they actually pay.

Think about adding features or benefits that cost you very little but add significant value in the eyes of your customers. This could be things like digital resources, extended warranties, or exceptional customer service.

Lastly, keep a close eye on your profit margins. The gap between your cost and your price is your profit. Aim to stretch that gap as much as possible by either lowering your costs or increasing your price without compromising the customer surplus.

In summary:

• Identify your core value.
• Break down your costs (recurring vs. one-time).
• Evaluate and possibly increase your pricing.
• Add low-cost, high-value features.
• Monitor your profit margins.

By focusing on these steps, you'll create a thriving business that provides exceptional value while maximizing profit.