PSU Insight

The Importance of "Running the Numbers"

Selling Product the "Obvious" Way

The previous example is an excellent example of an “obvious truth” that is absolutely wrong. Now let’s apply the “obvious is not always correct” principle to something a bit closer to home for professional speakers — product sales.

Let’s say that you have several physical products (like CDs or DVDs) that make up part of your product line. (Although electronic products are becoming increasingly popular, physical products remain popular, especially for back-of-the-room sales.) Now let’s imagine that you want to boost your profits on BOR (back of the room) sales, and you ask the other members of your mastermind group for their advice on how to do it.

You’re asking three speakers, so naturally you get four different opinions. (Barber’s Second Law of Professional Speaking states that if you ask ‘n’ speakers for advice, you’ll get (n+1) different responses.)

  • The first person suggests that you have a “half price sale”. You’ll still make a profit on your CD sales, and people love a sale!
  • The second person suggests that you might be better off with a “buy one, get one free” offer, also known as a “twofer” (slang for “two for” one).
  • The third person, a math major, points out that “half off” and “buy one, get one free” are the same thing, so it doesn’t matter which of the two approaches you choose.

But the third person then continues that he doesn’t think you should take either approach. According to him, you’re lowering your income on every sale, so you’re guaranteed to lose money. Don’t do it!

So, which is true? Are the two approaches the same? And if not, which is more effective? And will you lose money? Should you run any sort of sale at all?

Here’s the correct answer — offering a “twofer” is almost always better (both for you and for your customer) than a half-price sale. (You’ll see why in a moment.)

As to whether you make less money on the two-for-one approach — well, maybe you will and maybe you won’t. While you could make less money, you could actually make more money — lots of it — by lowering your prices.

Don’t believe it? It’s time to run the numbers. You don’t need a bunch of formulas or mathematical analyses… all you need to do is to plug in some sample numbers like you did before.

For example, let’s assume the CDs cost you $2 each to produce (we’ll explore calculating production costs shortly) and you’re selling them for $10 each.

(These numbers are NOT meant to represent actual or recommended prices or costs. I’m simply picking some nice round numbers that are easy to work with. In the real world, the numbers will change, but the math will stay the same….)

Now let’s see what happens if you sell a CD at half price. You sell it to a customer for $5 (half the normal $10 price tag) and it costs you $2 to produce it, so you make a net profit of $3 on the sale. (This is as complicated as the math gets.)

But if you sell a customer a “twofer”, you sell a single CD for $10 and you throw in a second CD for free. The two CDs cost you a total of $4 to produce… so although you make $3 per CD (the same as before), you make a total of $6 on the sale!

So your profit on each sale doubles by selling “twofers” as compared to selling your CDs at half-price!

There are a couple of things that you need to consider. First, this is true only under the conditions that I mentioned before — CDs costing $2 to produce, and selling for $10. In your particular situation, the numbers may be different and the results could be less — or more — profitable. It’s important that you run your own numbers.

Second, keep in mind that not everything can be sold as “twofers.” If you have produced only one CD, for instance, you may suspect that people aren’t interested in having two copies of the same CD. And you could be correct; or you might not.

Don’t be too quick to abandon the twofer strategy. I have a friend who’s a musician and he had a single CD. He offered it as a buy-one-get-one-free, telling people “keep one for yourself and give the other one to a friend.” In his case, sales increased… dramatically. The lesson? Never assume!

So a “twofer” may not always be a viable strategy. But if it is, your profit on each sale can be better — possibly much better — than if you offer a “half off” promotion.

But that’s not all. There’s more to consider….