I was young once…
I was a hungry young man in my early twenties. With fire in my belly, I managed to acquire seven motorcycle shops, two furniture shops, and a forty bedroom hotel – all before I ended up with financial indigestion.
Get a mentor and watch your life turn around.
Fortuitously, I met an astute old Irishman, Seamus O’Rourke. He became my first business mentor and he rapidly helped me turn my crashing empire into an astonishing success.
The first thing he taught me was all about profit margins. He carefully explained that to get a margin of 33% you have to add on 50% percent of the price to the product.
For example, if a product cost you $5 and you want 33% margin you halve the price and add on $2.50. When you sell the product, $7.50 comes back to you. Therefore the cost of the product is $5 and the profit is $2.50 (i.e 33% or a third).
To get 50% margin, double your price.
Seamus explained further, if you want 50% margin you have to add one hundred percent to the cost, i.e. if the product cost you $5, you would add one hundred percent to price (i.e., a retail price of $10). When the product sells you get $10 back – $5 which is the initial cost and $5 which is profit. And there’s your 50% margin.
It was all new to me. I had built my mini empire without knowing anything. I just did it, without really understanding how to generate massive profit margins. But it didn’t end there, Seamus had many more aces up his sleeve and I was about to become an apprentice millionaire.
Going from 17% profit to 117% profit, overnight.
Seamus showed me, very carefully, that every time we sold a new motorcycle we made 17% profit … a tiny amount of money. It didn’t take him long to persuade me to stop selling new motorcycles and concentrate very hard on selling used motorcycles.
The profit margin was much higher. We used to buy used bikes dirt, cheap, and then sell them for top dollar after polishing them up. We made 117% margin. The money rolled in, we were getting rich – and, in fact, we used to carry around a hip-pocket roll [of money] sufficient to choke a bull.
1000% margin is how to make a million.
It didn’t surprise me when Seamus told me we could make even more money. He explained that he noticed every time we acquired a wrecked bike and took it apart and sold off all the useable parts (e.g., the engine, gearbox, wheels, wiring loom, gas tank, suspension units, mufflers etc.) the profit margin was 1017%.
One thousand and seventeen percent! Guess what? It wasn’t long before we concentrated on breaking machines and we ended up with the biggest wreckers yard in the country. We really did laugh all the way to the bank … and at the time I was known as the “King of the Breakers”.
Buying price, selling price, and replacement price.
Seamus kept on teaching me every single day for four years, and now I’m teaching you. Profit is not the difference between the selling price and the buying price. It is the difference between the selling price and the replacement price and in this tough economic inflationary period you really have watch this.
For instance, let’s take a bar of gold that you happily bought for $10,000. Suppose you now, happily, sell it for $20,000. You may think you have made a profit of $10,000. But you may be in for a shock.
When you go back to your supplier, that same bar of gold will cost you $20,000. Your profit has effectively been wiped out and suddenly you’re not so happy. The secret of making money is always in the buying and checking on the replacement price before you sell.
How do you make millions? Where is your 1000%?
I suggest the digital world has massive margins and my starting point would be digital business information products. After that, go for anything that can be created digitally, for a small amount of money combined with lots of energy and creativity and the cost amortized by a big roll out of thousands, perhaps millions. Think music, newsletters, audios, books, films, videos, reports, subscriptions – now here’s the thing … what hasn’t been thought of yet.
Remember where you heard it first!
This article has been edited and condensed.
Ron G. Holland is a seasoned entrepreneur with over 40 years experience in business mentoring, personal development and the self-help industry. Holland is the Chairman of Eureka Financial and has created wealth and growth strategies for small business owners to organizations with up to £50m turnover. Holland is an acclaimed author with more than 20 books published to-date. Connect with @Ron_Holland on Twitter.
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