Before You Can Multiply You Must First Learn To Divide
Not too long ago, I was having a conversation with an event organizer about his revenue model. He told me that he hires speakers, paying them a flat fee for their time, and then launches an aggressive marketing campaign to put butts in seats.
He also told me that most of his events lose money.
His business has significant fixed costs. Therefore, he needs to continually be at maximum capacity in order to just break even.
To assist him in overcoming this challenge, I shared some simple yet powerful advice that I had personally received while traveling in Asia a few years back:
“Before you can multiple, you must first learn to divide.”
Because small businesses are always trying to control costs, our natural tendency is to avoid sharing any of the profits. We want to keep it all to ourselves, since there is often so little profit to begin with. However, if you wish to be successful, find a way to take a smaller slice of a bigger pie.
In the example of the event organizer, instead of paying a fixed fee as his current model dictates, he could pay speakers a percentage of the ticket sales. This puts the speaker’s skin in the game. More attendees, equals more money for the presenter. He or she now has a vested interested in the success of the event potentially creating a bigger pie to share.
Instead of a high fixed advertising model, find a way of sharing ticket revenues with those who sell tickets. This could be done through online affiliate programs where the website that drives the traffic gets a percentage of the value of the tickets sold. Or you can give commissions to people who make the sale.
In another example, a friend of mine runs a successful family-owned restaurant. Although she had been profitable in the past, her margins were razor thin. For the last couple of years, economic conditions have reduced her revenues, further eroding her margins.
What was her solution?
Instead of simply cutting costs, she found ways of increasing revenues by partnering with people who charge her only when her business is growing.
She uses iDine® and OpenTable to drive traffic to her restaurant. Although they take a percentage of every customer that they deliver, the extra traffic helps to cover her large fixed costs.
It is natural for a small business to be conservative with their finances. But sometimes the best way to make money is to first give some away. Unless your fixed costs are low and you are continually at capacity, it makes sense (and more importantly dollars) to find creative ways of partnering and sharing your wealth with others.