Just because consumers buy something, doesn’t mean that they are not profiting from their purchases.
For example, someone who is considering buying an iPad looks at the benefits the iPad has to offer (wireless internet, gaming, easy to use interface, etc.) and decides that he or she would spend up to $800 for such a device. That person is “profiting” by $300 from his or her purchase because the buyer perceives the benefits to be worth more than the sales price.
People who purchase products or services decide by how much they will “profit” all the time. If you, as a seller, can do this process for them, when it comes to expensive and/or complicated purchases, you will see a lot more sales…
Return on Investment (ROI)
Subtract the profit or gain from a purchase from the cost of the investment. You end up with how much you have profited as a result of that investment. Divide that number by the cost of the investment and you get your ROI. This simple calculation should only be used for investments or purchases end within 1 year.
In how many years will the buyer of the product break even on his or her purchase? Divide the total cost of the product to the buyer by the amount of savings or profits per year. The longer the payback period, the less chance you have of making the sale.
Write down all of the associated monthly costs of the product or service along with all of the associated savings or profits. Subtract the savings or profits from the costs and you get your monthly profit, which you can multiply for any number of months to determine the long term benefit (or cost) of making the purchase.
Net Present Value (NPV)
Let’s say an investment will bring in $50,000 in profit for 3 consecutive years, but you have to first take a loss of $80,000. NPV calculations take into account the time value of money by looking at the discount rate. If the NPV is positive, the investment will add value to your company.
(net income/revenue)x100%=profit margin
If you can prove to a potential buyer that your product is more profitable for them to sell than current products, they are going to have a hard time saying no to you. The more profitable a product is (especially in a retail store), the higher a store’s return on space would be, which is an indication of how efficient the store is in selling its products for the amount of space that it leases.
When you are trying to sell something (yourself to an employer, a product to a retail store, a service to a consumer), talk in terms of numbers whenever you can. If that’s not possible, make your case by noting the pros and cons of doing business with you and/or by stating your customer value proposition. If people see that they will come out on top by dealing with you, you’ll see a lot of business coming your way.