How To Run A Profitable Business & Make Money

Introduction

What is up, everybody? Hello, beautiful people. Do you guys appreciate what’s happening in the studio today? We’ve got some advanced fancy lighting here, and we’re gonna keep this one nice and compact. What are we gonna talk about today in our whiteboard session that you guys seem to be loving, right? So, let’s talk about it right now. We’re going to be talking about something about pricing as you can see about cost price and value and how we use these terms interchangeably, but they mean something very, very different. Okay, so let’s get into it.

Acknowledgements and Announcements

Before I do though, before I do, I want to just thank some of the fine folks. Zach who sent me some money on Venmo. I will let you guys know that we don’t encourage you to do super chat if you want to give us money to support our cause. Don’t send it via super chat because it takes money away from us. If you want to send me money, if you want to send me the future money in support of what it is that we do here, if you find value in these kind of sessions, I want to tell you up front, find me on Venmo. Venmo, you can send me cash, guys, at the chris doe, and you can find me right there. I’m pretty much this username on almost all social platforms, the chris doe. I also want to let you guys know that Matthew has been encouraging me to do this talk. This is originally from our Instagram carousel. He’s like this would make a good video, that’s why we’re doing this today, but this is a prelude to us announcing the business boot camp, which will be kicking off probably early next year. We’re not sure yet, but it’s going to be a five thousand dollar business boot camp. There will be some details later on in the links below on how you can save money by being an early bird person, okay? Just let you guys know. Then after you, Chris, if you guys want to give me money, I’ll thank you later and the business boot camps will be kicking off. I do want to say this, and if you follow the whole pricing strategy that I’ve mentioned before, I believe this is the last time we’re going to run the business boot camp at this price. We’re recording some new modules and we think it’s worth a lot more than this. The testimonials that we’ve been getting from previous graduates in the first four cycles have done amazing things for their business. We think this should cost more so this will be the last time it’s offered at this price. Let’s get right into it.

Discussion on Pricing

Okay, so when people ask you when they ask you how much does this thing cost, how much does this thing cost, how much does this logo cost, how much does this website cost, how much does it cost to run a social marketing campaign for my company, how much, well when they say cost what they really mean is price. And I did a little research there is such a thing and if you type on the internet on google or wherever you can type in what is the difference between cost price and value and you’re going to find very different things but I’m going to save.

Introduction and Acknowledgements

You some of the trouble the kindhearted people that we are here at the future along with Jonah and Ricky who are joining me in the studio today. I’ve done the work for you, I’ve looked it up, I’ve distilled information down to a smaller bite-sized piece so that you guys can understand the difference between these three words. Let’s get into it.

Explanation of Cost

So, cost. When people ask you about cost, the answer that you’re giving them may not be what it is that you think. Being very careful to put these things away for all the eco-conscious people, that it’s not being destroyed, it’s being saved here, okay? We’ll recycle this, okay? Cost is defined as measured in time, effort for many of you guys, and materials. That sounds really reasonable, and I’ll read the definition paraphrase there: cost is the amount incurred on the inputs, basically the raw materials, the salaries, rent, interest, taxes, duties, etc., whatever it costs you to make for producing any product or service, okay? It is the amount of money spent by the company, the company is you, in the manufacturing of a product or creation of a service. Does that make sense? Okay, so if you are only to charge your clients what it costs, the best you can hope for is to break even. When you’re billing hourly, you are basically giving them the cost, the cost of your time, but you’re not accounting for things like if you’re using your own laptop, your Creative Cloud subscription, your desk, the rent that you’re paying to be able to do the work. There’s a lot of things that you’re leaving off the table. When I was younger, I think I was 16 or 17 years old, I started a design firm making t-shirts. I was working at a six screening company and I wanted to sell my services to people. What I didn’t account for back then, and if you’re a young person not familiar with the way the business works here is, I basically charge people what it cost me to make thinking that I actually had profit. And quickly after a couple of transactions, thinking I should have money in my checking account, I came to realize I was running at near break even or I was actually even losing money. This actually caused some grief between my mom and I because she was the one who opened up the bank account. She said, “Honey, you are losing money,” and I just could not figure it out. So some basic accounting, some basic business would have saved my first real business. Okay, so when you guys charge people what it is, what it costs you to make, you’re going to go bankrupt pretty soon. You’re going to go out of business because it doesn’t account for any mistakes, it doesn’t account for when your clients change their mind about something, it doesn’t count for delays, it doesn’t account for any mishaps or things that you didn’t plan for. Okay, now when they ask you for your costs, what they really mean is, what is the price to do this thing with you, and so now we enter a new concept which is called profit.

Price and Profit

So, price is what it costs you to make plus profit, and this is the valuable lesson I wish I knew when I was 17 years old with my t-shirt company, that I actually had to make a profit. Now, if you get into the theory of labor and value and all that kind of stuff which Bluren talks about very eloquently.

Discussion on Profit and Pricing

I’m not going to try to do it here myself, but I’m going to just try to paraphrase the concept here. Many people think the value of something is what the labor it takes to make it. So if it takes a hundred hours for me to make something and I’m a dollar an hour, it should be 100, but that does not account for profit. Now, where does profit come from? And profit, believe it or not, is rather arbitrary. Okay, I’m also monitoring the chat here so I can see you guys chatting here and let’s see where this goes. Okay, Aly, good morning from the Philippines. Hello, hi, how are you doing? Okay, let’s get into this. So when a client asks, “What would this cost?” they’re asking what is the price of doing this, and so we feel a little sheepish to talk about profit in front of them but it is implied, profit is implied, okay? So what is the rule? Okay, how much profit should you include? Now, Ricky and Jonah, you guys have done some freelance work. Whoever wants to talk about this, what have you included before when somebody asks you for the price of your services? How much money did you include? I’m just curious. How much money? Yeah, two thousand. So two thousand total. Yeah, I didn’t invoice like a huge sheet of each detailed thing I did, I just gave them a ballpark number. Yeah, which is actually pretty advancing as you’re doing right there, you’re giving them a ballpark number and we’ll get into that some other talk, not for this session. But how much profit did you include in the price? That’s hard to measure. I didn’t include any. You didn’t? That’s the answer I was expecting you to say that you did not include any. Yeah, you included zero profit. So you probably looked at your time, right? So if we were to calculate this, you would write down this is the time. Did you have any other expenses? Um, like another camera operator? Okay, so somebody else’s time, right? So we’ll call it an assistant, okay. Okay, so this is your time here. What else, Jonah? Um, renting out cameras, gear. Gear, okay. Anything else? Editing, I don’t know what you call labor, that’s still labor, it’s still your time. And other than that, I think that’s pretty much it. Okay, now let’s cut to this so that people can see what we’re doing here. So your time, which is measured in labor, somebody else’s labor, your assistant, and some gear. How did you know how much you charge for your gear, I’m just curious? How did you figure this out? I think I looked up what other people were charging for their rentals. Yeah, okay, how did you find out what other people were charging, like a rental house, yeah, rents? Okay, perfect. You did it the right way, so you found some kind of industry standard, right? The standard rate of what it costs to rent gear and then you put that back into your estimate, I’m assuming, right? Yeah, okay, perfect. So that’s really good, because I didn’t know that one. Yeah, me neither. Yeah, some of us forget to charge for our gear, you know why? We say to ourselves, well, I own it. Yeah, I’m not really renting it. Is it dishonest for me to ask for that? And no, it’s not dishonest, it’s actually the cost of doing business. Notice I’m saying costs here, right? Because who’s going to pay for that equipment? So you know that cameras especially, anything with technology, it has a shelf life, that means that the longer or the the longer period that expires between when you bought it and that date, the less valuable it becomes. If you buy a brand new car and you drive it off a lot, it’s already worth like 70% less just by you driving it off the lot, okay? So cameras and certain things, especially things that deal with technology, they just go down in value. So what would happen here is if you only build for your time, your assistant, and not for your gear, is when you went to go and replace your equipment if it broke, if a new upgrade was necessary to meet the standards of whatever your clients needed, you would have to make an investment in that with money that you don’t have. So what we need to do is we need to recuperate that but what it doesn’t account for here is any profit, okay? So it means that right now if you run the job successfully, all you’ve done is paid yourself. So one concept that I want you guys to start to become familiar with that we’ll dive deeper on another discussion but not today is who is managing management, who’s managing all these people? So we’re missing a layer of management here, like a producer, coordinator, there’s administrative time that we’re not accounting for here which we need to kind of think about, okay? And then we need to make profit, for example, so by the time that you finish 12 months of working you want to have profit left in your checking account after you’ve paid all of your expenses, paid for all the labor that has worked on a project, you still have money left over. So now that you know this concept about adding profit into your estimate, how much profit might you add? Well, there is no easy answer to this but let’s put into here, okay, let’s put it into this equation here. So let’s assume what’s a reasonable profit amount to add? What have you heard on the street? 15? 20? Okay, I’m going to try to guesstimate, so this is 25 percent so I’m gonna say like about that much, okay, roughly, guys, don’t get the measurement tool out on me and say Chris. So we’re gonna call this profit here and we’re gonna say it’s 25% of this pie and you need to save this. So I will

Business Profit and Risk

Alright, let’s break down what was discussed in the first segment of the video.

So, we start with:

“Write here 25, does that seem reasonable to you guys?”

“Yeah, okay, I realize I wrote this in a way that nobody can see it. I’ll fix that problem. Contrast, contrast. Ricky’s going to be lecture on design right now. Let me tell you something about type. Will you please teach me something about type, Ricky? So, 25 profit and this area here, we’re going to call cost. Okay, I’ll do this in red because people usually associate red with, like, bad things. That’s basically what it costs you. Now, you may have heard me say this before, that in some instances, I may mark up a project 300, 400. I can charge in excess in multitudes, in orders of magnitude more than what it cost me to make. For example, some of you guys have followed us on the Oles design example where I was able to build a lot more than just a logo. But what it cost me to make the logo is not what I charge my client. So, this range can actually be as little as five or ten percent, which some businesses survive on that little profit margin, and some businesses can be as much as, well, I don’t know, let’s do the inversion of this, let’s try this, where it’s like that much. Okay, where this piece of the pie, now doing much better on the drawing on the side. Okay, with that, it’s the profit, so I’m going to say this is 80 profit. Now, wow. Yeah. So, Ricky, why’d you say wow?”

“That would be really nice.”

“Yes, it would. 100 profit would be amazing, but okay, do you have any other reactions behind besides that would be really nice?”

“I’m really undercharging my services here.”

“Well, not yet, because we don’t know what’s involved here. I’m just saying the range can be quite drastic. It could be very dramatic, so it could be anywhere between five percent and say eighty percent, even more sometimes, you know, depending on the business. So, do you guys have any questions about this so far?”

“I do not.”

“No, do not. Are you sure? I’m teaming you up for a question here.”

“I am. I’m hoping that there’s a question. I know I should see a question here. I don’t see one.”

“Well, one question would be, Chris, how do I make more of that, and what factors drive that up?”

“Yeah, what made you decide that I could be on the right side of the circle?”

“Well, we all can, but we have to start to learn a little bit about business and what drives this thing.”

“Okay, okay. And I’ll get into needs and wants in a little bit, right? Maybe I’m probably going a little bit deeper than I had initially planned for this whiteboard session.”

“And do me a favor guys, if you’re watching this, if you enjoy these whiteboard sessions, the whiteboard sessions that I’m doing with you, go ahead and like this video right now and drop us a comment when you’re watching this. If these videos continue to perform well and my metrics are performing well, is can this get to like 50,000 views within a week? If you get into 50,000 views, I will leave the video up. If not, I would take this video down and just put it behind a paywall. Oh yeah, so I’m going to reward you for watching, for sharing, and pushing this thing out. Our goal, I’m going to write it up on the board here, is to get 50,000 views. 50,000 views in one week. Should be able to do this because basically I am teaching you how to do something. There’s no sales pitch here. If you can do this, if you help me get to 50,000 views, we’ll leave this video up and we’ll leave it on the channel for as long as we leave all our other videos on the channel.”

“Now, usually what happens here, and one big factor that determines the amount of profit is risk.”

“Risk, okay. And Peter Drucker, the famous Peter Drucker, said that all in business, all profit comes from risk. Who is taking the risk? Let’s understand this, for example, for a second. Do you guys invest your money in the market at all? 401k?”

“You got a 401k.”

“Okay, but where do you put the money in? In investment, do you go mutual fund or you go tech stocks or what do you do? Commodities?”

“I’ve heard mutual funds and IRAs, but I do not do those.”

“So, basically, both you guys don’t really invest right now. But let’s talk about this in my wheelhouse right now. Now, watch this. Yes, it’s not quite in because you guys are fairly young, you’ve not been working for that long, so there’s probably not even a lot of money to talk about right. So, when we talk about return on investment, ROI, return on investment, okay. If you were to put your money in a mutual fund or something, they might promise you a five percent return, right? And when we get a five percent return, we would do this only if what, if it were really safe, if it felt really safe, right? So, this is going to be considered a safe investment that you’re not going to lose it. But if we go on the other side and we invest in some speculative tech stock, okay, like we’re in the venture capital space where there’s a high failure rate. One of the biggest ones right now is WeWork. You guys know about WeWork, yeah?”

Pricing, Profit, and Risk

Yeah, okay. I realize I wrote this in a way that nobody can see it. I’ll fix that problem.

Ricky’s going to be lecturing on design right now. Let me tell you something about type. Will you please teach me something about type, Ricky? So, 25 profit, and this area here, we’re going to call cost. Okay, I’ll do this in red because people usually associate red with, like, bad things. That’s basically what it costs you. Now, you may have heard me say this before, that in some instances, I may mark up a project 300, 400. I can charge in excess in multitudes, in orders of magnitude more than what it cost me to make. For example, some of you guys have followed us on the old design example where I was able to build a lot more than just a logo, but what it cost me to make the logo is not what I charge my client. So, this range can actually be as little as five or ten percent, which some businesses survive on that little profit margin, and some businesses can be as much as, well, I don’t know. Let’s do the inversion of this. Let’s try this where it’s like that much. Okay, where this piece of the pie is now doing much better on the drawing on the side. Okay, with that, is the profit. So, I’m going to say this is 80 profit. Now, wow, yeah. So, Ricky, why’d you say “wow”? That would be really nice. Yes, it would. 100 profit would be amazing. But okay, do you have any other reactions behind besides that would be really nice? I’m really undercharging my services here. Well, not yet because we don’t know what’s involved here. I’m just saying the range can be quite drastic. It could be very dramatic. So, it could be anywhere between five percent and say eighty percent, even more sometimes, you know, depending on the business. So, do you guys have any questions about this so far?

I do not. No, do not.

Are you sure? I’m teeing you up for a question here.

You are. I am. I’m hoping that there’s a question. I know I should see a question here. I don’t see one.

Well, one question would be, Chris, how do I make more of that? And what factors drive that up? Yeah, what made you decide that I could be on the right side of the circle?

Well, we all can, but we have to start to learn a little bit about business and what drives this thing. Okay, okay. And I’ll get into needs and wants in a little bit, right? Maybe I’m probably going a little bit deeper than I had initially planned for this whiteboard session. And do me a favor, guys, if you’re watching this, if you enjoy these whiteboard sessions, the whiteboard sessions that I’m doing with you, go ahead and like this video right now and drop us a comment when you’re watching this. If these videos continue to perform well, and my metric are performing well, is can this get to like 50,000 views within a week? If you get into 50,000 views, I will leave the video up. If not, I would take this video down and just put it behind a paywall. Oh yeah. So, I’m going to reward you for watching, for sharing, and pushing this thing out. Our goal, I’m going to write it up on the board here, is to get 50,000 views. 50,000 views in one week should be able to do this because basically I am teaching you how to do something. There’s no sales pitch here. If you can do this, if you help me get to 50,000 views, we’ll leave this video up and we’ll leave it on the channel for as long as we leave all our other videos on the channel. Now, usually what happens here, and one big factor that determines the amount of profit is risk. Risk, okay. And Peter Drucker, the famous Peter Drucker, said that all in business, all profit comes from risk. Who is taking the risk? Let’s understand this, for example, for a second. Do you guys invest your money in the market at all? 401k? You got a 401k? Okay, but where do you put the money in? In investment, do you go mutual fund or you go tech stocks or what do you do? Commodities? I’ve heard mutual funds and IRAs, but I do not do those. So, I do not, basically. Both you guys don’t really invest right now. But let’s talk about this in my wheelhouse right now. Now watch this. Yes, it’s not quite in because you guys are fairly young, you’ve not been working for that long, so there’s probably not even a lot of money to talk about right. So, when we talk about return on investment, ROI, return on investment. Okay, if you were to put your money in a mutual fund or something, they might promise you a five percent return, right? And when we get a five percent return, we would do this only if what? If it were really safe. If it felt really safe, right? So, this is going to be considered a safe investment that you’re not going to lose it. But if we go on the other side and we invest in some speculative tech stock, okay, like we’re in the venture capital space where there’s a high failure rate, one of the biggest ones right now is WeWork. You guys know about WeWork, yeah. They’re going, it’s worth a gazillion billion dollars, and now it’s worth like, they might go bankrupt. So, there’s a lot of volatility here. So, this is volatile. But why would we invest in something that’s volatile? Because we expect a high return on investment. And what kind of return investment might we expect? 80, yes, no actually, it would be like, like, uh, 20,000 times our investment. Oh my god, it’s that much? Yeah, because you remember when we had Gary Vaynerchuk on our show and asked him what’s the best investment you’ve ever made, and he says it was in Twitter, and I invested ten thousand dollars and I got millions back. Wow, so this is why people get into it. So, high risk, high risk on this side, high reward, low risk, low reward, okay? So, this profit has a lot to do with it. Who is willing to take the risk? If you take the risk, okay, for example, right now, if you were to do hourly billing, which camera am I looking at, this one? A camakin, this one? If you were doing hourly billing, who’s taking the risk? You or the client? Who’s taking the risk? The client. The client is taking the risk, because you have no risk. If you work 40 hours, you get paid 40 hours. If you work five, you get paid five. So, at some point in your work career, the client may say, you know what, I’m taking

all the risks because you’ve put in two thousand hours and I’m not getting anything. I actually want you to give me an estimate on what it’s going to take. How much is it? They’re going to say cost, but what they really mean is price. What’s the price for you to do this? Because I want one fixed fee. So then you enter into this world and you have to start to figure this thing out. Now, without knowing all the ways that this job can go wrong, you have to assume risk. What if the client changes their mind? What if they don’t like this work? What if, midway through, some other stakeholder comes in and changes things? What if there’s things that you don’t think about, the unknown unknowns that come into play? So then you add more profit. You increase the price to accommodate the amount of risk that you’re taking. This is your first step into becoming an entrepreneur, a business owner, in that now you’re assuming some risk. All entrepreneurship has risk involved in it. So I hope that makes sense to you, okay, Ricky and Jonah? Does that make sense? Does it make sense to our people who are tuning in? Let me take my jacket here. Yeah, is everybody clear? Yeah, we’re getting a lot of likes now too after you ask. Okay, cool, great. I have to scratch my back here. This thing is pokémon. Alright, so if there are no other questions, I’m going to move on. So we’re going to build on each of these concepts, so it’s very important. So far, we’ve talked about cost. Now we’ve talked about price. But what about this thing called value? The value thing everybody needs to know about value. And value is subjective. It’s dependent on the buyer to determine value. Most of us think it’s up to us, but I’m going to tell you something right now. If I wanted to sell you my watch, if I wanted to sell you this hat, who gets determined the value? Who gets to determine the price? The buyer. Okay, so let’s go one at a time. Who determines price? The buyer. The buyer or the seller? This is important. Who gets to determine price? Seller. Why do you say that? Because they’re the first touchpoint. They’re the person that has to… They’re the person that has to put it on. They have to sell it. If there’s no pricing, that’s not a great explanation. You’re right, by the way. Yes, you’re right. Okay, no, you’re right. Don’t guess the other way now. People don’t understand this, but the seller, and I make a good… I get to determine the price, right? If I price it too low, I might sell a lot, but my margins are going to be really thin. If I price it really high, I might not sell a lot, but my profit margin is going to be really big. And we’ve talked about this in the last episode on pricing, right? That sometimes, to sell more product, you actually have to increase the price. So, the buyer, I’m sorry, the seller gets to determine the price. Okay, now here’s the thing. We’re going to get into this. What are you giggling about, Ricky? That I knew it. Well, you had an answer. It was a 50-50 shot, but yes, you did have the right answer. Very good. So, buyer, I’m trying to be less cocky, you guys. I’m trying to be more human, okay? Now, who gets to determine value? I know this one. You do. Yeah, what is it? It’s the buyer. The buyer, and why do you say that? Can you give us another in-depth answer like before? Yes, because I don’t have to buy what the seller… If they say a price, I don’t have to buy that price. I could choose to not buy it. Yeah, you don’t have to buy it. Exactly right. So, you get to say to yourself, is this fair to me? Is this based on my needs and wants? So, the last time we had this episode, right, we did a sneaker, right, Ricky has.

Understanding Value and Pricing Models

Encouraged me to draw more because he likes to see me draw. I do, so I would do my best to do some drawings here. So, we had a shoe, right, and say that’s the Nike shoe. Trying to draw, talk, and think at the same time, it’s kind of tough sometimes. Okay, so that’s your shoe, right, although I think I drew a Converse shoe. Okay, it’s cool. Now, Nike gets to determine what they get to determine the price, right? So, what’s are you into, Nikes? Sure. Okay, name a model. Um, the Air Max. Air Max. You and I are thinking the same today. Air Max, I was like, I don’t know many shoe names, so Air Max. How much does the Air Max go for, standard, no limit? You know, we’ll say a hundred dollars. Hundred bucks. Let’s say 99 bucks, okay, 99. Now, for some people, they’re going to see this Air Max, that is way too much. And for me, I have many options to buy before I get to the Air Max. But you, being somewhat of a sneaker aficionado, I think you like nice things, and so you’re like, “Dude, that’s no problem.” So, you get to say, “That’s fair.” So, something that confuses a lot of creative people is this, is that they think that if they set the price too high, that they’re taking advantage of the customer, the buyer. You guys ever feel that way, raise your hand in the audience. Yeah, okay. So, here’s the thing. Would they buy if they didn’t see value in this thing? Can I force Ricky through all powers of manipulation if he doesn’t value this thing? Would you ever buy, Ricky? What’s something that you see other people spending a lot of money on and you shake your head like, “That’s stupid.” Food. I like that. [Laughter] Way to give me a curve on that. When you say normal, like a consumable, um, car. It’s a very expensive car. Okay, like an expensive car, right. But you actually drive a pretty nice car yourself. You know, you could have gone with the difficulty, you went with the Nissan Maxima, right? Nissan Altima. Altima. So, you could say like for me, for some people, like diamonds. Oh, okay, okay. Like diamonds, okay, like precious stones. Do you believe in those things? No, me neither. Thank god. Well, we’re not getting married, so it’s all right. Okay, so there’s a diamond here, you know, ten thousand dollars for an amazing flawless diamond, beautifully cut, sparkles in the light. That’s worth ten thousand dollars. Then for me, it’s a rock. It’s a shiny rock is what it is. I don’t see value in that. So, you can’t convince me to buy this no matter what you do, no matter how many ads you run on the beers or whatever like, a diamond is forever. So, this is the thing. So first of all, you guys need to understand is when you set the price, the buyer gets to determine if it’s valuable to them, and if the perception is, is more value than what they pay, a deal is done, they buy. So when value exceeds price, buyers give you money. Everybody needs to write that down. Say one more time. When value exceeds price, people give you money. Thanks for the smash zoom, I appreciate it. We’re having a good time here, you guys. It’s all okay. The old me would be like, “What are you doing?” I’m trying, but this is a newer, cooler, more improved version 2.0 of Chris. Okay, everybody understand that so far? So, there cannot be such a thing unless it’s extortion or bribery or blackmail or you’re holding somebody at gunpoint, the buyer gets to determine the value. Let’s take a couple more examples into play and see how this works. Now, are you guys familiar with the concept of this word called keystoning, the double keystone model? I am not. Are you familiar with it, Jonah? No, okay, I want to introduce this concept. Okay, we’re about to learn. So, there’s a manufacturer, and that could be you. Well, and you could say it’s creative too, right, and you’re one part of the supply chain, and then somewhere on here is the buyer, the customer. Okay, I’m not mapping the space out and sometimes there’s a middle option here. Somebody will call this the retailer, and I’ll explain how this all works, and the retailer could be an agency that’s bigger than you, and we’ll examine it one way, and we’ll examine it how it applies to creative people. Sorry, I’m just getting my markers out here. I need to wear my smock. I think I need to wear my smock here. Yeah, okay. So, a manufacturer makes something, and they need to sell it. Okay, so we’re talking about, say, shampoo or something. Okay, shampoo. The manufacturer wants to sell it for five dollars, okay, to the retailer. They want to sell it to the retailer because usually the manufacturer, like Procter & Gamble, they don’t sell to consumer directly. They don’t have customer service. They don’t want to display. They don’t want to deal with returns. They just want to make a great product, let’s just say, okay? So, for the manufacturer to make money, they have to make it for less than two dollars and fifty cents. They need to keep it less than this, okay, because they need to make fifty percent profit here. Now, if you guys ever watch a show like Shop Shark Tank or Dragon’s Den, they always ask these questions of the entrepreneurs: What is the cost? What do you sell it for? And they’re looking for this ratio. So, if you sell something for five dollars and it costs you four dollars to manufacture, they’re gonna say there’s not enough profit in there for them. So, there has to be usually about fifty, so they sell it to the retailer. Whenever you go to buy shampoo and then the retailer buys it for five dollars, okay, so they bought it for five bucks. And how much are they going to sell it to the consumer for? I’m going to guess, you guys. 10, 12. 10 is the right answer. 10, just double it, okay? They’re going to sell it for 10, and you, the customer, are going to buy it for 10 dollars. Everybody clear on this? Yes. So, it only costs cents to make. Wow. And what did you pay? I paid ten. Yeah. So, to understand this a little bit better, it and costs cents to make. Now, if the manufacturer sold this to their retailer with zero profit in mind, how long are they gonna stay in business, Ricky? Not very long, Chris. Like, a very short amount of time. So, they add profit, and their profit in this case

is two dollars and fifty cents. So, they’re doubling it. They’re doubling the price, right, or with the cost, and that’s how they get to that. And so, you take this chunk, right, and then you go to the retailer and they add their profit to it. So, this is what it costs the retailer, right, it costs them five dollars. So, they add their profit. So, they’re going to 2x it too. And then that’s the price you, the consumer, pay. I hope I haven’t lost too many people. I think their eyes are rolling in the back.

Basic Business Concepts

Their head, I guarantee you guys, if you can understand and stick with me just for a little bit while longer because we’re almost done. I only have three more pages here, three more flip charts here. If you can stick with me, if you learn some basic business concepts, one is you’ll make more money. You’ll sound a lot more credible when you’re speaking to your client. And perhaps, and this is probably the biggest benefit, you can actually have a real conversation with them about their business and how doing something may or may not make sense for their business. Everybody understand that so far? I’m gonna pretend like you do, internet. I can’t really see you or talk to you right now. Okay, uh, thank you Ali Omar for saying he’s loving this. Okay, so this is the consumer price. So you see there’s a disconnect here between price and cost because it includes profit.

Direct Sales

Now, something interesting is happening. Manufacturers are starting to sell to the customer directly. And we can see this now via Kickstarter campaigns. A manufacturer can bypass the middle person and sell directly to the customer. That benefits two people: you, the customer, can buy a good for less. Let’s look at this model here, okay? If the manufacturer goes to customer direct, and this is going to make a lot of sense in a second, customer direct, okay, they can sell it for, say, 750. Previously, the price here was ten dollars, right? They can sell it to you for 750. They now make originally 250 plus five dollars. They’ve now doubled their profit, they’ve doubled this profit now, okay? And you have saved, how much have you saved, Ricky? 25. So it costs less for you to buy, and they make more money. This is a win-win situation, a win-win. I love shampoo, you like this, right? Yeah, Ricky, any questions so far? No, this is really clear. Okay, super clear, everybody. So far so good.

Double Keystone Model

Okay, this is known in the retail world as the double keystone model because it goes out and it goes out again. So they’re both marking it up twice. Now, I said in a second it’s going to make a lot of sense to you because I’m going to bring this home about creative services. Now you’re saying, “Chris, I don’t manufacture anything. I’m a creative human being. My product is my creativity and the time that I put into something, right?” Is there a model where there is a middle broker, a middle buyer of your services? Yes, there is. So this usually happens when a bigger agency or studio, usually an ad agency or a design studio, probably 30 or more people-ish, they need subcontractors. They need someone to do logo design, maybe they need somebody to develop the website for them or somebody who can do animation. And so they hire out people, and then they determine their costs together and then they go and sell it to the customer, which is the end customer, the end buyer, okay?

Sidestepping Middlemen

So if you can have the ability to sidestep the middle person and go sell directly to the customer, you will make more money and they will spend less money. So the middle person, for many of you especially if you’re watching this from a developing country, you might be working with Fiverr, Upwork, Freelancer or any one of these other sites. So the software in the middle is brokering the deal and they’re taking the money. They’re taking the money from you and they’re taking the money from you. So what we have to do is we have to learn how to brand ourselves, we have to learn how to market, we have to learn about customer service and sales. But if we do that, we can double our profit. So if you learn this, if you’re able to apply from the last 15 minutes of what I’ve been talking about, you could very well double your income for next year. So we should set aside some time right now. Let’s take a moment and say in 2020, what kind of income are you going to make? What I would set your goal as to be double what you did this year. So 2019, let’s say you did $50,000 in sales this year, say next year you do $100,000 by applying these principles that I’m teaching you today for free. I want to take a moment again to mention my Venmo account. You guys want to feel free, no strings attached, there’s no obligation, I’ll give you nothing more than what you’re getting right now except for the promise I’ll continue to make content for you. Is you can go to Venmo, V-E-N-M-O, and you can send me a donation of whatever size you want, a dollar, ten dollars, 200, 500, whatever you want. I’m at V Chris Doe. You can take me out to lunch, I can take you out to lunch. Yeah, no no strings attached to this.

Value Perception

Okay, so now let’s talk about another concept I wrote on here, I almost forgot, the t-shirt. The t-shirt. So here’s the interesting thing about value. We know that you can buy a three-pack of t-shirts like Hanes, you know the ones that Michael Jordan is hawking out there, Hanes three-pack t-shirt at Target for probably about ten dollars, right? Ricky, is that about right? Yeah. So you can buy some Hanes, a three-pack t-shirts for like $9.99. On the other side, there’s a designer called James Perse and he sells t-shirts for how much? Do you know? I have no idea. Somewhere on the internet, they’ll look it up for me. But a James Perse t-shirt might cost you $40, $50, or $60. I haven’t bought one in a long time, but they’re super soft, you know, there’s this thing called Pima cotton. Now you know Pima cotton is like the most premium cotton and when you touch it, it’s so soft and the cuts and the colors, it fits differently and it feels really good. And that same t-shirt, just for the argument’s sake, let’s just say it’s $39.99 for one shirt, for one shirt, same purpose, same function. So how is it that two t-shirts from the outsider perspective, from an objective point of view, are exactly the same but subjectively they command a very different price? What’s accounting for that? The buyer is placing a lot more value.

Determining Value

Yes, and why do they do that? Because they’re using premium products and their branding. Okay, it’s $135, well done. $135, that’ll one-oh-135. Yeah, it’s going up a little bit, yeah. Did you just look it up, Jonah? Yeah, you just looked, yeah. Well done, Jonah. $135. Okay, it’s gone up a little bit since the last time I checked, okay. Okay,

so it’s $135 for our t-shirt versus basically three dollars for one shirt. Wow. So we’re adding $132 dollars. That’s why, previously, remember this guys, bring this chart back here, remember this? Remember, I said there’s a wide range of profit from 5 to 80. So we need to figure out why this is happening and we’re going to get into it, okay? Okay, there’s a driver, there’s something that’s secret that’s happening inside each person to make them want that shirt. Now I’m sure most of you guys that are watching this, especially people are commenting right here, are probably sitting there thinking, “This is insane, $130, $135 for a t-shirt, that’s the stupidest thing I’ve ever heard of,” right? Yet, you’re driving around an Audi or BMW, yet you’re sporting a fancy luxury watch like maybe this one or a Rolex or something like that, okay? Or maybe you will spend $300 for dinner. So we all get to determine what’s valuable to us and this is why I want to say one more time: the buyer determines the value. The buyer, you get to decide what’s important. Jonah, do you splurge on anything? I know you do film stuff, yes you do, yeah. Yeah, you old school guys, you should film again. But you are going to buy a three or four thousand dollar camera with the $2,000 lens because you value this thing whereas your mom, your dad or your cousin, your brother, somebody’s like, “Dude, just get point and shoot, my iPhone’s great, honey, why do you need that? They all take pictures, right?” So you

Emotional Value

Assign a different value to it now. There are technical differences for sure, but the biggest driver is something else, it’s emotional. It’s what you want to feel. We’ll get into that. Let’s say we’re going to talk about a logo because this is very relevant to our community, the logo. Let’s assume you guys both have some kind of business, right? So Ricky, I remember a little while ago at Adobe Max, you wanted to start a clothing line called the Chill Boys. I did. We’re having some fun with it. You were designing a logo, it didn’t turn out well. No, because it didn’t happen. Now, let’s assume you have some money and some ambition to start a company. How much would you pay for a logo? Let’s say I could design any logo in a week’s time, let’s just say, and I would design a logo for you. How much would you pay to get the Chill Boys logo that you could own outright? Um, I would pay two thousand dollars for that. You would pay two thousand? We should have been talking, dude. Oh my god, you should have been talking to me. All right, I think you messed up on that one, Chris, I think, yeah, there’s an opportunity that was dropped. I won’t miss it again. So Ricky says two thousand dollars for Chill Boys logo. We’ll follow up with you later, okay? You also do some freelance work, right? Yeah. And then how much would you pay for a logo? Like 500. 500? You cheap bastard. Okay, I’ll splurge it on the logo. You don’t… I guess your business is not that important. See, my business is important, Jonah. Yeah, I think you’re gonna say, I thought you’re gonna… I’ll do Ricky and say 10k. Dude, it’s a freaking 2k is chump change, I’m going places, Chris. Okay, so here’s the thing. I could design a logo for both of you in a week’s time. You guys have some confidence, I would be able to give you something with a week’s worth of work. I mean, if you send me your resume, maybe we can talk. Yeah, I’ll send you my resume. Right. So you, I would be able to do it. So why is it that one week of my time is worth something totally different to the two of you? How could that be? See, like I can sit there and shout and scream from the top of the building to Jonah, “Jonny, you should be paying me at least two thousand dollars,” and Jonah’s like, “You know what? It’s really just not worth that much to me. It’s just not. I don’t see the value in that.” So no matter how smooth of a salesperson I am, no matter my pedigree, which you know what I’ve been able to do, you’re just gonna be like, “Uh-uh.” Just like I’m not gonna buy 135 James Perse shirt. Just not going to do it. You understand here? So a lot of people ask me this question, how can I convince the buyer that it’s worth more? You just cannot. You cannot do this. All you can do is to help them understand the business problem they’re trying to solve, and if it happens to line up with the logo, you’ve done yourself a favor. Okay, this is not to say that there aren’t techniques to negotiation and talking about value, but you cannot invent value in the buyer’s mind if one doesn’t already exist. So by asking them questions while scaffolding, while doing discovery, you can help them to realize the value in their mind, and if they agree with that, then the price will go up. Okay, let’s move on. How many people are watching now? Five hundred and twenty-four, five hundred twenty-four, six forty-three is what I’m seeing. Six what? Oh, six forty-three, six forty-three guys, we’re doing pretty good here. Yeah, this is good. This one I should have warned everybody up front was going to be a media episode, just like it’s not one of those impossible meat things. Okay, let’s get into it. What are we talking about? Coca-Cola here, for I should have done this differently. I should have done like this, okay, hold on, pretend you guys didn’t see anything, I’ll cut away, see what cut away, cut away. Jonah, stay over there while I like doctor this thing up here for a second. Give me one second. No, no, no, we’re thinking on our feet, you guys. We’re still good. Okay, there we have people commenting, Chill Boys, I know dude, okay, I’m sure some very talented designer can help Ricky out for less than 2k. I would suggest you spend very little on this venture of yours, but anyways, let’s get into this. Now, well, that was for you, Chris, that was for you. I would pay that much, yes, I see, thanks for clarifying, I appreciate that. I’m feeling it right here. I would still pay you 500. No, we have three cans of coke that are identical, objectively exactly the same. These are 12 fluid ounce, 140 calorie cans of original Coca-Cola Classic. It’s the real thing, is that what they say? No, I don’t know. It’s the real thing, it’s the real thing, I don’t know, we’re nobody’s paying attention anymore to their marketing, so Coca-Cola, you’re maybe not spending your money wisely here, but who am I?

Pricing Differences

Okay, anyways, if you go to a wholesale place like Costco, you know where they sell you things in bulk, you’re going to pay one price for the Coke. If you go to a vending machine, you’re going to pay a different price for this Coke. And if you go to the movie theater, you’re going to pay yet a different price for the same amount of liquid. And what is the determining factor on that? I would love for you guys to read a couple of questions or comments from the audience while I go get some supplies. I’ll be right back. Okay, you got that? Yeah, so do you want to just read, give shout outs and that kind of stuff?

So, the question is, what would change the price between the three?

Sure, okay, is that what it is? What do you think it is? I don’t know, I wasn’t paying attention. Oh my god, for use, okay, per use, per use, the deluge, okay, don’t show them what I’m doing right now. All right, all right, just go to the wide while I work on this a little bit here. The location. We have someone commenting, the location. I have to think on my feet. I think I remember you talking about this, so I might remember the answer. You might, you remember the answer? Yeah, why don’t you just read, uh, some comments, not even questions, like shout outs and things like that.

Somebody think, oh, okay, um, go ahead, yes, purchases. They get more thirsty at the movie theater, so that would, uh, determine it, maybe you get more thirsty, I don’t know, you thirstier at the theater. Now people just want a Coke, that’s okay, Coke, we’re looking for a sponsor. I see someone commenting that, I remembered, yeah, you remember the answer? Should I say it? No, no, okay, we’re gonna get into it, this is good. So you can say their name, I think, uh, Jason47 got it, you know, give them a shout out. You lost it, the moment’s gone. Oh, they’re coming in so fast, okay, forget about that, guys, let’s get back into this.

So if you go and buy this at a wholesale, I’m gonna do it like this now, it’s totally interactive whiteboard, not right, and you’re going to pay, basically, I’ve done the math, 30 cents per serving, 30 per serving, and it’s cheapest to buy. It’s the most inconvenient because you’ve got to drive out to Costco, the warehouse place, you’ve got to wait in line, and the lines for these things can be brutal, you know this, right? It’s almost like sometimes I go in, my wife said, “Go get in line right now, we just got inside, like go get in line,” because by the time I’m ready, it should be ready to go. Okay, and it requires the most planning, time, and effort to buy this, and usually these locations are not so convenient, they’re kind of in more industrial areas versus like the suburbs. Okay, next, if you go to a vending machine, I’ve, I’ve done the math here, usually the vending machines are 1.75 per serving, you put in almost two dollars, you get a quarter back and it’s 1.75. Why does it cost so much? What’s driving the cost difference here? Well, this allows for spontaneous purchase, you walk around, it’s hot outside, you’re dang, I’m thirsty and I’m nowhere near anything but I have cash, so you’re paying for the convenience, the fact that somebody went to Costco, bought all the cans of Cokes, put in the machine, chilled it for you, waiting for you to consume, right on the spot, it’s ready to consume, RTC, right? And that’s why it costs a lot more. Same thing, the movie theater, it costs 450 per serving, so this is an orders of magnitude more than if you bought it wholesale, and why does it cost so much at the movie theater? Well, a couple other things, one is they have a monopoly on this, you’re not allowed to bring in your own drinks, and where movie theaters make most of their money is the concession stand, not the ticket price. So they bring you into the theater, they might even consider the movie itself as a lost leader, which is they will lose money on you coming in and going out because they’re probably paying more for the screening and the room and the upkeep and the ushers, then they are making money, they’re making the real money in the popcorn, the drinks, and the candy.

So let’s get into this, the theater has an exclusive monopoly, okay, and we are conditioned to feel because my son and I feel this way that when we go to watch a movie in the theater, you gotta get that bucket of the tub of popcorn and the icy cold bubbly drink, it tastes better, feels right, yeah, it does taste better, it really does, and maybe because it’s on tap, they’ve got the right level of carbonation and the syrup, and they’re, you know, it’s really good. And here’s the thing, here’s the thing, it triggers an emotional response, we’re sharing a moment, my son and I, so when we go, even though I don’t want to drink soda water or consume a tub of popcorn together, I just feel like we’re bonding, or I remember when I was younger and I was dating, I was dating, you know, and I went to the movie theater with my girlfriend, I felt like I was compelled to buy a tub of popcorn, candy, and two drinks, right? It can’t be cheap, I can’t be cheap, but I can’t come across as being cheap. So there’s an emotional benefit to this. Is there an emotional benefit to going to

Pricing Strategies and Emotional Value

Anyways, if you go to a wholesale place like Costco, you know where they sell you things in bulk, you’re going to pay one price for the Coke. If you go to a vending machine, you’re going to pay a different price for this Coke. And if you go to the movie theater, you’re going to pay yet a different price for the same amount of liquid. And what is the determining factor on that? I would love for you guys to read a couple of questions or comments from the audience while I go get some supplies. I’ll be right back, okay? You got that? Yeah. So do you want to just read, give shoutouts and that kind of stuff?

So the question is, what would change the price between the three? Sure, okay, is that what it is? What do you think it is? I don’t know, I wasn’t paying attention. Oh my god, for use, okay, per use, per use, the deluge. Okay, don’t show them what I’m doing right now, all right? All right, just go to the wide while I work on this a little bit here. The location, we have someone commenting, the location. I have to think on my feet. I think I remember you talking about this, so I might remember the answer. You might? You remember the answer, yeah. Why don’t you just read some comments? Not even questions, like shoutouts and things like that.

Somebody thinks, oh, okay. Um, go ahead. Yes, purchases, they get more thirsty at the movie theater, so that would determine it. Maybe you get more thirsty. I don’t know. You thirstier at the theater now. People just want a Coke. That’s okay. Coke, we’re looking for a sponsor. I see someone commenting that I remembered, yeah, you remember the answer. Should I say it? No, no. Okay, we’re gonna get into it. This is good. So you can say their name. I think Jason47 got it, you know, give them a shoutout. You lost it. The moment’s gone. Oh, they’re coming in so fast. Okay, forget about that, guys. Let’s get back into this. So if you go and buy this at wholesale, I’m gonna do it like this now. It’s totally interactive whiteboard, not right? And you’re going to pay, basically, I’ve done the math, 30 cents per serving. 30 per serving. And it’s cheapest to buy, it’s the most inconvenient because you got to drive out to Costco, the warehouse place, you got to wait in line, and the lines for these things can be brutal, you know this, right? It’s almost like sometimes I go and my wife says, “Go get in line right now,” we just got inside, like, “Go get in that line,” because by the time I’m ready, it should be ready to go. Okay, and it requires the most planning, time, and effort to buy this, and usually these locations are not so convenient, they’re kind of in more industrial areas versus like the suburbs. Okay, next, if you go to a vending machine, I’ve done the math here, usually the vending machines are $1.75 per serving. You put in almost two dollars, you get a quarter back, and it’s $1.75. Why does it cost so much? What’s driving the cost difference here? Well, this allows for spontaneous purchase. You walk around, it’s hot outside, you’re like, “Dang, I’m thirsty,” and I’m nowhere near anything, but I have cash, so you’re paying for the convenience, the fact that somebody went to Costco, bought all the cans of Coke, put it in the machine, chilled it for you, waiting for you to consume right on the spot, it’s ready to consume RTC, right? And that’s why it costs a lot more. Same thing, the movie theater, it costs $4.50 per serving, so this is an orders of magnitude more than if you bought it wholesale. And why does it cost so much at the movie theater? Well, a couple of other things, one is they have a monopoly on this, you’re not allowed to bring in your own drinks, and where movie theaters make most of their money is the concession stand, not the ticket price. So they bring you into the theater, they might even consider the movie itself as a lost leader, which is they will lose money on you coming in and going out because they’re probably paying more for the screening and the room and the upkeep and the ushers than they are making money. They’re making the real money in the popcorn, the drinks, and the candy.

So let’s get into this, the theater has an exclusive monopoly, okay? And we are conditioned to feel because my son and I feel this way that when we go to watch a movie in the theater, you gotta get that bucket of the tub of popcorn and the icy cold bubbly drink. It tastes better, feels right, yeah, it does taste better, it really does. And maybe because it’s on tap, they’ve got the right level of carbonation and the syrup, and they’re, you know, it’s really good. And here’s the thing, here’s the thing, it triggers an emotional response. We’re sharing a moment, my son and I. So when we go, even though I don’t want to drink soda water or consume a tub of popcorn together, I just feel like we’re bonding. Or I remember when I was younger and I was dating, I was dating, you know, and I went to the movie theater with my girlfriend, I felt like I was compelled to buy a tub of popcorn, candy, and two drinks. Right? It can’t be cheap, I can’t be cheap, but I can’t come across as being cheap. So there’s an emotional benefit to this. Is there an emotional benefit to going to Costco? Not usually, not really. Not really. Is there an emotional benefit to the vending machine? Maybe, but mostly it’s one of convenience. So we know a little bit about how we can increase the price of something. Let’s see if you guys are paying attention, Ricky