Is it possible to increase your profits without finding new customers? Absolutely, and in this episode, I’m sharing with you how to do just that.
Today we are talking (again) about improving your margins.
In the last episode, we discussed shaving your expenses and how impactful that can be to the bottom line of your business. The objective today is to show how you can take your existing customer base, make some small changes and see how much money can fall to the bottom line.
We’re going look at the business models of a few public companies and use them as examples.
3 Examples of Increasing Profits From an Existing Customer Base
Over the course of a year (June 2018 – June 2019) Amazon Prime had an average of 100 million people subscribe to their Prime membership. At $99/year this generated $9.9 billion for the company just in membership revenue alone.
In 2019 they increased the cost to the consumer by $20 for a total membership fee of $119/year. That strategy generated $2 billion of extra cash. Simply looking at costs, if everything else in the business stayed the same they would have $2 billion of extra profits each year.
In Jan 2020, Netflix had 167 million global subscribers. In 2018, their most common subscriber package was $10.99/month. But in 2019 they raised it to $12.99/month. The numbers are pretty impactful because they are charging an extra $2/month which translates into about a $5 billion increase in cash.
“If you have a huge subscriber base, the increase of small amounts drops tremendous amounts of money to the bottom line and increases profits.”
Costco has a slightly different model. Most of the products you buy in the store are marked up at a 13% percent margin which covers the overhead on products, and overall operation of the store.They make their profit off the memberships that they sell.
In 2019 Costco had 98.5 million members, and their standard membership is $60/year. That generates about $6 billion in cash, and at some point the membership cost will go up a few dollars. That’s not a massive increase to the customer, but as Costco increases those prices, the amount of money that falls to the bottom line becomes pretty impactful – especially as they are growing their memberships.
“We can focus on growing the number of members or you can focus on how we are charging.”
Incremental Increases in Your Business
We talk a lot about average cart values, and the lifetime value of a customer. Why?
Because if you can drive those sales up just a little, while giving the customer more value without driving a cost number on the backside of it, that money will all fall to the bottom line.
In the above examples, we’re not looking at growing subscribers; we’re looking at what they can do to dial it up. Whether it is charging an extra $1/month or an extra $5 dollars/year, these things drive tremendous profits.
If you can increase how you charge in small incremental ways, while still providing value to the customer, that money will come easily to you and fall to the bottom line of profit.