Three things cannot be long hidden: the sun, the moon, and the truth. ~Buddha
I can’t promise you the sun. I won’t promise you the moon. I promise you the truth, as I have learned or experienced it.
Most are not going to like the truth. Many prefer the “fairytale“. Yet it’s those very fairytales that crush business dreams. Maybe even yours.
Let’s look at a direct quote from a well known marketer’s recent pre-sales promotional report on publishing information products as an easy way of creating income to see just how easily people can be misled:
“Info products, especially digital info products, offer you one of the biggest profit margins you can find. Here’s what we mean… Let’s say Jane, a mother of four, has an idea to create a 15-page e-book on her favorite all natural remedies for common ailments affecting children. To create her e-book, all she needs is a computer with a word-processor on it, her ideas, and maybe a few hours to put her e-book together. She will likely need an email account to spread the word about her e-book, and maybe even a website, but we’re talking about very minimal up-front costs to create her e-book. (Let’s say her production costs total up to $50, assuming she already has a computer or can borrow one from a friend or family member.)”
First, the truth.
- Digital information products do offer opportunities for achieving high margins. [You set these yourself after determining how much profit you want/need to make on each unit sold.]
- The up-front costs can be minimal, but they most certainly include quite a few more expenses than are noted in the typical pre-sales report or salesletter. [It isn’t uncommon for the full list to be kept from you. A more realistic picture could be deterring and conflicts with the fantasy being sold.]
- More importantly, these are not your only costs. And they are different from the production costs about to be referenced in the statements that follow. [Confusing the two types of cost and ignoring sales and marketing cost are why so many new business owners, online and offline, are making seriously fatal errors in pricing their goods and services.]
Now, the fantasy:
“If Jane sells her e-book for $27 and sells 100 copies, her profit margin is looking pretty good ($2,700 in profits – $50 production costs = $2,650)!”
- Costs all-in of $50? Not likely. 100 folks immediately willing to pay $27 for a 15-page eBook? If it’s one hell of a compilation of need-to-know-now information not available from any other source, maybe. But again, not likely.
Already the scenario being painted pushes the boundaries of reality. And nowhere does it tell you just how many thousands of eyeballs you’re going to have to interest in that eBook just to have a chance at making a single sale!
But here’s the more serious misinformation. This is what does you and your business the most harm.
- Even IF Jane accomplished this incredible feat, the $2,700 is not the profit margin, it’s gross product sales. From this you must deduct ALL related sales and marketing costs, and these can be significant, to come up with your net sales. The profit margin is a percentage, not a dollar figure, derived by dividing revenue into net sales. Gross sales minus cost divided by your selling price is the formula used to determine profit.
INSIDER TIP: Pricing errors can be fatal for your business. You don’t have to make them. Nor do you have to be misled by marketing materials that paint a picture so far from reality or that contain inaccurate information.
Profit and margin are not the same thing. We explain the difference and how to do the calculations in SMARTSTART Pricing. Reading this guide has saved a lot of people from disappointment. Maybe it can save you too?
More next time. Until then, remember to LOVE YOUR WORK, whatever it may be.
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