Xdohl makes some very accurate points.
You also have to consider that you’re in a niche market.
There just isn’t a demand for millions of units. Heck, the demand isn’t even in the thousands spread across all manufacturers. If you’re selling less of a product, you’re making less money.
Let’s play with some imaginary numbers on a real crude scale, just to get the gist of it…
Let’s take all the factors that Xdohl listed, and a couple more he didn’t, and make up an arbitrary number. Let’s say all that jazz, plus operating expenses for a year, runs our company right around $100,000. Now, let’s make our own yo-yo company based on these figures.
Our company is now, for our purposes, $100K in the hole. Time to sell some product!
Now, in that year, our company sells 100,000 “Super Duper Spinner X” yo-yos for $20 a piece. Well, that’s 2M in income. Minus all our expenses for the year, we’ve made $1.9M in profit. It’s time to light cigars with $100 bills, buy a yacht, and make rap videos. Bonus!
Now, let’s say we didn’t have a 100,000+ unit sale year. Let’s say we only sold 1000 units. At $20 a piece. Well, we’ve made $20,000. Which only leaves us $80,000 in the hole this year! Yay! Wait, this is bad…
Let’s say this happens a year or two more. Things are looking bad. Real bad. On the bright side(?), at least we have an idea of about how many units we can expect to sell in a year. We’re moving an average of 1000 a year. Sometimes more, sometimes less, but we have an average.
What can we do? Selling product isn’t covering our expenses for the year. At this rate, we might as well not be open. Now, things aren’t as bad as they were in that first year, believe it or not, because we got all the expensive research & development, designs, molds, and machining out of the way. It’s not costing us as much as $100K a year to operate, but to keep it simple let’s say that this is still the case. $20K in “profit” a year isn’t cutting it.
We could close down. We could trim expenses. No more free doughnuts and coffee in the break room. We could let some people go, no matter how much we love working with them.
We could try selling our product for more money.
If we sell our yo-yo for $50 a unit, we’ll make $50,000 this year. Better, but not good enough.
How about $100 a unit? Well, that’ll yield us right around $100,000. Well, now we’re breaking even. The pressure is off, just a little bit. Of course, breaking even doth not a profitable company make. People are a little miffed at the price tag, but least they’re still buying.
Let’s push our luck and go for $125 a unit. Bam! $125K in sales! That’s $25,000 above our operating costs! People are upset that the Super Duper Spinner X costs so much, but they’re thankfully happy with the product. They wish it was cheaper, and ask a lot of questions about why it can’t be, but they’re still buying. Let’s just keep the price fixed right here, or their loyalty is going to disappear. We don’t want that. Let’s just be glad they’re willing to spend their money on our product.
Now, we’re doing alright, but it doesn’t seem we can go much higher. The demand for our stuff is there, just not in the numbers we’d like. We’re running “in the green” and that’s good, but it’s becoming evident as the years roll on that none of us are ever going to get rich doing this.
Hey, at least we’re doing something we love, right?