How to Make Money? Practice.

There is a great article over at Inc.com by Jason Fried of 37signals. Comparing making money to learning to play the drums well, he emphasizes the importance of practice.

I have a degree in finance, but I don’t remember taking any classes that even remotely taught me how to make money. I’ve read plenty of business books. Same thing—lots of talk about money, but not much about how to actually make the stuff. One thing I do know is that making money is not the same as starting a business. For entrepreneurs, this is an important thing to understand. It took me a long time to figure out how to make money. Here’s how the lessons unfolded….

He then goes on to break down all the lessons he had to learn to be good at making money (and he does, actually, make a lot of it these days). Some of my favorite points were

Don’t try to impress customers with acronyms, terminology, or jargon.

This has a negative effect. “When you describe things in terms people don’t understand, they tend not to trust you as much. Trust is important. You can bluff your way into money, but for only so long.”

Understand what the customer really wants.

This needn’t be an impossible, Freudian level analysis. Perhaps think about what are the top three things a customer thinks is important, in making a purchasing choice:

Once I stopped slinging the technical terms, I realized that when customers shop for shoes, they do three things. They consider the look and style. They try them on to see if they’re comfortable. And they consider the price. Endorsements by famous athletes help a lot, too. But the technology, the features, the special-testing labs—I can’t remember a single customer who cared. I sold a boatload of shoes and tennis rackets that summer.”Understanding what people really want to know—and how that differs from what you want to tell them—is a fundamental tenet of sales. And you can’t get good at making money unless you get good at selling.

Sell only things you’d want to buy for yourself.

You can understand a buyer best, and most naturally, when you honestly would like to buy your own product. And if you can offer people things that you want – for less than they can get anywhere else – you have a winning combination.

His advice about practicing by buying and selling things repeatedly on eBay is a good one.

Here’s a great way to practice making money: Buy and sell the same thing over and over on Craigslist or eBay. Seriously.

Go buy something on Craigslist or eBay. Find something that’s a bit of a commodity, so you know there’s always plenty of supply and demand. An iPod is a good test. Buy it, and then immediately resell it. Then buy it again. Each time, try selling it for more than you paid for it. See how far you can push it. See how much profit you can make off 10 transactions.

Start tweaking the headline. Then start fiddling with the product description. Vary the photographs. Take some pictures of the thing for sale; use other photos with other items, or people, in them. Shoot really high-quality shots, and also post crappy ones from your cell-phone camera. Try every variation you can think of.

Other tips include:

People are happy to pay for things that work well. Never be afraid to put a price on something. If you pour your heart into something and make it great, sell it. For real money. Even if there are free options, even if the market is flooded with free. People will pay for things they love.

Charging for something makes you want to make it better. There is a type of intimacy involved with selling (and buying) a product. Living up to expectations makes you perform.

Don’t just charge. Try as many different pricing models as you can. Jason’s description from his own business is persuasive here:

Before I launched 37signals, I worked as a freelance Web designer. I charged clients by the hour. I work quickly. But I soon realized that charging hourly penalizes efficiency. If I can finish something in an hour that might take someone else three or four hours, why should I be penalized? So when we launched 37signals in 1999, we charged clients by the project.

It worked great. But as the projects started getting bigger and costing a lot more, I noticed that clients became more reticent about signing on. Big numbers and long time frames make people nervous. More money and more time mean more risk, and risk is something all companies would prefer to avoid.

I thought about the problem and decided to try something new. Instead of doing long, expensive projects, we’d do short, affordable ones. Instead of billing $50,000 for a 15-page website redesign that would take three months, we’d charge $3,500 per page and offer to complete the page in a week. If you want another page, it’s another $3,500 and another week. We called it 37express.

It took off. It took the risk out. It let companies try us out before committing to something big. And it was a lot more fun for us—fewer meetings, less stress, fewer decisions to be made. Just a quick one-week project for a fixed price. If you want more, we’ll sell you another.

We no longer design websites, so we don’t offer 37express anymore. But it was a fantastic way to make money. Remove the fear, and people will be more willing to pay you. People don’t like uncertainty—especially when they have to pay for it. A week and a fixed price is certain.

We’ve continued to experiment with pricing models. It’s been a great way to get a 360-degree view of how customers think about their money and our products. Our apps, for example, are available as monthly subscriptions for $24 to $249 per month. We’ve sold our book Getting Real as an instant download for $19 and as a paperback for $25. We’ve sold tickets to our eight-hour workshops for up to $1,000. Listings on our job board are $400 for 30 days. We sell listings on Sortfolio, a service we built to help small businesses find Web designers, for $99 per month.

We’ve even sold promotional T-shirts, for $19, when just about everyone else in the business gives them away. People wear shirts they paid $19 for. People turn free T-shirts into rags. Rags don’t promote anyone.

Read the whole article here.



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