The price of value
This last weekend I was out of town with the family, enjoying some hiking, mountains, and creeks of a small tourist town just a few hours north of Phoenix. This is THE tourist spot with all kinds of activities from rock climbing, horseback tours, kayaks, paddleboards, and off-road motorsports. Something stood out to me a bit and I figured out an interesting connection.
The cost of value is different than the cost of the goods.
You see, you can rent a lifted Jeep Wrangler or what is known as a Side by Side. A side by side is a 2 or 4 person off road vehicle that is more akin to a quad/ATV or Sand rail.
So a Jeep, a street legal SUV, or these giant ATVs, both easily rented. But thats not the interesting thing.
A Jeep Wrangler Rubicon, in 2020, is a $60k vehicle, and has been for many years back. These 4 seater buggies are around $30k. HALF.
Now to rent a Jeep for an 8 hour day, you are looking around $350-400 a day from the 3 places I looked.
The Side by Sides, a 2 seater was $550, and a 4 seater was $650.
This blew me away. A jeep, which has a lot more safety features, radio, air conditioning, etc. was almost half the cost of the side by side to rent, despite costing more than double to own.
“Why is that?” I wondered.
Simple. The value here is not in the cost of the goods, but the perception of fun. The tangible take away for the renter is not fractional use of a fixed cost, but the thrill of something different, fun, and unique. You see jeeps all the time, they have been around for 80 years and millions on the road.
Okay so wrap up a point here Adams.
The point I found interesting is that the higher cost of the item had lower profit margins. I could rent out a $60k good for $400 a day, 15 days a month, and make $72k a year (minus payments, maintenance, upkeep, etc) OR I could rent out that $30k side by side, and make $116k a year (again, minus payments, maintenance, upkeep, etc).
I dont know about you, but I’m going to rent that side by side all day long. I’m sure there is a ton I am glossing over here, but this isn’t a blog about off road rentals. It’s a blog about value.
A few years ago, I was pushing more expensive websites and projects. $10k projects became 20, and eventually 50k projects became 100k. Not just a higher ticket, but higher output, more work, more features, more function. It was bigger work for bigger invoices. But I was making less profit.
It was just a year ago or so that I figured out the sweet spot, that side by side sweet spot. There is a lot more profit in the mid sized projects on average than the higher invoice sites.
I made that my mission. They were easier to sell, easier to succeed, and easier to produce. Maybe I had to have more projects at once, but it keeps things moving, things like the team, the clients, and cash flow with regular payments since big sites had big milestones with big gapes between.
So step back, and look at the profit margin of your company, then look at it on a per project level. Start to look for trends and red flags. Maybe you will see types of work to remove from your target market and dig deep into the profitable work.
