Tiny, local café understands why 3% matters. Do you?

March 18, 2023 Flagstaff, Arizona

“There’s been a 5-car pile-up near Strawberry Pine and the road is closed indefinitely!”

We’ve been cruising around southern Arizona. Enjoying mid-70’s temperatures, hiking atop peaks in Seguaro National Park, checking out amazing geological features in Chiricahua National Monument and an amazing archaeological site called Tonto National Monument.  

It seemed logical, therefore, to drive another 2 hours and check out the famous Montezuma Castle National Monument. All we needed to do was drive further north, up and then over some high mountains in the Tonto National Forest and drop down to the Verde River valley; some 30 miles south of Sedona. 

One small problem.

The weather gods decided to send some Canadian winter weather down upon the high elevations. We didn’t know how much winter until we saw the flashing red lights and a blocked highway barring our way.

I got out of our car and walked to the officer in charge to learn what the problem was and how long the hold up might be. He told me it would be several hours. 12 inches of fresh snow, contributed to big accident, multi-vehicular in nature. Several hours delay, he expected.

Was there any other route to get to our destination I asked?

Sure, return towards Phoenix, and then head north on the Interstate 17. 

I’m thinking – that’s a 3-hour detour at least – forget about it!

So, we changed our plans and headed north to check out a different Park – containing one of the world’s largest concentrations of petrified trees on the planet. 

What’s been interesting, during this particular leg of our journey, is a commonality among the small, local businesses, restaurants, cafes and even large gasoline retailers.

They offer two prices.

One for cash and a higher one if you pay via credit card.

The small café where we grabbed a nice lunch just before the road closure, charged 3.5% more, for credit card transactions. 

Now, some of these smaller businesses, may be encouraging cash for less than honourable reasons. Or, maybe they like the idea of cash as a way to discourage central banks from their desire to control purchases via a digital currency.

But national retail, gasoline chains?

The real reason is they understand how important a small improvement in profit margin is. And the cost of accepting credit cards is very real to merchants. 

(Interestingly, the average business can DOUBLE it’s profits by just making 1.4% improvements in 12 basic areas. Check your own numbers here.)

There was a very insightful article about the retailing giant Costco’s success in the February 17th Economist, (thanks Dad for sending that one!) that illustrates this point.

Costco keeps it’s gross margins extremely low – at only 12%, versus Walmart, (another discounting behemoth) which operates at 24%. Yet, Costco has a return on capital of nearly 20% - twice as high as Walmart.

How do they do it?

They charge a minimum $60/year membership – which is basically all profit, and this money represents just over 50% of their operating profits!

The membership model lends itself to greater loyalty from its customers but that is not all.

This company stocks just 3800 products versus some 7000 for Sam's Club and 120,000 at Walmart’s super stores. Fewer products mean fewer suppliers and thus better buying power. It also allows for a more efficient stocking system, faster selling cycle which in turns means less capital tied up in inventory.

Now, how can you use this information? I mean, you aren’t about to go compete with Costco. And I certainly have never encouraged any client to be the lowest priced competitor – quite the opposite.

Here are few take aways for you:

1. Always look and see if you can engineer a membership type model. You want customers that return again and again; to have them feel a loyalty to you beyond even, the service or product you provide. People like to belong to something. Fill that need.   

2. Do not try and please everyone and stock everything you think they need or want. Be the best at a small number of things. I always shudder when I receive a menu from a restaurant that is pages thick – with every kind of concoction. There are no synergies or efficiencies that can happen in the kitchen with such a huge menu. Better to keep it simple and do it well.  

3. Keep an eye on your expenses and margins. It is far too easy for extra items to slip in and before you know it, you’re losing 5 to 10%. On $1 million in sales – that is a cool $50 to $100,000. Money that could be in your pocket. 

Until next week, 

Stay healthy and focus on profit! 

 - Hugh  The “Profit Accelerator” Expert

P.S. Looking for proven ways to take your business to the next level? Look no more! With a membership to Real Business Mastery, you will find over 280 hours of training with proven strategies to grow any business. Plus, you get access to my $50,000 Advertising Library with winning promotions and campaigns from over 120 industries.  Act right now and save 90%! Click here now and use code: RBM90.

★ BECOME A HIGHLY PAID BUSINESS COACH WITH #1 COACHING PLATFORM ★ I am looking for individuals to help handle the exploding global demand for business coaching services. I’m willing to train [at my expense] the right individual with a passion for wanting to help small business owners become successful. NO travel - work from home. $225,000 first year income. If you or someone you know is interested, click here and an 8 minute video will explain it all.