Saturday, June 16, 2007

Prices will always be too high!

I was sitting around last night with one of my good buddies. We began chiming in on different types of businesses and how they become profitable. We came to the conclusion that industries have to raise their prices according to how many people have their hands on the profit. In other words, the more middle-men, the more the price increase. It's the old drug dealer phenomenom. Drugs are illegal, so they have to be secretly passed through many hands down the line. Each person ups the price and usually sacrifices the impurity of the product. The more hands touch the product, the more it costs: this is the idea behind all big business.

I began discussing how my former landscaping business would cut out the middle men in order to undercut other landscape companies with the bids on jobs. Most landscaping businesses, big or small, buy their materials (retaining wall block, pavers) from stores in which sell it. These stores buy the product from local distributors in which buy it from regional distributors in which buy it from the manufacturer of the material. You can see where the problem is. By the time the landscape company saw the product, it had been through 4 companies, all of which made a profit off the product.

What we did:
We called as many manufacturers as we could until we found one that would be willing to ship to us directly. This was not my idea. All the credit goes to my former business partner for having the money saving idea. This idea completely cut out 3 links in a chain that was too long anyway. We saved money, we were able to undercut other landscape companies, and the customer saved money. This worked out for everyone.

The bottom line:
We were able to buck the system. Not every business can do this. The problem lies when business becomes TOO BIG. The further the business is spread across the state, nation, or globe, the more middle men have their hands on the product. It has to be that way. Why would the huge billion dollar lighting product company want to deal directly with a customer that wants to order 500 lighting fixtures. They are used to dealing with distibutors in which buy 500,000 lighting fixtures. The more distributors, the more the product costs. When you see a box truck with a distribution company name on the side: just think "middleman".

How many middle men are in these industries?

-real estate

I don't know the answer to this question, but I guarantee that the price of everything involved in theses industries have at least doubled because of middlemen that don't need to be there.
Just a thought!!!

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