Last month, watermelon barons Bubba and Goober had set out to corner the melon market in their small town. After a hard day of work, they figured out that successful businesses aren't built on low prices alone. They needed to earn a profit in order to be successful. But as we saw, neither Bubba nor Goober knew their costs before they launched their business. They knew they had paid $100 for a truckload of melons but didn't know how many melons they had, which means they didn't know the cost of each melon.
Adding to their fiscal woes, they weren't expecting the street vendor's license fee, which tacked another $20 to their overhead. By the end of the day, they ended up losing $20. They would have been better off working by the hour for the melon farmer. Let's peek in and see if these melon barons have figured out how to turn their business around.
After working their fingers to a frazzle all day only to find out that they had lost money, Bubba and Goober were worn out and disgusted. But the aroma of Mama's fried chicken, mashed taters and pan gravy was enough to get them motivated, and they soon found themselves at the kitchen table where they were surprised to see their Uncle Frank, who had popped in for supper.
They loved Uncle Frank, even though he tended to be a rough ole cuss. He wasn't really mean, but he had a way of asking questions that would leave you feeling dumber than a fence post if you didn't know the answer. Although it was usually a painful experience, they knew that learning how to answer the questions would always make them smarter. Today was going to be no different.
“Hello, you knotheads,” Uncle Frank barked as they came to the table. Bubba and Goober knew this meant Frank still loved them as though they were his sister's own sons. They smiled and gave him a big hug.
“Your mom says you're big watermelon barons now,” Frank said.
“Yessir,” said Goober plaintively. He knew what was coming next.
“So, how much money have you made so far?”
“Uh,” stammered Bubba, “we sold a hundred dollars' worth today.” He braced for the “affection” he knew he was about to receive.
Frank growled back, “I ask how much money you made and you tell me that the sky is blue. What does that have to do with anything? Did you make any money? A real business has to make money.”
Goober whimpered, “We spent $120 plus gas money but only brought in $100. I guess we didn't make anything at all.”
“Guess?” Frank growled with all the mercy of a razorback hog. “If you're going to guess, buy lottery tickets. There's no guessing when you're trying to earn a profit. You have to charge more than you spend or you're just another charity, and the Salvation Army doesn't need competition.”
“Yessir,” the brothers chimed in together as they both smiled inside. They knew two things were about to happen: Uncle Frank was about to teach them something, and they were going to get second helpings of the pan gravy, because when Uncle Frank got wound up, he usually forgot about eating. This was going to be good!
“How did you decide on a selling price?”
“We saw what the A&P charged, so we charged a little less.”
“So you let the A&P set your selling price?”
“Guess so - uh - yessir.”
“Does the A&P have any idea what it costs you to be in business?”
“No sir.”
“Do you have any idea what it costs to be in business?”
“No sir - uh - yessir - uh, well, we know more now than we did.”
“Pass me that gravy before y'all get it all. My sister makes the best pan gravy in the county and I didn't come over here just to watch you eat it.”
Already, Bubba and Goober were starting to slip down in their chairs. They knew that this was just the beginning.
Uncle Frank wiped a bit of gravy off his chin and started in again.
“How much do you want to make selling these watermelons?”
“A hundred,” squeaked Bubba.
“A hundred what?” fired back Frank.
“A hundred dollars.”
“Well, I wouldn't have expected you to say a hundred yen or pesos. Do you mean a hundred dollars profit?”
“No sir, I meant I want to make a hundred dollars for me. Otherwise, I'd be better off working for the farmer.”
Goober quickly added, “And I want to make a hundred dollars, too!”
Frank gestured with a chicken leg he had snatched off of Goober's plate.
“So, if you lose $20 every time you go out, how long will it take for you to make a hundred dollars?”
Goober mumbled, “I guess we're going to have to charge more.”
Frank fired back, “What did I hear you say? You guess you're going to have to charge more? Is there any other way you're going to get more if you don't charge more? How many people offered to pay you more than you asked for those melons today?”
As Goober thought about that one, Bubba quipped, “Some of our customers bought five or three melons because they tasted so good. They said ours were way better than those overgrown cucumbers that the A&P tried to pawn off as melons.”
Frank retorted, “But did anybody try to pay you more than you were asking?”
“Nope, not a one,” both boys replied.
“So, how do you figure you're going to get enough to make a profit?”
Goober replied, “I guess - uh, I mean we'll have to ask for it.”
Now, Bubba began to get concerned. “But Uncle Frank, what if we ask for more, but nobody is willing to pay for it?”
Uncle Frank responded, “Have you been listening to me even a little bit? What happens if you keep on charging the same price?”
Bubba was first to arrive at the realization that he had indeed been thinking with the intellectual prowess of a fence post.
“So, I guess,” stammered Bubba, “I mean, I know we have to charge more, or we just don't have a business.”
“Now you're figuring it out,” Frank said. A hint of a smile came across his face as he sat back in his chair. “Say, are you going to finish that gravy or not?”
So began Bubba and Goober's initiation into the business world. Uncle Frank had opened their eyes to the immutable truth: Unless selling prices are profitable, a business can't earn a profit. But the truth had only just begun to sink in. Here are the numbers so far:
- Vendor's license: $20
Gas money for the truck: $20
Truckload of melons: $100 (about 100 melons)
Bubba's compensation: $100
Goober's compensation: $100
Total cost: $340 (which is about $3.40 per melon)
This is where it gets scary for the melon barons. If they are going to achieve their compensation goals, then they have to accept the fact that their cost is more than three times what they sold the last batch of melons for. How could they have been so blind? How can the A&P grocery sell for so cheap? Will anyone buy their melons? Will the gravy stain come out of Goober's favorite Jeff Gordon T-shirt?
Fortunately, Mama had fixed a wonderful peach cobbler, so Uncle Frank was going to stick around for a little longer. Surely he had some sage advice to help the melon barons break through the price barrier. Unfortunately, we won't print dessert until next month.
In the meantime, here's a homework assignment to do:
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1. List all the benefits (not services - just benefits) that you offer your customer.
2. List all the benefits that you offer that are better than or completely different from the benefits your competitors offer.
3. List at least three ways you can explain these benefits to your customer.
Tune in next month when we hear Uncle Frank say, “You knotheads! Why would anybody in their right mind pay that kind of money for a watermelon?”
