We are selling millions of dollars -- for free!

Stay with me as I try to figure this out.

I think I kind of know what's happening with all the "Free" stuff. The online model that says, "We'll give it to you free, because we know we'll catch you on something else later on down the line." (They may not yet know what that "something" will be, but they seem certain it will happen.)

I think it's much like what happens when you sell stuff super cheap.

I know, obvious. But bear with me.

I'll try to use a specific example. Again, as I often do, I turn to sports cards. (I made every mistake in the book with sports cards...)

When sports cards were selling like crazy, I kept the prices probably lower than I could have, because I reasoned that it would build the market and possibly keep away competition. And that seemed to work for awhile.

I sold and sold and sold cards, opened four stores, and really looked to the sky for my limits.

And then the whole market plateaued and then -- Wily Coyote like --dove off a cliff. It took all my earning with them. The competition I had so hoped to avoid came in with a vengeance.

And yet -- for the average consumer -- prices got even cheaper.

Others seemed to take my model and go even further with it -- the mass market using cards as a loss leader, and the smaller 'sprung-up-over-night' shops seeming to play the "We sell everything for a loss, but make up for it with volume" game.

Selling super cheap does indeed generate a whole lot of activity -- and free does even better.

And yet, and yet.....

Eventually, I got to the point where I wanted to make money on what I sold. I wanted a real markup, and decent profit, and I wanted to work a sane amount to get it.

So my market shrank dramatically, while most of my customers went elsewhere. I could no longer even make a small profit, much less the decent profit I'd been making when the market was raging.

Really, there was no choice. I couldn't have played the 'give-it-away' game even if I wanted. I kept thinking the customer would come back, that the other guys couldn't keep selling for nothing, and I went deep in debt.

What I'm trying to say, I guess, is that this cheap strategy actually seems to work -- for a fairly long period of time. On a steep upward curve in sales, you may actually turn a regular profit, and a semi-steep curve in sales, you may turn a small profit, and on a slight upward curve, you may break even. Of course, you're working twice as hard, gambling twice the money, spending all kinds of your energy and space and all those hard-to-measure costs pursuing the market.

So the next danger is burnout. Which is a very real danger to a small business.

Afterword, postmortem, I figured I'd probably churned through literally millions of dollars worth of cards -- with nothing but debts to show for it. I was tired and upset and I had to reinvent the store from scratch.

My advice to new small business owners is -- don't even go there. Start out with a reasonable markup and stick with it. If your business isn't viable, at least you'll find out right away.
If, by some happenstance, you get a chance to charge a "what the market will bear" price, by all means do it. Believe me, the day will soon come when you can't even charge a decent markup and you'll be glad you did.

So, in the end, I guess I would encourage small business not to mistake activity, (sales and turnover), -- for substantial gains, ( profits and a livable life-style.)

Like I said, I know this seems utterly obvious. But sometimes, I think it helps to illustrate with a specific example.

How can something so obvious happen so often? Because the costs are hidden. Like I said, as long as the market continues upward, you can get away with it. But behind the scenes, you might be experiencing slow bleeding. Hidden by unsaleable inventory, for instance -- or just the amount of stress and risk you are taking in pursuit of sales. It's like sprinting at the beginning of
marathon, you may look like you're really moving ahead of your competitors -- but the hidden costs will catch up to you later.