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How To Make A Fortune By Making No Profits

Want To Grow? Invest Your Profits In Advertising Instead Of Stuffing Them In Your Pocket.

Want To Grow? Invest Your Profits In Advertising Instead Of Stuffing Them In Your Pocket.

Want To Grow? Invest Your Profits In Your Construction Marketing Instead Of Stuffing Them In Your Pocket.

Amazon.com’s No-Profit Business Model Is Actually A Blueprint
For How To Make Your Business Into A Market-Leading Giant.

By Rich Harshaw

Intuitively, I knew I was right to buy Amazon.com stock.

I bought it last April after it took a big loss in the market after another quarter of disappointing earnings were announced.

My thought process went like this: Amazon has created a behemoth online store that is always getting into new categories that delivers stuff to my house for free with astonishing speed… and that offers very reasonable pricing. I don’t know a single person who says, “I hate Amazon.com.” I don’t recall anyone ever saying they’ve even had a bad experience with the company… which is quite a feat given the fact that the company is completely run by an army of robots, drones, and cyborgs. Seriously, when was the last time you talked to an actual PERSON at Amazon? Furthermore, they have essentially ZERO competition because, well, who else can build out their massive inventory & delivery infrastructure? Currently, nobody. That’s who.

But the rub for investors has always been the company’s perpetually inability to deliver any profits. Analysts and talking heads are always demanding to know how a company that never earns a profit can actually be worth billions of dollars.

So naturally, when it dipped below $300 a share, I picked some up.

Then for the next nine months I watched it see-saw between about $290 and $350. Any time it dipped below $300, it would sun’s-gonna-rise-in-the-east reliably pop back to $325. It was a sure bet.

So when it dropped to $286 in early January, I should have been smart enough to buy up as many shares as I could afford—which of course, stupidly, I did not.

Because when they announced their earnings report on January 29th, they caught the entire investing world off-guard by announcing a (gasp!) nice profit! Immediately following the announcement the shares shot up by 14% and as of this writing, are up about 22% since I bought them.

Which begs the question…. SO WHAT?!?

It turns out, Amazon is a lot smarter than most people think. I read this article the next morning that explains what most people don’t know about Amazon… and how this all relates to your remodeling company and contractor marketing efforts.

Here’s the essential quote from the article:

A lot of people believe that if a company never makes money, it must, fundamentally, go bankrupt. This isn’t the case, as Amazon proves.

Here is how Amazon actually works: As long as the company can grow its revenues, it can spend any profit it makes on new lines of business that throw off more revenues. Those revenues may also be profitable, and those profits can in turn be immediately spent again on more growth. By eschewing profits, the company can also offer the lowest prices possible (which is why consumers are so loyal to it). Some parts of the company are profitable and fuel growth in others.

In case you missed it: THEY INVEST ALL THEIR (substantial) PROFITS BACK INTO THE BUSINESS SO IT CAN GROW EVEN BIGGER!

Which got me to thinking about the biggest remodeling companies I know—they all intuitively figured out that they could beat their competitors by investing their profits back into their businesses… especially into advertising.

I know a company that started from scratch ($0 in sales!) in 2008 (recession, anyone?) and grew it to $12 million in sales in 2012. From zero to $12 million in five years in the middle of a recession?

Their secret was simple: they automatically budgeted a healthy percentage of the current year’s profit into the next year’s advertising budget.

Instead of stuffing the money in the owner’s pocket.

10% is automatically budgeted for radio and TV, which amounts to over $1 million a year. In less than five years they went from a literal nobody to the most well-known kitchen and bathroom remodeling company in their city. Their competitors who have been in business for thirty years but hoard cash like a fat kid clinging to Halloween candy don’t stand a chance.

In 2014, they took their foot off the accelerator to give themselves a chance to get their systems in order to be able to grow even more.

But in 2015, they plan on generating $20 million in revenue, and their TV and radio budget will reach $2 million. That’s more money spent on advertising than most of their small-thinking competitors earn in top-line revenue.

The big will get bigger. The small will stay small.

I’ve seen it way too many times to count.

Hansons Windows in Detroit has been on TV since the 1980s. They’ve ridden that to insane profits… and a spot as one of the top ten biggest companies in the industry. Look at the list here—everyone above them on the list is a holding company or national franchise. They do tons and tons of things right. But the thing they’ve done the MOST RIGHT can’t be replicated by their competitors unless they figure out how to build a time machine.

But you don’t need a time machine.

What you need is a plan. Like this:

  • Raise your prices by 5% immediately to cover the extra advertising expense you’re about to incur.
  • Develop a good strong identity so that prospects don’t flinch when you ask your new, higher price.
  • Take the extra money and spend it on TV and or radio.
  • If you’re doing $2 million in sales, that’s $100,000.
  • Over the next one to two years, creep the PERCENTAGE of spending on radio and TV up to 15%.
  • So if you are doing $3 million in two years, that’s a budget of $300,000 to $450,000.
  • Make sure you have professionals buying your media. Trust me, the 15% you think you’re saving by being “your own agency” is losing you a ton of money.
  • Make sure you write killer, identity-oriented radio and TV commercials. Search this website for examples of great contractor marketing content.
  • Rinse and repeat.

Profits will come—just be patient. Meanwhile, dump all your profits back into your company and watch it grow, grow, grow.

Or get ready to get squashed by those who do.


Free Advertising Audit: Want to know if your advertising will work? We’ll perform a marketing plan analysis and give you a number grade from 0 to 100, so you’ll know for sure if your contractor marketing efforts are up to snuff. Just fill out this form and we’ll contact you to schedule a time to discuss. Important! Please DO NOT fill this form out if you do not intend to actually meet with us to discuss. We have to invest a substantial amount of time and work into preparing these reports. Thanks!

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© 2015 – 2016, Rich Harshaw. All rights reserved.

  1. Sue Burnet

    Interesting article, but I was a bit thrown at the end when you say to put the extra money into radio & TV. Amazon doesn’t really do any tv/radio ads. And we’ve found the majority of our new customers are coming from online. So might it not be better to throw some of that money into online media sources?

  2. Rich Harshaw

    Hi Sue,

    Thanks for your comment. The principle being illustrated is “investing profits into future grown instead of stuffing them into your pockets.” The dynamics of marketing for Amazon vs. a local remodleing company are totally different–apples vs oranges. For remodeling companies, I reocmmend they spend all the money online that they possibly can… THEN invest in advertising. You will find that there is only a finite amount of money that CAN be invested online before there is nothing left to buy. At that point, start buying up radio and TV stations that make sense to reach your demographic target. The point of this activity is to reach these people over an extended amount of time and “nurture” them toward you so when they finally do have a need, they don’t even have to go online to look for somebody–they already know from months/years of exposure. Hope this helps.

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