Sunday, May 07, 2006

How to manage win-win-win situations using Joint Ventures.

There are many people who have made a great deal of money by selling other people’s products on a Joint Venture basis.

At first glance this can seem like an odd arrangement, the inevitable question that people ask is "why would the owner of a product let you sell that product and keep half the profits?" Why not simply sell it themselves and keep all of the money?

There are two good reasons why product owners do this:

1) If you are already so busy that you cannot find the time to sell anything else yourself you must employ somebody to help you, which costs money and leaves you with the burden of managing that employee and also the headache of what to do with them should sales tail off. Conversely JV partners cost nothing to run if there are no sales and are an awful lot more motivated to get sales than an employee is likely to be.

2) A Joint Venture partner often has access to techniques that the owner may not or a special relationship with his customers that will result in more sales than the product owner could otherwise achieve.

Just looking at point 2 in a bit more depth – imagine that I am going to try and sell a new product to new customers (say that I’ve already sold all that I can to my own customers). Supposing that I decided to rent the mailing lists of other people and send those potential customers a letter (usually referred to as a ‘mail shot’), I might reasonably get between 1% and 2% of those people to buy from me.

However if the person who owns that mailing list has looked after those customers and kept in touch with them, and THEY write to their customers and recommend me then I might sell to as many as 7% or 8% of those same people.

With a $50 product that can amount to $4,000 worth of sales per 1,000 customers shared equally, whereas the list rental would have gained the owner maybe $150.

I should mention that the product has to be good otherwise everybody’s reputation is tarnished.

But with that said, everybody wins, the customer gets a good product, the customer list owner makes an awful lot more money than he would otherwise have made and the product owner can easily make twice as much as he would do by renting the mailing list instead.

Of course the best thing to do is not only to find people with suitable customer lists to do Joint Ventures with, but to actively encourage and assist people in building those customer lists, sort of a win-win-win-win situation!

3 comments:

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