The $20 Ipod

If you want to get wealthy, and I mean really wealthy, here's the secret.

1. Find an item (this can be anything).
2. Convince people to pay you more for it than you paid for it.
3. Repeat until you are rich!

What does this have to do with Ipods? There is no one better than Steve Jobs at following this rule.

Did you know that it only costs Apple $20 to produce an Ipod? That's right, 20 bucks. Then, through one of the slickest marketing campaigns I've ever seen, they've been able to convince us - the consumers - to shell out $250 - $400 for one. That's a 1200% profit margin, MINIMUM!

Oh, it gets even better. The Ipod battery is only designed to last about 18 months and it's not easily replaced. So that means after a year and a half, you have to buy another one! Rinse and repeat and Mr. Jobs makes BILLIONS!

Freaking genius!

How about Starbucks? Somehow, they managed to convince people to spend $4 on a $1 cup of coffee - AND PEOPLE DID IT! How much do you think it costs them (in product) to make a cup of coffee? I'm guessing about a quarter including the cost of the paper cup. It's no wonder there's a Starbucks on every corner, that business model is INSANELY profitable!

It's easy to see this almost anywhere you go. Think about when you go to a restaurant and pay $7 for a burger and fries. You're not getting $7 worth of food. In fact, for $7 you can go to the grocery store and buy a pound of hamburger, some buns and a bag of fries - enough for 4 meals at least. Restaurants are a notoriously difficult business, though. Looking at that markup, I can see why. It's better if you go with something with a better margins.

Remember Dennis Kozlowski from GE and his $6,000 shower curtain (http://money.cnn.com/2002/09/23/pf/saving/q_tyco/)? Chances are that shower curtain didn't take much than a few dollars to produce. But someone had the hubris to convince Mr. and Mrs. Kozlowski that it was worth paying a 10,000% markup. Kudos to you, shower curtain salesman!

You can buy a spool of 100 blank CDs or DVDs for $30. Yet a new movie on DVD costs $20, a new CD costs about $15 - look at that markup!

When I was a mobile DJ, I maybe spent $15,000 - $20,000 on my equipment (and probably the same amount on music) over the 12 or so years I was in business. I turned that investment into $300,000 plus in gross revenues during that time. That's a huge markup for a relatively modest investment!

Here's another example. My wife is a fitness instructor and she presents at fitness conventions. I was pulling my hair out because she wasn't making any money on these outings (fitness conventions pay diddily). My solution, we decided to produce videos of the classes she teaches at these conventions. This way, instructors can buy the video of the class they just took. Our cost to produce these videos? A few hours and about $0.50 a DVD. We then sell these videos for about $10 each. It provides a nice profit source, even if we only sell a few videos.

So, go out there and find your $20 Ipod (whatever it is) mark it up and make some money!