I’ll never forget what my contractor told me in the midst of my home remodel.
“After I’m done building your bathroom, I’m heading over to Pacific Heights and charging 2X more for a similar-sized bathroom,” he said.
“How is that possible when sheetrock, pipes, tiles, and fixtures all cost about the same?” I asked.
“Easy. Rich people don’t care. They have so much money that as long as I provide them good service, I can charge them whatever I want.” he said somewhat smugly.
“Good to know! Well, thanks for building my bathroom for the price we agreed upon. It’s looking great,” I replied.
I was going to tell him that if he did a good job building my master bathroom that he could then work on remodeling my condo in Pacific Heights. But after his comment, I decided not to!
It’s impossible to squeeze water from a stone. Therefore, it’s better to take advantage of rich people than poor people if you want to some day have the luxury of getting squeezed yourself.
Stay until the end of the post because there’s a revelation for all of you who feel that taking advantage of the rich is poor form. Here are my five keys to making maximum profits.
When you sell a luxury good, you are selling an emotion. When you can adeptly sell an emotion, your profit margins soar. Therefore, one of the best ways to take advantage of rich people is to build a luxury brand.
Hermes can sell a Grace Kelley handbag for $12,000 to some people because Hermes exudes luxury. Whereas Fossil can only sell a similar handbag made with the same materials for $120 because nobody cares.
Building a luxury brand is important not only for selling goods at premium prices. Having a luxury brand is also vital for selling services for massive profit margins.
When you can put in your selling literature that your house was designed by “XYZ architect” and won “ABC award,” from known people, the value of your house goes up.
Everybody wants to be associated with a winner.
The one thing rich people can’t buy is time, which is why rich people put a premium on vendors who are responsive, attentive, and forward thinking. The more time you can save a rich person, the more the rich person will pay for your services.
Although my contractor is cheap, in the past he was terribly unresponsive and went missing for months before finishing the job. His lack of service quality was frustrating because at the time we were living in the house while he was doing the remodel.
The main way I alleviated my frustration was reminding myself that he charges 150% more for the same work in more expensive neighborhoods. In other words, his fat profit margins elsewhere helped subsidize my renovation.
He later told me that he lost money on my project. Whether he was saying that to try and butter me up for a new project, I’m not sure. But regardless, based on the absolute dollar value I paid him, he couldn’t have made much based on the total amount of time and help he spent to do the job.
Excellent service is a godsend to rich people. All rich people want is to feel secure knowing the job is being handled by the best professional possible. The more you can minimize the rich person’s worries and headaches, the more you will get paid.
“Just get it done and don’t bother me until it’s done,” is a common mindset by rich people and top managers. It sounds arrogant, but when you can afford to pay a premium, you want to be shielded as much as possible from the hassle.
Even if you’re rich, however, you don’t want to feel like you’re getting ripped off. Therefore, it’s important to highlight who else you’ve worked with to make your prospective client feel more at ease.
Even if the rich person knows your price is outrageously high, he or she will feel better knowing that other rich people have paid a similarly outrageously high price as well. There is comfort in numbers.
In my contractor’s case, he has a lovely portfolio of remodeling work he’s done at different price points. No matter how expensive the price you’re considering paying, there will always be an even more expensive price someone else has paid. Your strategy is to show the even more expensive job to make your client feel better about his less expensive job.
For example, spending $60,000 will get you a very nice kitchen in San Francisco. But when some clients balks at this price, my contractor shows them the $150,000 kitchen he built and suddenly, the $60,000 kitchen seems like a bargain!
Always have a menu of higher price point options to make your bread and butter price point seem the most attractive.
Related: To Create Real Estate Value, Expand
When you are selling a product or a service at a high price point, your end goal is to always sell what the product or service is ultimately buying e.g. sell the image of a better-tasting steak not the steak knives.
In my post, Watch Out For The Illusion Of Value, I used an example of a $5.9 million house in Honolulu to warn readers about how excellent marketing can cause buyers to overpay.
I adamantly thought the house wouldn’t sell for more than $4.85 million because the luxury Honolulu real estate market has softened since it last sold for $4.85 million in 2016. Inventory is up double digits and other properties in the neighborhood have been sitting for years.
Well, guess what? After 160+ days on the market, the house finally sold for a whopping $5.3 million! Yes, it sold for $600,000 less than asking price. But it still sold for $450,000 more than what it was originally purchased for and for what I believe is about $750,000 more than what it should have sold for.
A realtor in the know who vigorously defended the sale wrote in the comments section, “Go back and take a look at this in home in 5 years. They will most likely make money. But that is not their motive. Living in a beautiful home with their family is more important than a financial incentive. Some people actually still believe in that. I have never met the buyers and do not know them at all except they are apparently very happy people now.“
When you are so rich that you have the luxury of not caring about whether you made a good investment or not on a $5.3 million purchase, you know you are really rich!
There is no doubt the home is wonderful. I wouldn’t have toured it if it wasn’t. If the buyers love the home and don’t care whether they overpaid by several hundred thousand dollars, we shouldn’t care either.
However, if you are someone who is trying to sell a service or a product for a maximum price to earn the highest profit margin, focusing on how your product or service can create a better lifestyle is KEY!
Whether you’re speaking to the janitor or the CEO, you must treat another with maximum respect. Rich people are usually in positions of power or have been in positions of power for a very long time. Therefore, rich people are actually more sensitive when others don’t give them respect because they are so used to getting love.
Respect goes beyond being punctual and responsive. Maximum respect involves anticipating what problems or concerns the rich person has and addressing these problems before they even come up.
Maximum respect creates maximum trustworthiness. Once you have a rich person’s trust, you are well on your way to becoming a rich person yourself.
The reality is, you’re not taking advantage of rich people by charging a premium price if you follow the five things I’ve mentioned above. If you have demand, you’re still providing more value than you’re charging since everything is rational. After all, rich people didn’t get rich by being stupid with their money.
It is extremely rare to come across someone who is excellent. Many people are disrespectful, lazy, apathetic, chronically late, and have low emotional intelligence. When a rich person finds someone who is excellent, he will hold onto that someone for dear life and refer him to all his friends.
Don’t sell yourself short. I am absolutely certain the vast majority of us are not earning or charging what we are truly worth.
Find the maximum price the market is willing to bear and charge it. Your time is valuable. You will also discover that customers who pay a higher price are often better. Through testing you will eventually discover whether your product is worth its price or not.
The older I get, the more I’m willing to pay up for great service and products that save me time and stress. Here are some specific examples:
1) Paying $5 – $10 using a food delivery app because I no longer want to spend 20 minutes driving, parking, and waiting to pick up food.
2) Turning my car into the dealer and getting fleeced because I no longer want to spend weeks and risk my life trying to sell my car for the best price possible on Craigslist.
3) Buying a fully remodeled home in Hawaii instead of a fixer because my time is more valuable than working with a contractor to get the best value.
4) Paying a premium for Apple products because I appreciate being able to fix any problems at their stores.
5) Paying 30% more for Economy Plus seats because life feels too short to sit in the middle seat next to the toilet.
I’m sure all of you have something you’re willing to pay a premium for as well.
Here’s to everyone getting rich!
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