Increase Profits with Low-Risk Experiments

By Steve Gillman

One of the ways you can increase profits of almost any business is with low-risk experiments. The basic idea is that you can fail ten times at minimal cost, and then scale-up the one or two experiments that gave you the results you want. The losses are small, while the potential gains can be much larger.

For example, when I was working at a fast food restaurant 25 years ago, I risked the cost of six stamps, six letters, six envelopes and an hour of my time--a total cost to my employer of less than $10--to do a little experiment. I mailed out invitations to the coaches of high school sports teams which were scheduled to play our hometown teams in the near future. In each, I invited the coach to come to the restaurant with the whole team, and I bribed him with a free meal for himself. In the weeks that followed, two took me up on the offer, brining bus loads of hungry athletes with them. They had to eat somewhere in any case, so why wouldn't the coach opt for the place where he got a free meal?

An extra 40 customers probably only brought in an additional $160 in revenue, or about $50 in profit after the costs of the promotion and the free meals. Still, this example illustrates the point, and it could have been scaled up had I not moved on to other work. Four teams per week would mean $5,000 in additional profits each year, and sending out the invitations could be more automated to save time.

A small advertising experiment could involve putting coupons in a just a segment of the deliveries of a local newspaper. Many papers offer this segmentation for those with lower budgets or targeting needs. If the result is good, you could then safely roll out a larger campaign with some assurance that it will pay off.

Depending on the nature of your business, you could use your employees for a social-marketing experiment. Give them each ten or forty coupons to hand out, and offer a prize for the one who has the most redeemed. If the results warrant it, you could just start paying a bonus to employees for each redeemed coupon, and have this as a regular part of your marketing.

A new product could be tried on a small scale, risking only a few hundred dollars in expenses. If it becomes a hit, you might increase profits by thousands of dollars.

You should have the idea now. Brainstorm several low-risk experiments and give them a try. In some businesses you can find ways to risk as little as $10 to test an idea which could be worth tens of thousands of dollars in profits. You only need one success to justify the losses from a hundred such experiments.

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