Principle: Good strategy is a huge tailwind. Take time to plan.
Rockefeller’s competition shipped refined oil on trains, and took a big financial hit. Transportation doubled the cost of a barrel ($2/barrel + $2 to ship the barrel).
Rockefeller saw the potential for margin squeeze, and quit focusing his efforts on anything else.
He first negotiated contracts and rebates that would effectively cost him $1.50 per barrel to ship (and sometimes, $1.25). If he sold the barrel for $6, that rebate would increase his margin by 10-15%, and have his competition shaking in their boots.
But he didn’t stop there. He built his refinery directly next to a railway AND a river. A boat could transport his oil at $.70/barrel.
With a blended transportation cost of about $1.10/barrel in an industry where the standard is $2.00/barrel, Rockefeller SWEPT THE FLOOR with his competition.
Competitive margin: 33.3%
Rockefeller’s margin: 48.3%
When he saw what others didn’t - a potential for double-digit margin increase - he dropped everything and went HAM.
Tactics
Time to go HAM.
Take your best-performing product.
Make a detailed list of the following:
Product selling price
Product COGS
Packaging cost
Pick & pack + fulfillment fee
Shipping cost
Payment processing fees
Advertising cost for that order
Then calculate…
Gross Margin = (Price – COGS) / Price
Contribution Margin = (Price – COGS – fulfillment – shipping – fees – ads) / Price
Now mark…
Top 2 biggest costs as a % of revenue
Any line that you think is “fixed” but probably isn’t (shipping, 3PL, ads, packaging, payment fees, etc.)
Your Rockefeller-level equivalent is whichever line item is both:
One of the largest, and
Under-negotiated
That’s the variable it’s time to focus efforts on. With the right efforts, you could have drastically different cash flow by the end of the week.
Habits
Assume everything is negotiable.
God speed,
Mike
Today’s inspiration: How Rockefeller Worked