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Want to make money? It’s in the small things

By XN Iraki | Published Wed, February 21st 2018 at 15:57, Updated February 21st 2018 at 16:09 GMT +3
There's 'big money' in small businesses.

In supermarkets, sweets are neatly placed next to the cashier. You admire them as you wait in line. From my observations, lots of people fall into temptation and pick one or two before they get to the pay point.

But beyond being a source of temptation, why else are sweets placed in that particular position? To begin with, the prices are often low at under Sh100 a piece. Buying them is usually an afterthought - rarely does anyone write down sweets on their shopping list.

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They also occupy little space, and are therefore easy to place.

But is there is an economic reason that goes beyond buying them? The price elasticity of demand for such small things is low, meaning a small increase in the price of sweets doesn’t lead to a large fall in demand.

Extending that logic further means that candies, as Americans prefer to call sweets, can be very profitable. You can increase the price and have demand remain the same. If a sweet costs Sh5, and the price goes up by Sh1, that’s a 20 per cent increase - a big rise.

If the price of a car costing Sh1 million goes up by 20 per cent, this would be a whopping Sh200,000 and would have an effect on the demand for that car. 

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Do I need to go further in demonstrating that sweets and other small things can be more profitable than big items like cars?

Now you know why hustlers make so much money despite the impression that they are dirty. They can tweak the prices just a bit and make big money. Add the volume of the small things sold and what appears like an afterthought turns into big money.

If you’re keen, you must have noted lots of new types of sweets on our shelves, an indication that the profits are attracting new entrants. In looking for profits, we often forget that there’s lots of money in small things. This includes even single rooms, which are often more profitable than big houses.

Wisdom of hustlers

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We are, however, cultured to see money in big things, leaving hustlers to make their money. When you see hustlers on the streets selling wash cloths, bananas and other small things, they probably understand more economics than we think.

The money in small things comes from another source: they are rarely advertised, which reduces operating costs. The possibility of addiction adds to the profit margins.

The well-displayed sweets you see don’t just fill empty spaces; they are a real business and easy to explain using the laws of economics.

Finally, the small things and services help supermarkets and other businesses diversify their sources of income and take up slack space.

It’s time we appreciated the wisdom of hustlers. It’s also possible that hustlers are more educated more than we think. That would be great for the country, leading to more respect for hustlers, their businesses and their contribution to economic growth in small ways that analyses show are actually not that small.