Four Ways to Raise Takings

In the autumn of 1979 the FBI leased a former tennis club near Tampa, Florida: an octagonal building by a busy highway, six courts, two hectares of land. The club was named King’s Court. On paper, the owner was an agent, and the aim of the operation was to get close to Santo Trafficante, the boss of Florida. To avoid paying for a liquor licence, the agents came up with a club membership for twenty-five dollars: a member brought his own drink and kept it in a personal locker behind the bar, and paid for service separately. The poker games in the back room earned the club five per cent of the winnings.

Pistone tells this without any pride in his colleagues’ commercial talent, but when I read it, I was impressed. Look at how the money in that place was set up. The membership fee is payment for a man turning up at all. The service charge is for every visit. Five per cent of the winnings is from every hand, and the club doesn’t care who wins, only how many times the cards are dealt. In a couple of months, out of whatever came to hand, agents of the federal government put together almost a complete textbook on where takings come from.

Only Four Doors

There are only four ways to increase takings. However many clever words people throw at you, every one of them comes down to one of these doors.

One: more clients. Two: each client buys more at a time. Three: each client comes more often. Four: each client pays more.

That’s all. When someone brings you a growth plan, ask: which of the four doors are we going through? If he can’t answer, he doesn’t have a plan. He has a mood.

In olive oil, Don Vincenzo went through all four doors, one after another, over fifteen years. First, more restaurants: we’ve talked about that. Then bigger orders: cheese and vinegar joined the oil, and a cook who used to take one tin from us started taking a full crate of different things. Then more often: we went from a delivery every two weeks to a delivery every week, because the cooks didn’t like keeping stock, and it turned out that with weekly deliveries they bought more in total. And only at the very end, a higher price: a yearly contract at a fixed price cost a restaurant a little more than one-off purchases, but spared it the risk of the price shooting up in a bad harvest. Notice the order. The Don raised the price last, when the client could no longer picture his kitchen without us.

Something Extra on the Side

The most underrated door is the second: selling something else to the man who’s already buying. He already trusts you, the money for finding him has already been spent, all that’s left is to make the offer.

In our world this was used without any restraint. Carmelo Colletti, whom I’ve told you about already, took protection money from a construction firm and on top of that steered its purchasing to “his” suppliers: concrete from one, timber from another, vehicle repairs from the right mechanic. Another mafioso, Michele Graviano, went round Palermo advising everyone to buy their iron from a particular dealer, even when his price was fifty lire a kilogram higher than everyone else’s. Gambetta explains that this, too, is a form of payment: the protector turned the payment for his protection into protection of his clients from their competitors.

And in New York at the turn of the century, if we are to believe the researchers the historian Critchley cites, the head of one syndicate would offer a victim of the Black Hand his services as a negotiator. And if the victim had to borrow money to buy his way out, and borrowed it from the same man at a predatory rate, he made, according to the source, a double profit on a single operation.

I’m not telling you this as an example to follow. It’s an example of what the second door turns into when the client can’t say no. An honest extra sale is when you offer a man something he really needs along with the main thing, and he’s glad he doesn’t have to look for it elsewhere. A dishonest one is when you force a package on him that’s half padding, and he pays because he’s afraid. The first the client remembers with gratitude. The second he remembers too.

What One Client Is Worth over a Lifetime

Now for the main arithmetic. A restaurant that bought one tin of oil from us brought us pennies. A restaurant that bought from us for twenty years brought us a fortune. It’s the same restaurant, just counted differently.

A client’s lifetime value isn’t everything he’ll pay you, but what stays with you out of his money: after the oil you sold him, the petrol for delivery and the replacements for spoiled goods. What it cost you to win him doesn’t go in here: that’s counted separately, and that’s what you compare it with. You work it out for the average client, and honestly: some will leave within a year, and a dollar in ten years is worth less than today’s. When you count it like that, you start looking differently at everything else. At a discount on the first order. At a free tin to try. At apologising and replacing spoiled goods even when it wasn’t your fault. We gave away a tin of oil for free because we knew that a cook who started frying with our oil stayed with us, on average, more than ten years. One tin against ten years. Simple arithmetic.

From it follows the second rule: how much you can spend to bring in one client. No more than he’ll leave you over his lifetime, and better a good deal less: you spend today, and the money comes back over years, and all those years you have to live on something. Do you know what one “client” in Milwaukee, Frank Balistrieri, cost the FBI? Pistone did the sums: by that point about fifty thousand dollars had gone into the vending-machine operation—gifts to Balistrieri, “loans”, Lefty’s cuts from robberies that never happened. For the FBI it paid off: there was enough evidence for a lot of people. But you’re not the FBI, and you don’t have a federal budget. Work out in advance what one new client costs you, how much he’ll leave you after the expenses of his orders, and how many months it will take to get back what you spent. If the first is bigger than the second, you’re not growing, you’re buying yourself turnover at your own expense.

The Right to Set the Price

And the fourth door—price. We talked about this when we took the offer apart, so here I’ll mention only one thing: pricing power. That’s the ability to raise your price and not lose clients.

Pricing power doesn’t come from cheek. It comes from the client finding it hard to leave: because you’re better, because you have what others don’t, because going over to someone else is a hassle and a risk. When you have pricing power, an extra five per cent on the price goes almost entirely into profit, as long as clients buy the same amount and your costs haven’t gone up. Only notice: that’s five per cent of takings, not of profit. If out of the old hundred dollars of takings you kept twenty, then from the same sales at the new price you’ll keep twenty-five, and profit grows by a quarter. It’s the most valuable door of the four, and so the most dangerous. Raise the price without the power, and you lose clients. Raise it too often, even with the power, and clients start looking for somewhere to go, and they find it.

The Don put it like this: you can raise the price when you’ve noticed yourself that you’re selling too cheap, not when you’ve got a fancy for more money. The first, clients forgive. The second, they can feel.

The Bottom Line

Before any growth plan, ask: which door? Move the price last. And count a client by what he leaves you after the expenses of his orders, not by what he pays, and remember that you spend on winning him today and get it back over years.

And if you want to learn, go to any casino—on someone else’s money, and not for long. Watch how it takes its percentage from every hand and doesn’t worry about who won. Just don’t sit down to play. The casino knows the four doors too, and one of them is your pocket.