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How to Charge A LOT More & Increase the Amount Each Customer is Worth

One of the biggest mistakes people make is focusing too much on customer acquisition cost and not enough on driving down the customer lifetime value.

Although lifetime value is important so is the value per transaction and the short term value so we’re going to show you a bunch of fundamental ways you can radically increase your profit, increase your allowable customer acquisition cost and decrease the number of customers you need to hit your financial goals.

Less customers required of course means less work required and a general improvement in your quality of life not to mention a simpler life.


The First Step is Pretty Underwhelming

The first secret we’ll share isn’t going to surprise you…or maybe it is for its simplicity.

This is a HUGE mistake new business owners in particular and small business owners in general make namely charging too little.

When working with companies, we can very often enter and immediately increase their prices by 10% - 100% without affecting sales much at all and thereby radically increase their profits.

To give you some idea if you had a 50% margin previously and we raised your prices by 10% this is the equivalent of increasing your sales by 20%. If you had 20% margins this is the equivalent of increasing your sales by 50%!

The problem for new business owners and this was true for me as well, is we’re used to thinking in terms of how much we make working a job ie. “someone else would pay me $20/hr. so I should charge slightly more than that”. When in truth, you should probably charge 3 times that much (yes those are real numbers).

To avoid under charging when you’re starting, out my general advice is to charge whatever the market is charging or just slightly under (to capture market share) or over either to capture premium value (where you should normally sit as a small business).

Discover what your competitors are charging and base your prices off of this then modify based on your learning.

Bottom line, the first thing to do is simply to blanket raise your prices and you’ll almost always make more money.

The one exception is on what are called “known value items” where there’s a high degree of price sensitivity on these. It pays to price a little lower as loss leaders to attract customers, in order to get them on your more expensive items where customers pay less attention to price.


Who You Sell to Matters

One of the best ways to increase your transaction size and profit per transaction, as well as lifetime value, is simply to target higher end customers.

Look, if you’re selling accounting services to a business in Serbia you’re going to charge MUCH less than if you’re selling the same services to a business in London England. So go sell to customers who will pay you more!

How do you know who will pay more?

Look for prospective customers who are already paying a lot more for what they are buying. In other words, you’re selling to less price sensitive buyers.

This principle doesn’t just go for where in the world, though this is a valuable part of the equation, it also concerns who will find the most value in what you’re offering. For example, enthusiasts vs a casual audience or a corporate client vs an individual or small business client, etc.

Obviously, they need the money, but they also need the mindset to spend the money.


Where You Sell Matters

Not as easy as who you sell to, the sales environment makes a BIG difference.

Here’s a story to show the point.

A few years ago I was in Thailand where there’s knock off watches, bags, etc. everywhere.

As an exercise, my brothers and I thought it would be fun to go buy some then research on the internet how to tell the difference between the reals and the fakes.

Later, we decided to visit the stores of the authentic brands to see in person how the knock offs compared.

Many were awful but some looked good, felt good and here’s the thing…most buyers weren’t very sophisticated and couldn’t tell the difference anyway. They bought because of the brand but here’s the interesting thing, how did they know to trust the brand?

When buying the knock offs it would be some street vendors or little garage shacks crammed with merchandise from floor to ceiling in every corner on the side of a narrow street.

The big brands had beautiful stores in high end malls with few items on display surrounded by nice fixtures and well dressed staff.

It occurred to me that some of these street vendors could have been selling the real thing and no one would have believed them. While the big brands could have been selling high quality knock offs and no one would have questioned them.

It’s a powerful lesson about how the buying context affects the perception of value and in this case allows you to charge a lot more.


What More Can You Sell?

The next most popular way to increase the transaction size and consequently the profit is to ask “what else can I sell them?”

Then add-on, bundle it, whatever to increase the value of the sale.

The classic examples are at McDonald’s “would you like fries with that?” “would you like to make it a combo?” and “would you like to supersize it?”

Why is this so effective?

A big part of what erodes your profits is the customer acquisition cost but once someone is making a purchase you’ve already covered that cost so your margins on everything else you sell them are much higher.

In your business, what can you sell that’s complimentary? An add on? An upsell?

Along these lines can you offer a line of products with higher end versions to charge more?

Could you sell warrantees or some kind of support?

There’s almost always dozens more things you can sell to increase the value of each sale.


Bonus – Bigger Profit Not Bigger Sale

The final thing to do is to provide smaller quantities.

This is a great strategy employed by many successful businesses and billionaires.

Take the amount you were going to put into that container and reduce it thereby dropping your costs. Because the container is the same size, the perceived value remains the same so you sell for the same amount and make more profit.


Conclusion

There are literally dozens of general strategies to increase the value of each customer and each transaction, which combine into hundreds of permutations for your business.

If you’d like help exploring them please contact us.

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Powerful Communication That Turns Leads Into Loyal Buyers

Powerful Communication

Marketing is all about communication.

  • How you communicate
  • When you communicate
  • With whom you communicate
  • About what you communicate in order to monetize your product or service and convert it into profit.

The most personal portion of this communication is the actual communication driving them to buy, which we sometimes call sales.

For years I sucked at sales and for years I struggled to get people to buy. Then, I had a few key breakthroughs and eventually discovered the step by step process of buying. This will massively increase your conversion rates.

This is what we call “The Anatomy of a Transaction”. How a transaction naturally takes place mirrors exactly how you should communicate whether in person or through written or visual communication.


  Step 1 – Communicate To Their Demand

Eugene Schwartz one of the greatest copy writers in history pointed out we do not create demand we can only channel it to our product or service.

What is demand? Quite simply it means someone is in one state and they’d like to shift to another. This is what drives their behavior.

If you want a lead or prospect to buy from you the process starts with communicating to them that your product or service (what you are offering for them to buy) will move them from where they are to where they want to go.

This is alarmingly simple at the core. For them to trust you they need to feel understood and feeling understood is going to come from you communicating to them your understanding of where they are and where they want to go.

For example, if I was promoting a recruiting company I might say “stop wasting time on candidates not showing up for interviews and only receive amazing reliable pre-screened applicants who fit exactly what you’re looking for”.

This speaks to a pain or frustration they might have (scheduling interviews and having applicants not show up).

Your initial communication to the prospect should identify where they are at and where they want to go. It should identify the key benefit and/or fear/frustration of your prospect.

Note, some of this communication might be implicit. For example, think about the famous Apple ad for the iPod reading “a thousand songs in your pocket”. The benefit statement in this case implies what you don’t have as well as what you’d like.

Consider the famous offer from Domino’s “Pizza hot and fresh delivered to your door in 30 minutes or less or it’s free!” We’ve got a strong benefit statement here (implies an after state) along with what your current state is (you’re hungry and want food fast!)

We’ll return to both of those examples soon.

Bottom line in sales we need to first understand what our client’s desired after state is and communicate to them that we’ll provide it for them. When communicating live we can ask probing questions to understand their needs but in advertising we need to have identified this in advance.

Start by either identifying that you will take them where they want to go by labeling where they want to go (not what they are getting but the state they’ll have as a result). You could start with where they are at now for example “suffering from crippling back pain?” but this needs to lead to the after state.

Two powerful questions we often ask ourselves at this stage are “what are they really buying?” and “why are they really buying it?” The first identifies the after state and the second identifies the story going on in their life providing the emotional drive to take action.


 Step 2 – Crossing the Believability Gap

As soon as you communicate that "I can get you to the state you want to be in” the immediate subconscious question that arises is “how can I believe/trust you?” After all, a lot of people will tell you they can meet your demands in order to get you to give them money but many can’t deliver.

They will not buy if they don’t believe you…if you don’t transfer to them the expectation that they’ll reach the after state.

Somehow through your communication you need to answer this question. This is part of the reason articulating their before state is helpful because it builds some of this trust.

In our training we teach about The Trust Pyramid. To simplify down though the easiest way to build this trust and cross the believability gap is to show rather than tell.

Lots of people will tell others about what they’ll do, their credibility, etc. but none of these make it real for them the same way showing them does.

So how do we show? We might explain step by step the process so they can see how it works, why it works and that we know what we’re doing.

We might provide testimonials and case studies of how we’ve done it before over and over.

We might give them a free trial or similar direct experience of the product, so they know and believe.

The important thing is don’t tell them about how you can do it show them how you’ll do it.

At this stage a helpful question to ask is “why are they not buying?” as the answer helps us to focus on where to improve. The answer will also inform the next few steps.


Step 3 – Negotiating Value

Even if they believe you can deliver doesn’t mean they’ll buy…how come?

Well there’s the question of price for one.

In order for a transaction to happen what they are ​paying needs to be more than what it’s worth to you and what they are getting needs to be more valuable to them than the money they are paying.

As a result, you need to communicate value and negotiate the price.

Note, this process might take place in the aggregate through the market or it might come down to good old fashioned haggling.

This process essentially involves minimizing the price while increasing the value especially from an emotional standpoint. Ironically, although some strategies might include listing a higher price then discounting down, you might also do the opposite and charge more to increase the perceived value.

To do this, you need to really understand the hot buttons of your prospect and communicate to those, while using strategies to minimize the comparative price. Help them to envision how great their life will be with your product and how much worse it is now.

Here you might also utilize risk reversal strategies such as money back guarantees.

This is where you’ll use discounts, package deals, confusion pricing, comparative pricing, payment plans, etc.

Note, you won’t go through this stage suddenly after crossing the believability gap, you’ll be building value throughout the process so when you reach the point that you make an offer “I’ll give you X in exchange for Y” it’s a no brainer.

Of course it helps if it actually is a no brainer.


Step 4 – Be Different in a Better Way

You could do all the above and still not get them to buy how come?

What if there’s someone offering all the rest better than you?

To really win the sale you need to be better than others or at least come across that way in their mind.

A big part of this is yes of course being different, being better. Note being better doesn’t have to mean better in every way, you might offer a lot less in certain respects much like how a car offers a lot less than a plane but might still be a better option for you.

Domino’s did this well with their offer how? By changing the conversation from selling pizza to selling pizza fast and then backing it up with their offer of it being free. This changes the focus.

The other side of being different that’s relatively easy to accomplish is to understand them better and speak to their needs/concerns better than your competitors.

I’ve done this many times in my businesses. 

For example, in international structuring many people help form foreign companies, we’ll talk to them about the complexities of legal tax structuring. When they come wondering about legal tax structuring comparing us to others I talk to them about the complexities of banking and how it all works together.

These are very real challenges and pains they go through that communicate our expertise, set us apart from the competition and communicate a sense of understanding of the customer’s needs to them.

Ideally, you understand your customer better and tailor your service to serve them better so you win in both regards.

One way or another though find something that matters to the customer to talk about and emphasize that you do well that others do not or find some other way to speak to their demand and the process of fulfilling the demand in ways others aren’t and you’ll end up with a lot more sales.

This in a sense answers the question “why us?”

Note, it isn’t always a tangible difference so much as a communication difference show them you’re the experts make them feel it.

Again this differentiation in a better way should be a demonstration that takes place through the entire process.


Step 5 – Taking it Away

And finally, you could go through all those steps and still not make the sale…how come?

They might want it you might be right, it might be the right fit but they might delay and not do it now.

So, to finish off you might need to give them a little push to take action immediately.

In other words, this section answers the question “why now?”

This is sensitive because you don’t want to pressure them come off as salesy and lose the sale.

What you ideally want is for them to want to complete the sale now.

The way this happens is by stressing the pain of not taking action now and of course the joy and benefit of taking action now.

The key word is NOW.

An example is in one of my companies we help clients with tax savings so as part of the analysis we find out how much tax they are paying and point out what each day of not taking action is costing them in additional taxes.

The idea isn’t always to close the deal now sometimes the client isn’t ready and pushing them will just put them off, that’s fine.

In other cases they want to take action but their personality is such they need a bit of a push and assuming the sale is helpful to get them going.

If you’ve done your job and they aren’t ready to buy now they’ll come back when they are and you can schedule some follow up.


Conclusion

That’s it the 5 definitive steps that make up the anatomy of a transaction.

On final thought. If you do this and do it well, not only won’t it come across as salesy, since it’s simply a natural communication process mirroring the buying process, it will also build loyalty and referrals because you’ll have educated the client through the process on your differentiation and built incredible trust.

Go through your own sales process and sales material to see how aligned you are.

When you’re ready contact us to start learning the specifics of exactly how to communicate each of these in your business based on whatever medium, message, product, service, etc. you’re offering.

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Case Study: How We Grew One $2 Million Company 72% Year Over Year in 3.5 Months

A few years back I formed a company with a partner where we’d go into companies, roll up our sleeves and actually do the work of growing them fast in trade for a piece of the upside.

One of our first clients was a trucking company that wasn’t doing badly in fact they were doing well about $2 million/yr. in sales with just under 20% margins but they’d been stuck at that level for a while and were looking to go to the next level.  This is the story of what actions worked and which didn’t, resulting in a 72% year over year growth in 3.5 months…pretty good for any business.

 

Starting Point

Initially the company was primarily relying on owner operators, people who owned their own vehicles and would do the trucking work involved.  These drivers were each paid 80% of the gross earned for each job.  The company owned a few of their own vehicles and had both the cash and cashflow to purchase others if necessary.  Most of the owner operators were Class 1 drivers meaning they could drive larger trucks but a fairly large percentage of the jobs didn’t require larger trucks being direct point A to B trucking within a 6 or so hour radius though some were multi-day trips.

Scalability in terms of trucks and drivers was relatively easy and dispatch could handle considerably more capacity so the primary goal was to increase sales and grow margins.

The industry was full of a fair number of smaller and similar sized competitors with a difficulty etching out a competitive advantage due to the low barrier to entry nature of the work.  The primary defense was the requirement of various safety programs to work for various large and lucrative clients.

 

What Didn’t Work

The owner had previously been sold on a call service to businesses within the surrounding area to generate leads and had this supposed leads list untapped.  We had a sales person call the leads to little success noticing most of them weren’t very targeted and not particularly high value.

One of the administrative operations people wanted to streamline office procedures, buy new equipment, etc.  Although we did replace the office administrator and implement the documentation of various systems, which made life somewhat easier for the owner the cost savings were minimal because the administrator needed to be around regardless so streamlined procedures didn’t reduce working hours.

Part of the graphics team wanted to implement a rebranding effort (new name, logo, and website).  This had relatively little effect in large part because it wasn’t embraced by the owner who wanted to stick to the older brand, which was recognized by existing customers.  Although the branding could have been leveraged to greater effect it’s questionable whether it was or would have ultimately been the driving force in dramatically increasing sales even if it was embraced given the relationship nature of the business.

 

What Got the Results

The real breakthroughs occurred as a result of 4 inter-related changes:

  1. We sat down and identified the 4 most profitable types of customers and created a list of the specific companies that fit within each of those 4 categories to target with direct calls and visits

 

  1. We knew we had to differentiate the question was how? The service itself is pretty commoditized and guarantees only go so far.  Knowing the clients were typically men in remote work areas for weeks at a time we hired hot girls to drive the low end trucks and branded them

 

  1. We applied a visitation rhythm of regular visits and calls (PR trips) where the girls would for example bring donuts by the target customer locations and hand out information

 

  1. By hiring the girls to drive company owned trucks we were able to reduce the cost on those loads from 80% to 65% of gross resulting in a massive boost in margins

 

Even gaining one large customer within the target categories had the potential to significantly boost sales.  Hiring the girls created industry virality where companies we hadn’t even heard of were calling.  The regular rhythm helped encourage repeat business and keep the company top of mind for when services were needed.  Finally, the boost in margins as you can imagine was significant from a profit standpoint.

 

Lessons You Can Learn

Focusing on the right target market is EVERYTHING.  It is by far the largest marketing mistake I see people make and the biggest opportunity for improvement.

All customers have a buying window and go through buying cycles.  If you don’t hit the window at the right time you won’t get the sale because they simply aren’t in the market.  There are things you can do to improve your timing and consequently your efficiency but baring this applying a regular rhythm of follow up is the best thing you can do.

Differentiation is one of the most powerful ways to increase conversions but you need to be able to do it in a compelling way.  If your customers aren’t emotional about how you’re different then you need to look to a different strategy.  This is also where knowing your target customer is very helpful and in this case allowed us to set ourselves apart when others hadn’t previously.  Also note the fundamental service remained the same the differentiator was in the form of the packaging, which is something else you should consider if you can’t improve or differentiate the core offer.

Finally, when it comes to cutting costs not all efficiencies are necessarily better and some carry risks (for example owning too many trucks would have created risks that having owner operators didn’t create) so you need to be sure to measure the net effect of supposed improvements to make sure there will be cost savings and these aren’t counter balanced by increased risk.

If you’re looking for assistance growing your business, please contact us.

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3 Critical Lessons No One Will Tell You About What to Start For Your First Business

I’m often asked by people about what business to get in to.  “I want to start a business but I don’t know what business to start”.  It’s worth taking a lesson from Richard Branson’s book here, businesses are disposable you’ll let them go when they no longer serve you the focus is about the people and in this case investing in yourself.

See if you go into business not concerned so much about that particular business but taking a long term view of learning to make business successful then you’ll buy yourself the freedom to go into all the businesses you want in the future.

It’s not glamourous, it’s not get rich quick, but it’s real taking a long term view will give you a better life than you ever imagined, you’ll be far less likely to be disappointed when you struggle, and you’ll be able to dramatically reduce the risk of starting something of your own.

“Who’s going to pay for the learning curve” – very wealthy businessman and investor to his ex-girlfriend when she announced she wanted to start a juice bar business.

To her the statement came across as cold but the cold hard fact is we all have a learning curve when we get into something new and there’s a cost, usually a very major one to that learning curve.  If you think college, university, or some paid training are expensive try making mistakes in real life and measure what they cost.

With that in mind I’ve learned some very critical lessons I wish I’d followed when I was getting into business that would have saved me tens or hundreds of thousands of dollars and accelerated my success DRAMATICALLY!

 

Lesson #1 – Business consists of two parts you need to learn both to succeed

What is business all about?  It’s about selling something and then delivering on it.

Most people who are getting started in business think of the business in terms of what you are delivering.  For example, it’s a yoga business, a book business, a shoe company, a supplement company, an engineering firm, etc.  Because that’s the part we mostly see and care most about as customers we tend to think of business as being the product or service being sold and this is a great detriment to the success of a new small business owner.

Pop quiz in most cases is it harder to sell something or deliver on what you sell?  For most small businesses the answer is selling.  Don’t believe me?  Go ask virtually any small business owner what do they have a shortage of?  Customers or ability to deliver to those customers?  Most of the time you’ll find their struggle is to get more customers if they had more they could provide for them.

There are exceptions of course, those who have figured out the sales and marketing equation and those are the businesses that are successful.

Statistically, something like 80% of small businesses fail mostly because they go into it thinking only about the delivery and not about the selling.

By contrast you could start a business that is identical to another in terms of what it delivers but different in terms of how it sells it and have that business thrive.

Richucation Hint – When looking to start a business pay attention to how you’re going to sell the product/service

 

 

Lesson #2 – Starting a business is going to be a learning experience your first goal should be to decrease the cost of that learning experience.

Here’s another stat the typical small business doesn’t make money for the first 3 years.  Crazy right?  That’s mostly because they haven’t figured out the sales and marketing equation.

But let’s take that information and backtrack for a minute.

Let’s assume it will take you 3 years to learn enough to actually make money in the small business…or let’s say it takes a year to build momentum regardless so it will take 2 years to learn what you need to know.  This is fairly reasonable.

What does this mean?

It means you’re paying whatever your expenses are each money for 2 years!  This is the cost of your learning curve.  Your monthly expenses multiplied by 24 months.  Possibly longer.

So if that’s the case do you want to start a business where you’ve got expensive retail space and a lease costing you $20,000/mo.?  Or do you want to start a business based from home where you’ve got no lease?  Do you want 10 staff on payroll from day 1 costing you $30,000/mo.?  Or do you want to be a sole operator maybe with one other person?  Do you want to be paying interest on a $250,000 loan or do you want to start debt free?

Consider that cost of your education.  If your monthly expenses are $50,000 vs $5000 then the cost of your education (how much you lose before you start to make money and consequently how much of a hole you have to dig yourself out of is $1.2 million vs $120,000).

In other words, when you’re starting your first business you want to minimize your monthly expenses or what are called your “burn rate” as much as possible.  Later, once you’ve learned what you’re doing you’ll probably end up with a high burn rate and a fair amount of staff in order to scale and make a lot more money but at this stage you want to keep lean…you don’t want 5 or 10 people sitting around while you’re learning…you and your mentors or coaches are the only people you want sitting during that stage.

What’s worse and partially takes people out in business is as we mentioned 80% of businesses fail.  So imagine you put in that time with that expensive learning curve only to have the business fail and then what was all that expense for?

It goes further do you think a business losing $50,000/mo. is more or less likely than a business losing $5000/mo. to fail?

Richucation Hint – consider your first business your education for your second and stay lean while learning

 

Lesson #3 – You can get away without learning delivery but not without learning sales and marketing

Remember how I said earlier that you needed to learn both sides?  That’s not entirely true, to go to the highest level it’s true but when getting started you can get by without knowing much about the delivery side.

Remember how I said most businesses are starved for customers but have no problems delivering to those customers?  Well if you got to virtually any company and offer to send them customers they will pay you for this.  You should make sure you negotiate a good deal for each customer but the point is they’ll pay you.  Literally, businesses will line up for you to send them customers.

By contrast if you’ve got some product or service you can deliver are there people lining up to sell it for you?  No!  Not a chance.  Why?  Because people who know how to sell are mostly selling their own stuff or selling the premiere providers on the market, which is why if you focus on delivery you’ve still got to learn sales and marketing but if you learn sales and marketing you don’t necessarily have to learn delivery.

Now let’s put this in the context of lesson #2 about minimizing the learning cost.

How long will the learning curve be if you have to learn 2 things vs 1 thing?  Theoretically twice as long.  So let’s say of that 2 year learning curve 1 year is spent learning delivery and another is spent learning sales and marketing…now imagine you only had to learn sales and marketing…your learning curve (the amount of time you spend losing money) just dropped from 2-3 years to 1 year.

If you’re spending $5000/mo. that means your cost of learning (the hole you need to dig yourself out of once you start making money) just went from $120k-$180k down to $60k maybe less.  Is that a good thing?  You bet it is!

In other words, yes at some point you’d like to start all your dream businesses maybe you imagine one in gardening and one in architecture and one in fashion and one in media but none of those will succeed without good sales and marketing whereas virtually any of them can succeed with really good sales and marketing.  So learning sales and marketing first is your ticket to freedom.

So how do you do this?

Think of a product or service you already use and already love…ideally one that isn’t already incredibly well marketed.  Now, approach the company that provides they product or service to sell on their behalf.  Almost any company will take you that’s the great part.

Think of how wonderful this is.  You get to promote something you already know is good because you use it, vs having to worry about mastering creating and delivering the product, hiring and managing staff, providing customer service, dealing with warrantees and returns, inventory, theft, etc.  All of those problems are out of your mind and you’re free just to learn to promote something you love and the moment you make your first sale you’ll make money.  It might not be enough initially to cover your costs but you’re already ahead of the game whereas if you were delivering your own product or service you’d still be busy figuring out what to call it, how to design the logo, hiring the customer service staff, figuring out how to train them, getting the phone lines and website set up, etc.

I’m not a huge fan of MLM or network marketing but this is the advantage of those business models.  You don’t have to worry about product development, manufacturing, quality control, inventory, shipping, returns, customer service, invoicing, etc.  All of that is taken care of for you and you just focus on selling, building a team, and training to replicate.  What we’re suggesting you do here is similar but with much higher margins, which makes making money faster much easier.  In other words, instead of getting $5 for every $100 sale you get $30 for every $100 sale.

Be sure you don’t just accept the first offer of what they want to give you to sell their product they’ll be inclined to throw out a number like 10% or something like that.  Generally, you want much higher and you ideally want a residual on the value of the customer as well or some way to get the customer’s repeat orders to come through you but that isn’t always possible.  If you can get it you’ll start to build a residual income that will buy you long term freedom of your time even without needing a team because the company with the product or the service is your team and they’ve got a vested interest in your success.

Richucation Hint – find a product or service you love and sell it as your first business

 

Can you do otherwise?  Certainly, you can start something from scratch inventing a product, you can build your own store, try to do it all from the beginning, etc.  But that’s a short sited approach and will give you a lot more risk and cost you a lot more money.  If you take this approach then once you’re selling one thing successfully you can expand to sell another, then another and so on and eventually add your own products or sell it all under your own brand.  Think about a company like Amazon.  They make very few of their own products mostly they are just a great brand selling the products of others.