Use This 4 Year Old’s Lemonade Stand Business Plan to Increase Your Profit Margins

By ​Hillary Wilmoth

October 14, 2014

Lemonade Sign

When you think of a lemonade stand, you’re probably picturing your own kid, or one from the neighborhood, with a pitcher of Country Time lemonade at $.25 per cup. Maybe more, if they’ve realized the value of money.

When I think of a lemonade stand, I think of negotiation, word of mouth marketing, demand generation and surge pricing. But to be fair, I’m also thinking of my niece and how she, as a 4-year-old, ran her “business” this summer.

She doesn’t understand these principles, of course, but she applied each of them when she saw something she wanted—red cowboy boots.

In the steps below, you’ll see that my niece was able to alter her methods to meet her goals, and found a way that required less output on her end to get there. Isn’t that what we’re looking for in ecommerce: a lesson in how to improve conversion rates and offer more relevance to our customers with less overhead?

Stage 1: Negotiation

My sister was out shopping and my niece saw red cowboy boots. The boots were a few sizes too big, but Izzy thought quickly: “Mommy, I really need new shoes,” she said, “And I can grow into these.” You can’t argue with that logic.

As an incentive to get the boots, though, Izzy had to earn the money to buy them for herself, through chores, listening, and being nice to her sister. Sounds like typical ways a kid earns money, right?

But here’s the thing: my niece is a mini mogul and decided that commerce was better than chores. So, she worked a lemonade stand into the agreement.

Stage 2: Word of Mouth Marketing

No lemonade stand is complete without a hand-drawn sign to get people’s attention, and Izzy made sure to have that. But she was also different: her sign was conveniently missing the price (we’ll come back to that), and it featured product differentiators of lemonade made with “real lemons” and “air popped” popcorn.

These became the selling attributes her customers could relay back to her “prospects.” And she connected that a customer at the stand meant more money in her pocket and, ultimately, those boots on her feet. So, she asked my sister to get some grown ups to come out and visit her.

Luckily, it’s a tight-knit community, and everyone knows the family, so people were more than willing to stop by. But if they didn’t, Izzy sent her other satisfied customers after them to “tell them about extra-delicious lemonade, with real lemons.”

Stage 3: Demand Generation

Though most customers came in through Izzy’s referral network, her most valuable ones were those she found herself. And it started when she spotted a group of teenagers walking down the road.

Izzy gave them a shout: “Hey big kids, you look like you want some refreshing lemonade and fresh popcorn.” Them being nice kids, half of them walked over.

Again, it sounds simple: Be upfront with a targeted ask. They were, in fact, big kids, it was the middle of summer, and, maybe, could use some refreshment. She used what she knew, and applied it to a large group.

Sounds a lot like a solid demand generation strategy. Not everyone will be a taker on your message, but you have to try. Those who do are likely to convert.

Stage 4: Surge Pricing

The going rate at Izzy’s lemonade stand started at one “money” (dollar) per item. Two items were two monies.

This was a pretty solid strategy by Izzy, I think, because of her straightforward pricing model, little need for change, and good profit margin on lemons and popcorn kernels, which were low-cost goods for her to acquire.

But here’s my favorite part of this whole story: With a half-dozen teenagers on the hook, and those cowboy boots in her sights, the pricing changed to two monies per item. The customers were none the wiser, because Izzy brought them in through her own channels (by asking them), and not through her referral program. It paid off: she walked away with $24 from the teenagers alone.

It might sound like she swindled them, but with referrals and loyalty come benefits for the customer: In this case, a 50% discount on the overall price.

Obviously, not every business can be as simple as a lemonade stand run by a 4-year-old in an area where farm fresh ingredients are a great value proposition. But the tactics are sound and definitely made me think twice about how I could be so bold in my marketing strategies:

  • Identify new revenue streams and figure out what you need to achieve it
  • Know what matters to your customers, and connect it to your overall value
  • Sometimes making a direct ask is the best way to gain a customer, don’t overthink it
  • Build a following and reward loyalty

By applying these principles, Izzy earned her boots in a few hours. Not too bad for a 4-year-old. I hope I’m retired by the time she makes her way into the business world, because she will be a force. At this rate, it could be by her 10th birthday.

Lemonade sign image courtesy of Shutterstock.

Hillary Wilmoth is a former product marketing manager at Monetate. Having worked in merchandising, consumer products, financial services, publishing, and technology over the past 8 years, you might think she has ADD; but each marketing role was customer-focused and research-driven. Hillary is a native of Baltimore, and, no, it’s not exactly like The Wire.

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