Well, last weekend was pretty interesting. While on a vacation in Europe with my fiancee, we stopped over in Amsterdam to ride tandem bikes and see the famous Tulips of The Netherlands.
But while we were there, we couldn’t help but walking through the red light district.
For those who are unfamiliar, prostitution is legal in Amsterdam. In the Red Light District, women can rent out “windows” where they stand in lingerie and “model.” Men and women can then knock on the window and be taken in the backroom by the prostitutes. I’ll let your imagination take it from there.
So walking the Red Light District, my fiancee and I expected to see plenty of prostitutes and some seedy looking guys. What we didn’t expect was a crash course in business.
Said another way: I have a degree from one of the best business schools in the world and I learned more about business in the 30 minutes we walked around the Red Light district than I did in a year back at school.
We talked with several and their wisdom is quoted below. To be quite candid: they were brilliant business minds.
Here are the four things that stood out most:
#1: Volume matters most in a competitive environment
There are a TON of windows in the Red Light District. Just by a rough guess, there was ~200+ prostitutes working the weekend night that we walked through the area.
For a prospective customer, that is an abundance of choice. You could look around for a lower price or find the exact type of person you are looking for.
For the prostitutes, that means business is quite difficult. They could lower their price (we asked-typically $50 for 15 minutes), but then their competition will lower their price even more. Before long, the price could drop dramatically. This is the classic “race to the bottom.”
What this means, in a market where everyone prices at $50 for 15 minutes, is that the highest earners had the most customers each night. The prostitutes had figured this one out, and told us that they tried to perform services that would lead their clients to finish quicker. That way, they could have more clients each night.
The lesson is this: in a competitive environment, find a way to increase the volume of customers you have.
#2: Start with a lower commitment for customers then upsell a larger offer
Last section, I mentioned how the standard price is $50 for 15 minutes. We found this number online and heard it quoted a couple times by different girls to prospective clients.
However, this was the price negotiated at the door. How it works is a customer will go up to the window and knock on it. A door will swing open and the girl will stand in the doorway and negotiate with the customer. This is where they will drop the $50/15 minute offer.
That fee isn’t terribly high though, right?
This fee though isn’t designed to make the most money, however. It’s designed to get customers, literally, in the door. Once a customer is inside, many request “specials” that will add more onto the price.
But at that point, a customer is committed and will pay the extra.
So many businesses, startups in particular, seem to have too high of an initial price. Many people coach to “add some zeros” onto your offer, but that also discourages customers from starting with you at a lower price point. You can then impress those customers and then move to a higher upsell.
The lesson here is: get your customers in the door, then upsell. Upselling first doesn’t work.
#3: A unique offer will always perform better
I learned something interesting about Amsterdam during our visit. A huge percent of the population is blond. Men and women were tall and blonde.
As you would therefore expect, a large number of the prostitutes were tall and blonde. In fact, we only found a few who weren’t blonde. These were mostly ones with black hair.
But here’s the thing: those prostitutes were much more in demand than the blonde ones. It wasn’t even close, actually. My fiancee and I observed a make-shift line in fact for one of the brunette prostitutes.
We couldn’t locate any other difference other than the fact the hair color was pretty unique for the area. That small difference was enough for a night that was much higher in volume, and doubtlessly made her one of the higher earners.
The lesson is this: find a way to make your offer unique from the competition.
#4: A good customer is worth their weight in gold-do whatever you need to acquire them
So many businesses default to accepting work from any customers. After all, cash is cash and revenue is the life blood of every business.
After all, prostitution is a business. The women needed to rent the windows they were in. The window cost more than $350 for the night. At 15 minutes for $50, that means a prostitute needs to have at least seven 15 minute increments each night to break even.
Again, most businesses would default to thinking any customer would be a good customer here. After all, you need at least seven each night to just break even. At 15 minutes a pop, that’s an hour and 45 minutes just to break even.
However, it was clear based on watching the district is that some customers were MUCH preferred over others. For example, we stopped and watched one woman in particular who seemed to have a lot of demand.
Despite her demand, she turned away a couple customers. One was quite overweight, and we assumed that was her rationale there. Another was quite old, and we assumed that was here rationale in this case.
The most interesting one is when a group of two guys in their young 20’s tried to go in together. She repeatedly turned them down, even though they offered to pay much more than the standard rate.
However, she had noticed my girlfriend and I standing outside and watching her. We think she thought we were debating going in with her, because she repeatedly asked us both to join her.
The two of us are fairly unassuming, smaller people who were certainly smaller than the two guys who wanted to go in together with the prostitute. Also, we weren’t frat dudes.
In other words: the prostitute had different standards for different customers. She didn’t want the deal with the other guys, but was interested in the two of us.
The lesson here is: don’t be afraid to say no to potential customers. You want the best customers, no matter what