Let’s open the Mail Bag!
I get lots of emails from folks trying to clean up an accounting mess, solve a business challenge, or just make more money. Sound familiar? Read on!
I’m new to business. Is it a good idea to offer a lower price than the ‘going rate’ when first starting out, to attract new customers?
It. Is. Not. And, the market is much less price-sensitive than you may think it is. Can you believe someone would spend $50,000 for a watch? $5.00 for a bottle of water? Hundreds of dollars for Lady GaGa tickets? Consumers will buy just about anything, if they see the value or benefit.
Here’s a sure-fire, make-your-dreams-come-true formula for making money in your business:
- First, how much money do you want to make? How much money will it take to make all the headaches of small business ownership worth it? $80,000 per year? $200,000? $750,000? Pick a number.
- How many hours can you sell in a year? Suppose you sell 4 billable hours a day, 5 days a week, for 50 weeks in a year. 4 x 5 x 50 = 1,000 billable hours a year.
- Then, crunch the numbers. If you want to make $100,000, it will take $100 per hour just to cover your salary. Add to that all the other costs of doing business. Inflate for profit. Voila’! You have a selling price that makes sense and makes money.
- Learn to market yourself… and eliminate price competition forever. The market doesn’t set prices… marketers do! What makes you special? Look at what the low-price providers may sacrifice. To charge more, you must be different and better. Try “clean, sober, on time and dressed right.”
- Keep a sharp eye on the money…and your time! Track every penny in and out of your company. Run a balance sheet and income statement… every week! Measure the difference between what you thought you would sell and spend (budgeted) and what you actually sold and spent.
Most folks look to their competition and base their selling price on what the other guys are charging. If most businesses fail – and they do – what makes you think your competition knows all that much about making money? Crunch the numbers. Charge what you must.
My husband and I run a small plumbing and heating business. For the first time ever, we are going to accept credit cards. The credit card company requires that we provide them with our “refund policy.” Can you help?
All the best,
Dear Ms. Cautious,
How about… 100% satisfaction or 100% money back.
Why not? Vow to resolve every customer complaint to the customer’s complete satisfaction, including a full refund, if that’s what it takes.
When you put together your budget, add an account that reads “Customer Satisfaction Costs.” This is an expense category for money (dinner tickets, carpet cleaning, whatever) that you give to the customers to make them happy. This won’t be more than 1-2% of your total sales. Some folks are just bad customers. Expect a few and budget them in.
For big jobs, build payment points throughout the production, to keep cash flowing and to spot – and resolve – dissatisfaction before the job is finished.