Pricing

Happy Tuesday.  On Sunday, we had brunch with some good friends Jordan and Whitney at Tommy O’s in downtown Vancouver.  Kubae and I split a delicious Kahlua Pork Quesadilla and had a great time with conversation about firing ranges and civil liberties.  We then spent the rest of the day driving around contemplating if it is time to move to another spot as we are fast approaching our 2 years in downtown.  How time flies when you are having a great time.

One of the things I think that worry small business owners is what price to charge.  And since most small business owners start their small business after leaving their employer, they typically follow the model they were taught there.  This works, but I think there may be a better way.

When I was working with VSource in the startup of Argentstratus, I decided to approach the pricing model differently.  Instead of first saying, “here is our price”, I suggested the sales team start by asking what the prospective buyers budget was for things like

  • Server replacement
  • Desktop PC replacement
  • Software updates
  • System security
  • Downtime for server maintenance
  • etc

The typical response was a blank – deer-in-the-headlights- stare because most small business owners don’t stop to think about those things.  Depending on their answer though, the sales team could help create a frame of reference for the costs of doing everything in-house versus outsourcing their entire IT.

This had two benefits: First we avoided having the investment discussion too soon and second we ensured that the prospective buyer understood what they were really purchasing.  In essence, we established the value of the offer and then provided a price which was dramatically lower than that value.

To be clear, there is no such thing as the right price.  What the small business faces are buyers with absolute maximum and minimums to their pricing decision.  Many start-ups are willing to pay legal counsel several thousands of dollars: Some will not pay a dime.  Established businesses are willing to pay a million dollars to buy out a competitor but won’t spend $100,000 on an advertising campaign.  Each party perceives the value differently but I honestly believe the main point of differentiation is how the investment is packaged to the buyer.

By the way, I intentionally use the word investment over “Price” or “Cost”.  For most of us, especially in the service industries, we are often considered a “Cost of Doing Business” – an expense.  I go out of my way to explain that using my services is an investment.  By paying my firm you get access to some of the best business, tax and accounting minds in the area.  By deliberately removing loaded words we can continue the conversation in ways that benefit all parties.  If I say your tax return is going to cost  you $1,800 you will try to shop me.  If I say that your investment in assistance in running, managing and reporting on your business is $1,800 and I will throw in a tax return for free… you see my point.

So some guidelines I have learned along the way when it comes to pricing.  Where I can remember the source I will give credit and if I do not actually remember the source I apologize in advance and if you can send me a message with the actual source I will update this post for that information.

  • Do not charge by the hours worked, but by the years it took to get you to this point. Harry Beckwith
  • Price high and offer amenities – it is easier to remove add-ons than raise prices
  • It is always easier to offer discounts than to raise prices
  • Determine what your customer can pay and then figure out if you can service the client profitably.
  • Offer tiers of service (Bronze, Silver, Gold or the like) with very clear differences between them so you can cater to a larger audience
  • Ask the prospective buyer their budget and try to hit it.  Jeffrey Gitomer
  • People hate to be sold but they love to buy.  Help them buy.  Jeffrey Gitomer
  • Your number one competitor is apathy, price accordingly.
  • Your costs are not your customers problem.

What these guidelines suggest is to be open and creative when it comes to pricing your solution.  You are offering a solution to someone’s problem so don’t be afraid to be creative about what they pay for their investment.  As a general rule, if you are looking for new or more business opportunities, look at how your competition is pricing and then do something different.  Make your pricing easy to understand and consistent for a set of prospective buyers.  Test your price and if you are getting 100% of prospects saying yes, realize your price may be too low.  If you are getting 100% saying no, your price is too high.

Somewhere in between is that sweet spot for that group.  You can find it.  If you are interested in thinking about ways to create new pricing models, try talking with your current accounting professional about ways to make your solution and pricing more effective.  If you are looking for a new accounting professional or would like a second opinion, feel free to contact me for a free no obligation consultation.

Have a great day and enjoy the challenge of charting a new course on pricing your solution.

Thoughts on Marketing

Happy Wednesday.  You know, I am typically not much for working out in the evening – I prefer reading and drinking wine – but it does help me sleep much better.  Still a little sore from last night’s routine, but I slept like a rock!

Kubae and I were talking this morning about a restaurant that started and died a few blocks away.  It lasted about 2 months before the doors were closed.  she wondered what they might have been thinking and what lessons we could learn from this.

I think there are several important lessons for anyone starting a business in this story.

First, the old adage, “If you build it, they will come” is no longer valid.  I am not certain there ever was a time you could open business and customers would flock to your doors, but it definitely won’t work today.  Today, your potential customers have a huge array of choices so a small business owner must find a way to get to “top of mind”.  This means marketing.

Second, as I discussed in a prior post, the saying, “Location, location, location” is extremely important for certain types of small businesses, especially restaurants.  In this instance, this restaurant might have had the best Chinese cuisine in the Pacific Northwest.  It wouldn’t matter as it was sandwiched between two other restaurants and on a side street.

Third, whatever you think is the bare minimum you can spend to get the word out, triple it.  That’s right, plan on spending 3 times as much on marketing than you originally anticipated.  Your potential customers are bombarded with thousands of choices a day and your small business competes with those other messages.  Whether you choose to spend money or time, a conservative approach is to plan for more messaging.  A lot more.

Fourth, when in doubt, spend more on marketing.  A good friend of mine, Mike Leitch of VSource Systems, used to joke that the biggest problem he would like to see is having more work than he has time to do it.  With a growing business you can hire to handle the extra work; but if your business never gets going, you will be hard pressed to pay yourself.

Fifth, change your marketing channels.  The first thing you need to do is ask yourself how anyone is going to find out about you.  If you are a restaurant, you need to find out how to get listed on Yelp and Google Maps and any of the other dozen websites that cater to restaurant reviews.  If you are an accounting business you will need to find out how your potential customers look for new accountants.  And then, ask yourself, what other ways can I get the word out.  Experiment with channels, track their effectiveness and if after a few months it isn’t working, discard it for now and try something else.

Starting a business is risky.  If you are ready to take the plunge, then I strongly suggest you create a marketing plan to help you build excitement about your Company.  And if you are looking to expand your business, I strongly suggest you create a marketing plan to help you build excitement about your Company.  Getting more potential customers than you have time to work on is a great problem to have.

If starting a business is in your future, I encourage you to reach out to your accounting professional and create a business plan and budget to help you get through the first 3 years.  If you are looking for an accountant who can help you plan your startup or would like another opinion, feel free to contact me for  your free no obligation consultation and lets see what we can do to help make your dream come true.

Have an awesome Wednesday.

 

What is Your Brand?

Good morning.  It’s a little overcast this morning here in Vancouver but it should burn off shortly and we ought to have a very nice day today.

I think that many small businesses completely misunderstand the idea of a Brand.  We hear it often and think it has something to do with a cool business name, an imaginary slogan, a logo, a phone number which spells out your business name, domain name: You get the picture.

These items are very important but they are not your Brand – they support your Brand.  Now, what is a Brand?

The best definition of a Brand I have found comes from Al Reis and it is really about “Your Customer’s Image of You.”

If your customers think you are the best widget-maker in town, that is your Brand.  If your customers think you are the only lawyer in town who calls back within 4 hours, that is your Brand.  Their perception becomes your reality and your concern is capitalizing on this and helping spread your Brand.

What do you want your customers talking about when the opportunity arises for them to potentially refer you to a colleague who fits your ideal customer profile?  This is your Brand talking.  Is your current customer missing a vital tool to help you grow your business?

By identifying your Brand, you can start to align your other marketing overhead expenses to support your image.  For instance, if your image in the marketplace is a highly knowledgeable commercial realtor, are you spending your marketing dollars and keeping potential leads, current prospects, and clients informed about real estate trends?  My good friend Jim West of Coldwell Banker does this better than anyone I know.  I am fortunate to be able to call Jim a good friend for many years and he always goes out of his way to share his wealth of information.

His Brand is my image of him.  He cultivates this and when the opportunity comes up to have a conversation with someone about commercial real estate, guess who is top of mind?  By the way, the imagine I have of Jim is exactly the same image that all of Jim’s network sees.  He ensures a consistent message and this is the important part.

The best part of sharing your Brand is that it doesn’t need to consume your entire marketing budget.  Once you identify a possible Brand issue, create a few flyers, perhaps update your website, but most of all, talk the talk.  If you are the most approachable Dentist in town, then cultivate that.  Do presentations to local community groups with lots of Q&A, ask to speak at a school assembly.  You get the point.  Expand on your approachability and enhance your Brand.

If you are unsure of your real Brand, ask a few customers what makes you different than every other widget-maker.  They might be shocked, they might even say they never even think about it as you feel like a perfect fit as you get them (what a Brand!), but their response might open up new avenues for spreading your message and growing your business.

I would encourage you to have a conversation about your marketing expenses and if they are really generating the revenues you would like with your accounting professional.  If you are not currently working with an accountant or would like to have a second opinion, feel free to contact me to set up a free no obligation consultation about your business.

Have a great Tuesday.

Imagine

Happy Friday.  I understand there is a great deal of angst out there what with Britain leaving the E.U., our own political turmoil and the risk of another global recession on the horizon; but try to keep it in perspective.  What goes down goes back up.  People will save for a while and then spend.  Your primary role as a small business owner is to remain faithful to your Company and the value it brings to customers.  So again, Happy Friday!

Kubae and I were talking last night and this morning about a woman, lets call her Ann, who was an excellent baker and who decided to open her own bakery.  She quit after two months and Ann’s comment was, “Why would I want to go through the trouble of baking 30 dozen cookies if I only make $1.00 a dozen?”

To which I replied, “Why couldn’t she make $1.00 a dozen and sell 30,000 dozens?”

Kubae’s response to my answer was, “What point is there in making 30,000 dozen cookies if she couldn’t sell them?”

I have written about it before but it is worth repeating.  Most small business owner focus on the wrong parts of the business.  They are worried about the cookies and not about how to get more of the right customers.  The right customer will not find you by accident.  It takes hard work, dedication, and a willingness to extend yourself to get your ideal customer to come to your door.

One of the things I like to do with a client is walk through their “Imagination”.  Much like a therapist, I ask him to close his eyes and imagine his small business as perfection.

  • “What does it look like?”
  • “Who are the customers?”
  • Who is doing what jobs in the business?”
  • “How much profit is it doing?”
  • Where is the business located?”

Most small business owners cannot imagine these things.  They are busy baking the cookies and worrying about “the perfect cookie” instead of “the perfect business”.

Build the perfect business.  This starts with knowing your ideal customer and then finding ways to get them to give you a chance to wow them.  There are many books on the subject, but I like Michael Gerber’s “The E-Myth” series and also John Jantsch’s “Duct Tape Marketing”.

Both authors try to get us to understand that, perfect cookies aside, there must be some overarching vision.  Both call for small business owners to “Work on their business, not in their business.”  Both call for small business owners to create systems and processes that can allow your business to grow profitably without you, the owner, having to carry out every last aspect of the business.

How does a baker sell 30,000 dozen cookies?  One dozen at a time to 30,000 people.  The hard part isn’t making the cookies, it is finding the customers.

Go.

Find.

Customers.

I know this has nothing to do with accounting, but there is no fun in accounting if there is no revenue and profit.  So, if you feel that making the cookies is driving your business, I strongly suggest you talk with a professional or work with a coach on how to improve your lead generation, prospect education and closing.  If you like, you can contact me for a free consultation to discuss how you might be able to generate excitement about your business.  And read the books!  You will be glad you did.

Have a great Friday and an awesome weekend.