Are You Giving It Away?

Many of my clients… it doesn’t matter the industry… complain that competitors often low-ball price, thus forcing them to discount themselves in order to compete.  In the shaky economy of the past 8-9 years, discounting is almost an addiction, and continues to lower the expectation of what the customer is willing and able to pay.  Universally, when I suggest that it is time for a price increase, the reaction I get is fear, and it’s based on the perception that a price increase will cause a loss of customers.

I get it.  It’s not like we have the magic ability to charge whatever we want and have customers flocking to our doors.  (That’s called monopoly.)  But I’d like small business owners to consider their feelings on this topic seriously against the backdrop of these reflections:

• Your business costs have risen, haven’t they?  In my experience, operating costs continue to creep up.  Why?  You name it… phone & internet charges, utility costs, insurance (health, worker’s comp, liability), office supplies, professional fees, etc.  It’s unsustainable to absorb these costs without an offsetting rise in revenue.  One of the few areas where costs have come down is fuel costs, but who among you thinks that will last?

• More to the point, we’ve recently seen a growing problem with employee shortages.  The demographics of this is real simple… more people retiring than coming into the workforce.  Simple supply and demand tells us that because of this labor rates will rise.  It’s already started.  And since labor cost is usually our greatest expense, how will you pay for the help you need to run your small business if your prices are barely providing a profit at current wage rates?

• In practice, reasonable price increases do not cause a loss of customers.  Oh sure, you may have an example where someone left you for a lower price, but in nine years of coaching, I have seen only one client report the loss of one customer directly due to a price increase.  Instead the feedback is more like “Surprisingly, I’m not aware of any customer who has left.”

• What are you selling… low price or high quality & service?  Selling on price is the result of “dumbing down” our sales process.  What I mean is that we fail to comprehend and communicate the value in what we offer, and that our price is worth it.  Instead we take the easy way out and offer a discount.  Think about it.  The message you convey is then that your product/service is the same as anyone else, but you can sell it cheaper.

o   The irony with this is that many who sell on price (yes, I mean you!) will say about their competitors that their service is terrible, their products are inferior, their business pitch is dishonest, customers tell us about their horrible experiences with them….  And yet we try to match or undercut their prices!

• It comes out of your pocket.  What I mean is that when you discount, you don’t offset the discount by negotiating better supply costs, or cutting back on wages or commissions, or implementing improved efficiencies in your operation.  Instead, you pay yourself less as the owner of your business, don’t you?  Is that really what you wanted when you got into business in the first place?

Nobody wants to pay more than they have to for things, nor to see higher inflation in our economy.  But at the same time, it sure doesn’t help the economy if small businesses are not making money to buy things, hire people, and invest in growth.  Don’t give it away.