Is Your Pricing Strategy Anti-Customer Centric, Creating Distrust?

Pricing anything about services – food, SaaS products, etc. – is a delicate balance between creating margins and what a market will bear. I’ve always referred to it as an art and a science.

In most sectors, competition is high, and companies are always seeking ways to prohibit or dissuade customers from making a jump, while retaining them as valuable purchasers.

One would think, regardless of how a top tier or economy company was positioned, they would want to make their customer experience as seamless and friendly as possible in order to capture those dollars.

Here’s one example where it didn’t work.

A few days ago,I was pricing flights for a long weekend trip to visit friends who had relocated to a new city. As it was going to be relatively quick flight, although not quite commuter, I decided to price out major carriers against the economy no frill carriers.

Using comparison sites such as Kayak, Cheaptickets and Expedia – I was surprised at how prices shown can vary amongst them, I decided to purchase from a the no frills carrier as they had reasonable flight times and the tickets were about $40 less per person.

Navigating their interface, I selected the flights and proceeded to the next screen, where they asked for all the extensive information you need in order to fly these days. I then entered my credit card info, no problem.

Expecting a confirmation screen at this point, I instead was presented with another screen of things I would need to pay for in conjunction with my flight, which included picking a seat, as each one had a dollar amount tied to it, and paying for my carry on bags.

This immediately created a sense of distrust for this airline. If I was getting charged after the fact when purchasing a flight, what other costs would I incur that I didn’t currently know about? What level of comfort did I have trusting them with my credit card info as well?

All told, the options added $100 extra to the flight, pricing it higher than the major carriers on the same route.

Cancel.

Customer relationships are the most important key to sales. If the purchasing process isn’t seamless and forthcoming with information that’s clear and easy to understand, companies lose their competitive edge with selling. It also creates a situation where they’ll have to answer a higher amount of customer questions and likely, complaints, adding overhead, as well as lost time and opportunities due to frustration.

Me? I’ll be cattle herded to the back of a plane in a few weeks, but at least I consciously know what I paid for when I bought the ticket.

What situations have made you distrust a company or service?

Opportunity Cost Analysis – How Much Will You Give to Get?

Over the past few months (and even before that, with mentoring), I’ve been evaluating businesses in the many stages of inception – including getting to becoming a start-up. One of the questions I ask of whomever I’m meeting with is, what is the opportunity cost?

An opportunity cost analysis is a useful exercise to run for a company/product idea, a new project or simply assessing a decision to be made.

Conducting an opportunity cost analysis allows you to study possible benefits and risks associated with taking one action instead of the alternative action in an effort to determine if the possible benefits would be worthy of those risks.

This allows you to take assumptions you’ve made about the company/project/decision and run through scenarios with some of the following questions.

How much will it cost in estimated outlay; labor, hard costs (computers/equipment), and time vs. what (revenue/exposure) can be gleaned from the idea in a space of time, such as revenue and/or exposure.

Who else is in the market space? Would you be first? (and can you set the pricing based on being first?)

What is the risk of not doing it? Less revenue, lower market share, or another company will execute the idea. Could the time and money be used elsewhere for a higher benefit?

Like most other information freely available on the internet, there are many examples of analysis questions and examples that could be run through (many including calculus equations).

However, when you own, (or are a part of), a small business (or start-up), determining an opportunity cost can be a challenge. Here’s a marketing example of a friend who owns a photography business.

The photographer is looking to grow their business in the corporate market space within 60 miles of their location. One idea they have to accomplish this is through a direct mail postcard campaign.

Let’s say the postcard cost $2500 to print and mail 500 pieces, ; the mailing list purchase of businesses in the area adds an additional $500, and the graphic designer another $200.

Total money outlay $3200 + time the photographer spends choosing images and writing copy.

My first question is: Is direct mail still an effective marketing tool? Do people still look at their physical mail? (And if so, are there current response rate statistics out there?)

How many jobs booked at what dollar amount would need to occur to recoup the postcard cost? To make a profit?

Are there other marketing avenues opportunities the same $3200 (and time) could be spent at for less risk and higher return?

Are other photographers in the area marketing this way?

Once they she gathers all the information, my friend will able to make a more informed decision based on an opportunity cost analysis.

In looking at the example above… what would you do?

 

 

 

 

 

 

 

 

What Is the Price of Your Network?

A few recent events have inspired me to think about the (relative) price of my network.

Can you put a price on the value of your network?

Can you put a price on the value of your network?

The first event came from two interactions with companies who offered me small consulting projects. It was clear after a few conversations that both were more interested in mining my contacts to further their own businesses with little in return for my own. Neither had much to offer in terms of long term job (or project) interest for me, and since equity in their lines of businesses wasn’t what I was looking for, I politely declined the projects.

My business network, while not as impressive as some out there, is certainly growing, and it’s not something I’m willing to allow access to for just any business proposal. Part of the point of building a business network is to create trusted, qualified contacts with whom you engage with back and forth (note, this is not always the case on both sides, but an aspiration, as I respect anyone whom I’ve connected with).

The second is the recent brouhaha over Facebook once again revising their “like” and privacy policies. Facebook is useful to me as it’s my personal newsfeed, bridging the gap between friends and family whom I’m logistically far away from. The other day I watched a video of one of my “nephews” taking their first steps, and was super excited to be able to share the experience.

On the flip side, knowing that my personal data is getting mined for advertising and who knows what else, I keep my Facebook profile somewhat incomplete. I don’t have control over who, or what company, can access my information and network, and I’m hesitant to publish more data to it. It’s rare that I’ll “like” a business page, unless it’s something local or a friend’s project. I find myself posting infrequently to my network, though I am known to throw in a few wry comments(or three) about others’ status.

I recognize that Facebook is a business, and now a public one, which means they have even more pressure and scrutiny from their investors and the media to produce revenue. However, I think they’re continuing to walk that fine line with how much the public and their preferences are interested in being the vehicle in which to produce that revenue, now that there are other options for connecting with your personal contacts. There isn’t a clear answer to the above observation, only that it will be interesting to watch how Facebook handles it in the US. Other countries, such as Germany have much stricter rules about the collection and usage of personal data.

This is not to say you shouldn’t try to have productive business or personal networks; I’m just being judicious about how mine are utilized.

What do you think? Have you shifted how you interact with any of your networks recently?

Building to What? 3 Reasons Your Business Needs an Exit Strategy

The end of the year brings opportunity for looking back at the plans and goals made for your business. Is your company still on track? Are you still interested?

Kris Pennella

There’s some controversy out there about how creating an exit strategy is akin to setting your business on the road to failure. Unless your exit strategy is to immediately get up, power everything off, lock the door and toss the keys, there is much you can learn about putting some thought into an exit strategy. 

An exit strategy is more than “When can we sell?”; for some, it’s succession planning, and for others, a set of metrics for deciding “Am I still interested and engaged in what I’m doing?”.  Every strategy is as individualized as the business it’s tied to.

While I was running my manufacturing company, after getting it off the ground, I wasn’t sure how long I’d want to continue. The startup phase was high-risk, high-pressure and encompassed all the interesting business challenges I enjoyed tackling, but was I interested sticking around forever? Was there something…

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How Do I Know When I Can Pay Myself?

A question I run into regularly with companies I’ve mentored and/or offered advice to is, “How do I know when I can pay myself?”. One of the toughest realities in starting/running your business is that you may be paying everyone else around you, but not you, for some time.

Coins representing payment

With all this money passing though – where’s your paycheck?

The answer is not cut-and-dry, as many items factor into the answer, however, one thing holds true – it’s a business decision. There’s a lot of personal stress, angst and indecision that already go into getting your business off the ground and running. However, when it comes to salary, it’s a numbers game.

Below are items to consider when deciding when and how much to pay yourself.

  • Are you cash flow positive? Know your financials.

Whether or not your company is profitable is a different story. Does your company have enough cash on hand, as well as coming in the door, that if you were to take a percentage as payment, the company could continue cover expenses? If not, what actions need to be taken and what’s the forecast for getting there?

  • What’s in your pipeline?

Combined with the above, are there enough sales opportunities forecasted to possibly provide the cash flow? How far out can you predict your company’s new and repeatable sales?

  • Money not spent is money to be reinvested in the business

Any money not taken out for payment can be used for company growth, additional headcount and/or infrastructure. If you’re anticipating a large amount of capital expenses in the coming months, you should look at a balance between taking payment and preparing to spend.

  • Evaluate the tax impact

Your accountant is an invaluable resource. Take the time to meet with him/her to review where the company is, how much cash is/could be available, as well as what the tax implications would be in both not touching it, and using it as your salary. If the expense forecast is low(er), leaving more cash coming in, depending on the structure of the business, you could be liable for tax on it as part of the owner’s pass through, and taking some as payment could offset that.

  • Don’t Get Discouraged

Regardless of if you decide to start paying yourself through your business (or not), growing a business is a marathon, not a sprint. If you’ve done the diligence in forecasting and have a plan to generate cash flow, you’ll know exactly where things stand and what the road ahead looks like.

As you can see, it’s not a one-size-fits-all sort of answer. I’ve met business owners who only intermittently paid themselves, paid themselves for a while and then stopped, as well as those who started with small draws and increased that into real income as their businesses developed.

Do you have additional advice for getting yourself paid?

Surviving Your Business Partnership

Now that you’ve completed the dating dance of creating your business partnership, what is your plan to survive it? Ostensibly in forming the partnership, an operating agreement was created (and signed) describing everyone’s role, rules of engagement, and buy out/dissolution terms. It’s in all partners best interest to have partnership agreements in place, and if you’re remotely questioning whether the one you have is detailed enough, go back and review it now. For everyone’s protection, here’s some guidelines as to what an agreement should entail.

Imagine if your partnership contract was set in stone.

Imagine if your partnership operating agreement was set in stone.

Once you and your partner(s) are set to get down to work on the business, below are some thoughts as to how to keep things running as smooth as possible.

Decide How To Work Together

Everyone has their own way of completing work. Deciding frequency and methods of discussion will eliminate distractions and allow you to focus on your own tasks. Whether its an end of day check-in, weekly round up or 5-minute morning google chat, come to consensus as to what’s going to be most useful for all involved. This especially helps if you’re located in geographically different areas (as in not sharing office space).

Set Goals Based on Skills

There’s much to accomplish and chances are your partnership was based on forming around complementary skills. Review what in each area needs to get accomplished first and who’s best to do it. Not all goals can be accomplished individually, however assigning ownership to foster them through completion gives all partners the opportunity to contribute to the company’s success.

Communicate, Plan to Communicate, Communicate More

If you and your partner(s) were separate meetings describing the company, would your messages sound the same? Communication and over communication is a key between partner(s). Insuring you all agree on the company priorities, discuss strategy or upcoming challenges keeps everyone on the same page while moving the company forward. It’s fine to table issues that may be too large to come to agreement with in one sitting, however make a plan for follow-up on them in the short term.

Create Rules for Financial Decisions

One partner wants to travel to an expensive conference to meet with potential strategic partners, another needs to hire a developer consultant to make additional headway on the product – the company has limited funds to work from. How do you decide? Having a set of operating rules in place that determine revenue vs non (or not immediately) returning revenue streams based on where you are in your product and earning cycle help steer the decision and insure one partner doesn’t appear favored over another.

Be Realistic

We’re all people, and people change as well as their situations. Any outside event could alter a partner’s ability or interest in participating in the company.

Set Evaluation Points

As with monitoring your business health, set aside time to evaluate yourselves as partners. Are all partners still committed to the business and the priorities? Has anyone had a life-changing event that detracts from their business priorities?Are you all satisfied with the direction the business is running? Your partners are your first tier support mechanism for running the company, and if a partner isn’t pulling their weight or wants to step back, having a forum to discuss any issues that could derail the partnership is important to establish.

Partnerships ebb and flow, and regardless of duration, if you create initial guidelines of how to work together it will save much cost and angst at the point it comes to an end. I once watched a partnership dissolve when one partner moved across country from the other without any discussion about it because the partner’s spouse had received a good job offer. The partners were running a retail store.

You tend to hear more about partnerships that end in disaster (like above). Have you seen any strong ones?

Getting Illustrative – Determining Your Company’s Value Proposition

I’ve been talking (and asking) about creating a value propositions for small businesses. What is a value proposition you might ask? A brief statement of benefit that summarizes why a customer should purchase a product or service. Basically, it explains the customer what will they will get exchange for their dollar(s) and your company’s unique identifiers from the competition.

I thought it would be interesting to represent questions that should be considered when creating your company’s value proposition in a handy graphic this week.

value proposition

What’s in the box? Your company’s value proposition should answer as many of these as possible.

It can be a bit of a challenge (almost like a mad-lib) to distill the answers down into a couple of sentences. White board, Trello board, or even traditional post-its can be useful in defining the concepts and arranging their order.

Once you’ve put the sentences together, which may take some time and revision to polish up, test them out. Try your value proposition out on various social media channels, email it around to you advisory groups and create some discussion around if you’re headed in a good direction with your proposition. Tor has some helpful (and humorous) advice for testing.

As your company moves forward and the product evolves in the marketplace, it makes sense to revisit your value proposition in scheduled intervals as it should reflect your product’s strengths.

I’m searching for great examples of value propositions that are out there today. Can be in any vertical. Seen any recently that have caught your eye? Post them below!