Wednesdays Word to the Wise Stop giving away what someone may be willing to buy. Think about that for a moment. Say it slowly: stop giving away what someone may be willing to buy. How many times have you thrown something in for nothing -- without any kind of prompting from the client or customer? That gesture may buy some goodwill but it also conditions your repeat customers to think that it might happen again in the future. Its similar to discounting. Once youve discounted, its tough to push price increases through to these same customers down the road. Additionally, it results in margin erosion. No way around it. Its especially stupid when the deal didnt require the giveaway (or discount) in the first place. Ill give you a real-life example of what I am talking about. I have a friend who runs a company. Previously hed sell someone 10 widgets, which was the average transaction size. When it was time to deliver the widgets, hed also throw in another 2-3 widgets for nothing. The customer, therefore, got 12-13 widgets for the price of 10. Not bad. You get 20-30% more than you bargained for. What customer wouldnt enjoy that? Anyhow, my friend did this for years. His margins, though fine, were always smaller than they should have been. Last year, about two months before his fiscal year started, he decided to try something different. Instead of selling 10 widgets, and throwing in some extra ones at no cost, he started putting dozens of additional widgets in front of the customer at delivery -- before any money had been exchanged. An interesting thing happened. Even though the customer came in looking to buy just 10 widgets, and had agreed to that number in principle, the customer, upon seeing more widget options that looked great, identified 5-10 additional widgets that he or she would like to have. Of course, the customer was now looking at a 50-100% increase in overall price. Price-conscious buyers, after giving it some thought, may not have the financial ability to buy as many as 20 widgets. Buying 13-15 of these widgets, though, wasnt going to break the bank. My buddy has been doing this for the past 10 months. By offering additional widgets for sale to his customers -- rather than just giving them away to the customer for nothing -- his revenue has increased substantially and his margins have grown as well. FY2014 will be his best year ever. It turns out that my buddy had been giving away what his customers were apparently willing to buy. Of the nearly 1100 Facebook friends I have, the majority of them are photographers who run their own businesses. My photographer friends are probably more guilty of discounting than any other group I know. Unprompted, many of them provide additional, fully-edited photos to their clients for nothing. Unprompted, the photographer will negotiate against himself or herself, reducing the price he or she is willing to work for. Ive never seen so many self-inflicted wounds. Stop the madness. I understand the allure of throwing something in for nothing. Youre hoping to buy repeat business with the gesture or youre trying to get the deal done -- at whatever price necessary (even if that means youre just buying the business). But if your business doesnt have to do that to survive, consider changing your selling practices. Slowly withdraw from that model. Stop giving things away (discounting) when your customers arent clamoring/demanding that you to do it. Who knows. You may find out, as my friend did, that customers are willing to pay for something you were so eager to give away.
Posted on: Wed, 30 Jul 2014 15:22:44 +0000
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