Springfield, MO

Log in Subscribe

Opinion: Small businesses can't compete on pricing

Posted online
Let’s open the mailbag. I get lots of e-mails from folks trying to clean up an accounting mess, solve a business challenge or just make more money. Sound familiar? Read on.

Dear Ellen,
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?
The Newbie

Dear Newbie,
Yikes. You just can’t compete on price. Forget it. There will always be someone who will charge less than you, even if they have to pay to do the job. And the market is much less price-sensitive than you think. Can you believe $50,000 for a watch or $3 for a bottle of water? Hundreds of dollars for Lady Gaga tickets? Consumers will buy just about anything if they can 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? Is it $40,000 per year, or $100,000 or $750,000? Pick a number.

How many hours can you sell in a year? Suppose you sell four billable hours a day, five days a week, for 50 weeks in a year. That equals 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, and 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 might 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 budgeted to sell and spend, 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.

Dear Ellen,
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,
Carol Cautious

Dear Ms. Cautious,
How about 100 percent satisfaction or 100 percent 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 percent to 2 percent 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.

Ellen Rohr is an author and business consultant who offers systems for getting focused and organized, making money and having fun in business. Her latest book is “The Bare Bones Biz Plan.” She can be reached at[[In-content Ad]]


No comments on this story |
Please log in to add your comment
Editors' Pick
Open for Business: Modern Outdoor Tackle

Fishing retail shop Modern Outdoor Tackle moved; Healthy Spot LLC opened; and Springfield law firm Strong, Garner & Bauer PC changed names and moved its office.

Most Read Poll
Do you plan to make a charitable donation by year's end?


View results

Update cookies preferences