Why Not to Compete Based on Price

It can be tempting at times for a business owner to contemplate competing based on price – that is, offering a product or service at a price lower than their competition. The net result of this is hoped to be a quick influx of customers who will take advantage of the lower price, and then remain customers even when the lower price might no longer hold true.

In reality, for many businesses, this can break the bank and drive the business under. The reality is, competing based on price is simply a game of chicken – each competitor lowers their price in turn, until the last business standing takes all the customers. This is a very costly way to eliminate the competition, assuming you win, and there’s no assurance that another competitor won’t arrive to repeat the cycle.

That being said, this does not eliminate the offering of discounts or sales, but the reason should not be simply to be competitive. As an example, a chiropracter might offer a 20% discount on your first session because you’re a new customer. A printing company might offer a 10% reduction in the printing price for orders of over 10,000 prints. In other words, the reason for the discount is not in order to be cheaper, but because there’s another benefit to the provider to giving that discount.

Additionally, even if you intend to give a discount to the client, make sure that you inform the client of the value they’re getting before they’re informed that you’ll give them a discount. Once the subject of price comes up, you won’t be able to negotiate based on anything else. As well, if you’ve assigned a particular value to your work (e.g. $75 per hour), then you can always offer a lower price later, but you cannot raise it. If you start negotiating price too early, then you risk being trapped with having lowered your price below what the client would have paid, had you explained the value you provide in advance.

Compete based on value. As a business, you offer a mix of quality, service, and price. If you fix quality and service, then the price you should be offering should be set as a direct result. Offering a Rolls Royce for $30,000 will immediately make the potential buyer doubt its authenticity or quality. If the quality or service is higher, then the price MUST be higher too. Lowering your price will negatively impact your credibility, and thereby be unlikely to benefit you in any way regardless.

Question: How do you Measure Progress?

In a recent course on writing business plans, there was a discussion about the creation of milestones and objectives, and ways to measure them. What methods do you use to measure progress, and to set appropriate milestones for your business?

Goals for 2011

As I mentioned last week, goals need to be SMART: Sustainable, Measurable, Actionable, Realistic, and Timely. In a discussion with a business coach, though, a valid point was made regarding goals. Goals need to be measurable and timely in order to be considered goals. Not necessarily good goals, but they are, in fact goals.

However, when goals have actions attached to their outcome – that is, being able  to take an action to bring the goal to fruition, then they are practical goals. If the goals are not realistic, then there is no chance of them coming to be.

Finally, if a goal is not sustainable, then it is a foolish goal. For example, if a business has a goal of selling a particular number of units, and the product is faulty, maintaining that goal is foolish. It can do more long-term damage than the short-term benefits. Selling 1000 units which eventually get returned achieves nothing.

The reason I asked about having written them down or telling people is because there is a potential benefit to sharing that information. Writing down goals makes it less likely that the details are forgotten (perhaps conveniently). Sharing the goals with other people means that when you see those people, and have to explain why you have yet to achieve the goal, can be a motivating factor.

However, having spoken to several people who’ve made goals to lose weight or quit smoking, they’ve pointed out that if people know about your goal, they can nag you about it to no end. The nagging does not increase the likelihood of reaching the goal, and tends to be more frustrating to the goal-setter than anything else.

If you choose to share your goal, I suggest that you be careful about who you share the goal with, to ensure that it will be someone who will help you reach the goal, not hinder you.

Landing Pages and Business Strategy

When a recent posting on Facebook directed me to a page screaming free and asking for an email address, I immediately questioned the author of the post’s integrity in suggesting the link to their associates on Facebook. The page read like a marketing scam aimed solely at getting email addresses, with no indication as to what the email address would then be used for. Instinct suggested that the purpose was to send email blasts or the like, which in social media is akin to standing at a downtown corner with a bullhorn shouting out your message.

Perhaps the author was unaware of the implications of their message, though I find that unlikely, and suspect that author was perfectly aware of the implications of the appearance of the landing page. The result was a marketing pitch that had all the appearances of a scam.

If you’re in business and looking to design your website, there are better ways to get people’s email addresses and communicate with your target market than to offer them something free before you’ve convinced them that value exists. As such, there are a few fairly simple rules to follow when designing your site:

  1. Keep the design simple, with subdued colors. The page shouldn’t appear to be shouting its message, but rather to be displaying its message in a cool and calm manner.
  2. Provide information, or something of value, without asking for anything in return. This can be pages of your site with tips and suggestions, a public blog, or a free PDF that can be downloaded in a single click.
  3. When asking for an email address, explain what you’re going to do with it – what kind of emails will you be sending, how often, and will you share the address with anyone?

Failure on any of these might gain you addresses in the short-run, but you will find that people will either ignore your emails when they start arriving each morning, mark them as spam (which eventually can impact people who actually read your emails as well), block you, or report you. As well, if the people who’ve given you their emails are active on any of the social media sites, they may pass along the information about your practices to their friends.

Perhaps this is the confusing aspect to this form of marketing. Your website is a place where you can post information about yourself, what you’re selling, and your expertise. Social media is a place where you can interact with your target market. However, pushing a hard-sell at your target market is little different from being an aggressive telemarketer – and most people have learned how to block such people out of their lives.

Willing to Say No

I belong to a small network of businesses each of which provides similar and related services, though it is rare for any of us to compete directly with one another. This allows us to forward projects and clients to each other with little risk of losing the client.

A few days ago, the owner of one of those businesses came over to me to ask if I could take on working for one of his clients, who had been looking to extend one of their websites to a new market. I took a quick look at what was needed, and realized that while part of the project fell within my area of expertise, a major component did not. I was also aware that he had another option – his network of vendors included someone with expertise in this particular area, though that vendor’s prices were significantly higher than my own.

However, I didn’t feel that I could justify working on his project, or at least, not on the portions outside my area of expertise. While I was confident that I could complete the project, there were two reasons not to take on the work:

First, the amount of time it would take me to do the work would be much longer than if he used the other vendor, and ultimately might have cost the client more.

Second, I didn’t really want to learn how to do the portion of the project that I didn’t currently know how to do.

I declined the work, and he asked if I could do the part of the project which I did know how to do, to which I accepted. By declining one part of the project, at the risk of losing the other part of the project, I gained the trust of a client.

Sometimes, the gains of saying no to a client are known almost immediately, and sometimes, you just have to trust that the gains will come. When you inform a client that something falls outside your area of expertise, they will either ask you to do it anyhow, ask you to find someone who can do the work, or find someone else themselves. In any of these situations, you stand to gain – either immediately in the form of being able to subcontract work that you might otherwise not have been able to do, or in the long run with customer referrals.

When you gain the trust of a client, it will last longer than any satisfaction they get on a given project. It will translate into more business, references for more work, and many other long-term gains. But to gain this kind of trust, you need to teach yourself to be able to say no.

Striving for Perfection

I recently read an interesting comment on the pursuit of perfection:

The amount of effort required to bring something from “good enough” to “perfect” is rarely worth it.

My initial reaction to this, as well as the reaction of most people I repeated this to, was that clearly the author doesn’t take pride in a perfect piece of work. Reflection, though, indicates something a little different.

Define the term “good enough”.

For me, that may translate to one level of quality, to you, another. That level of quality that you consider to be “good enough” is what you should be striving for. That is, it should meet all the needs of the work being done, and leave you with some level of satisfaction that you have done a good job.

However, perfect is not subjective. Perfect means that an objective assessment of the work would conclude that there is nothing lacking in the job. While there are certainly jobs where the the subjective assessments need to come close to perfect (for example, safety procedures at a nuclear powerplant), most jobs do not. There is some degree of quality that is subjectively required.

The amount of work to bring a project from good enough to perfect will often far out-weigh all other effort for the project, though the benefits can rarely justify it. For my clients, they expect a certain level of quality. I do my best to exceed that expectation by producing something better for them. However, I rarely insist on perfection, because my clients in general don’t want to pay for that.

They want to pay for a certain level of quality, and that’s good enough for them. For personal and professional reasons, I do my best to exceed that level. However, perfection will rarely make a difference.

It should be noted that if working harder on a project to produce a better outcome would have a tangible difference, then the definition of good enough may need to be adjusted. But that’s just subjective.

Goals and Fitness

I had a discussion with a Personal Trainer about goals, and how to go about setting realistic goals for clients. We discussed, for example, a client who wants to lose 20 pounds in a 4 week period – the goal is well-defined, but it is not, however, sustainable.

The interesting thing to note here is that creating a fitness agenda for a client lends itself to defining a SMART goal. Every aspect of setting such an objective highlights one or more proper goal setting processes.

For example, a common request to a Personal Trainer is to “get into shape” which is not measurable, making this goal impossible to be achieved. By clearly defining what the goal is, for example, to lose 20 pounds, or to be able to run a marathon, a measurable goal is created.

Taking the example from the opening paragraph, this goal is not sustainable. While there are ways to lose that weight in the specified amount of time, evidence shows that without changes to lifestyle, the weight will not stay off.

Removing a target date, though, may make the goal realistic, since it would eventually be possible to achieve that goal. However, since there is no date attached to the goal, it is no longer timely, and therefore is not a real goal.

Realism is also evident in setting fitness goals, with some people setting goals which are not physically possible to accomplish. One needs to look at their own reality to determine what might be a realistic goal for themselves. This is unlikely to be the same as the realistic goals for the next person.

Last, some goals are not actionable, in that they rely on an event outside the control of the person setting the goal to occur – for example, being selected to be part of a particular team. While the level of fitness to be selected might be actionable, the selection itself is not part of a SMART goal since someone else will be making that decision.

In business, goals are exactly the same. They need to be realistic, not idealistic. A classic example of this is with sales projections – many small businesses project to take over an entire market, but this is idealistic, not realistic. A realistic goal might be to become a major provider of a service within a specific geographic region.

Likewise, the goal should be measurable. Carrying on with the previous example of sales projections, the goals should include a way to measure the success of the business in reaching those goals. They should also include a time frame for reaching those goals – 6 months, a year, some fixed period.

The goals should be based on actions that are under the control of the business. Setting a sales goal is only SMART if a means of reaching those goals (for example, increasing the conversion rate on the business website) is part of the goal.

Last, make the goals sustainable. It doesn’t help you in the long run if you misrepresent yourself in the short-term.

Question: What Plans Have You Made for 2011?

This week’s question is about goals and plans – namely, what plans have you made for 2011 in respect to your business? Have you written them down? Are your goals SMART – Sustainable, Measurable, Actionable, Realistic, and Timely?

Getting Work Done

Last week, I asked a question about where your favorite place is to go when you need to get some work done. I copied the question to LinkedIn, and was pleasantly surprised to get many answers. While some answers reflected idealism, for example, Hollywood and Disney, most reflected the nature of the question – in your reality, where would you go to get work done.

Interestingly, just before I wrote this article, I got another answer I had not been expecting – 3 AM in bed, because that’s when the best ideas seem to come to mind.

What I was hearing from people is that the best place to get work done is wherever you feel inspired – and it varies between people and between types of work. As expected, those in graphic or creative roles tended to provide answers which had some level of distraction – but distractions that could be controlled (for example, a place with music). Those doing rote work preferred quiet spaces, with few distractions.

Perhaps this is, above all, what causes the designers of offices so much grief. Each person in the office is doing something a little different, and finds different distractions tolerable, desirable, and irritable. Trying to design an office that will be inspiring to everyone working there to be productive can be an exercise in frustration.

While Jason Fried in his presentation wanted to put the onus on managers and meetings, this is really only part of the problem. The elimination of meetings and manager interruptions might increase some productivity, it ignores the fact that each person needs a unique environment to be productive. There are good managers who don’t impede the productivity of their staff, and they too would have difficulty with getting their staff to choose the office as an ideal place to work.

I think Jason makes a valid point that many companies have large numbers of people attending all meetings, where the meeting itself is unnecessary, or could be handled with a much smaller number of people. Yet his approach of banning all meetings one afternoon a week avoids the real issue – that people need to learn how to run better meetings, so that everyone at a given meeting is really necessary, the length of the meeting is appropriate to the decision being made.

In terms of a preferred place to work, though, despite the best efforts of the owners of the business, unless you happen to have a bunch of people working who all enjoy the same workspace, designing the office is an attempt to please everybody, and is more likely to end with pleasing no one.

Tips to Getting Paid Promptly

One of the worst issues some small business face, often in the early days when the business is just starting out revolves around cash flow. Even if projects can be found which are profitable, the expenditures occur prior to the customer paying resulting in negative cash flow most of the time, with large boosts of cash at the end of each milestone. Additionally, with some customers being slow to pay, the cash influx that would have assisted during the next project does not arrive, thereby exacerbating any existing cash flow issues.

There are, in fact, two issues here. The first is how to operate without cash, a function of being paid only after the work is complete. In a service-based business, this is often the nature of the work. While margins should be adjusted to allow for this, with the deposit and each installment covering the costs associated with the next stage of development, and the final payment being completely profit, this rarely happens in the real world. However, that is not the focus of this article.

Instead, I will focus on how to get your customers to pay you in a timely manner, something which I have been able to do with almost every one of my clients. While there have been exceptions, in most cases, my clients have paid me within 10 business days of receiving the invoice, and often at the same time as the invoice is sent over.

First, you need to ask your clients to pay promptly.

It amazes me that some business owners don’t realize this. If you don’t tell your clients when you would like to get paid, they will assume that they can wait until the very last day to pay the bill. Should you want the money earlier, then you need to ask your clients to pay the bill earlier if they are able.

However, this will only work if your clients themselves have the cash flow to be able to pay your invoice on demand. The larger the invoice, the less likely a mere request is to get them to cough up sooner rather than later.

Offer a benefit for prompt payments.

If the client is truly strapped for cash, then offering a small discount (one or two percent) on the amount of the invoice can encourage them to pay sooner. While the savings might not be large, if they are having a cash flow issue, then this can assist them in a small way. Since it’s a discount on the invoice, and not a penalty for late payment, you don’t have to deal with interest calculations and associated headaches.

Arrange payment plans.

Something I offer every client who asks is whether they would like to set up a payment plan. On my part, this involves minimal effort, since my accounting software can calculate for me the outstanding balance, as I apply each partial payment. It involves a little more work for the client, since they have to remember to pay me more often, but often making this offer will ensure that I’ll get the full amount in a predictable time frame.

A client who has a $10,000 bill might split it into 10 equal payments, one each month until it’s paid. I don’t get any extra money, but I also know each month that a $1,000 is going to arrive from that client, and I can plan around it.

Refusal to look at this option can often be the difference between getting paid a bill in its entirety and not getting paid at all. Without offering this, some clients may believe that they have to pay the entire bill at once, and will hold off on paying installments until they can pay the entire bill, which may never happen. By being able to pay an installment, it minimizes your exposure with each installment, and increases the likelihood that the installments will, in fact, arrive.

Stop providing service.

If a customer is continually late with payments, then inform them that they need to pay in advance to get further service. Stop allowing them to run a balance if they cause problems to your cash flow by not abiding by the terms of the agreement. Excuses from the client about why the money hasn’t arrived should be taken with a grain of salt – their problems are not your problems, a lesson I learned the hard way earlier this year.

At the end of the day, it comes down to asking to be paid when you need the money, and working with your customers to ensure that both your needs are being met. Yes, there are cases where this won’t get you any closer, but for the times that it gets you paid faster, isn’t it worth asking?