More than a decade ago, we were working with a consultant on our growth plans.
He asked me who our competition was.
“Oh, we don’t really have any,” I answered confidently.
He told me I was completely wrong…
True, at the time – and to an extent, even today – there were very few companies that offered the same Outsourced Finance Department service as us.
But the people who were considering working with us still had other choices.
For example, they could go to a traditional accountant. They wouldn’t offer them all the financial insight, forward-planning and close support we would, but it was absolutely an alternative.
Or they could hire a Finance Director and build their finance department in-house, even if that takes several years. Or they could do nothing – and continue struggling with their profitability and growth alone…
It was a valuable lesson I’ve never forgotten.
In business, you have your obvious, direct competitors – those who offer a similar product or service to you, to the same market.
But you also have indirect competitors who are competing for the same spend, even if their offering looks quite different.
To give you a second example, a gym might compete directly with other gyms in the same locale.
But they’re also competing indirectly with Peloton and the providers of home gym equipment… With Joe Wicks and group programmes like Couch to 5K… and with expensive private trainers.
When consumers decide to exercise more, those are all options they may weigh up.
I wanted to mention this, because in recent blogs I’ve been talking quite a bit about how to price your services. This is an increasingly urgent issue for many businesses as costs rise and profit margins are squeezed.
There are three factors to consider when deciding on a new pricing structure:
>> Your own costs – referencing real numbers, not relying on your gut instinct!
>> Your customers and how much they’re willing to pay
>> Your competition and what they’re charging. The point isn’t necessarily to match or undercut their pricing – this can often be a mistake. (See my last blog!)
But you need to be aware of the other options available to your leads, so you understand the market in which you’re operating…
…and can make educated decisions about the level at which you want to play, the pricing gaps available to fill and how you’re going to position your offering to justify the price you want to charge.
For this you need a realistic view of your customers’ other options – not just a narrow view of your direct competitors.
I know, some business owners might find it confusing and pressurising to widen their definition of their competition.
But not only is it necessary, I think it also gives you a lot more room to manoeuvre and be creative with your pricing. It opens up the possibility of competing with companies charging a lot more than you, who may not have been visible before. And it may make you think of different pricing models that weren’t immediately obvious, too.
To go back to that gym example, that’s an area where lots of business owners feel trapped in a “race to the bottom”. Gyms everywhere are operating with tiny profit margins but find it difficult to raise their prices because there’s always another gym around the corner charging less.
But since you’re also competing with personal trainers, you could create a VIP programme for people to work out one-to-one with a coach assigned just to them.
Or, once you realise that many of your customers are doing the Couch to 5K programme – which offers a massive rise in fitness within a defined timeframe – you might consider similarly creating an “entry level”, 6-week fitness programme, for which you could charge quite a bit…
…And then upselling the participants to your normal membership once they’re done.
The key, as always, is to be in control of the facts – relying on real data and real numbers to make your pricing decisions, not just assuming and guessing.
That’s the kind of process we go through with our clients when we manage their finances. Getting your pricing right is critical to your profitability and even to your business’s survival – it’s one of the biggest financial decisions you will ever make. So it’s of critical importance as we seek to maximise your profitability and help you grow faster.
It’s not the kind of service your accountant offers…
So if you’re ready to upgrade your financial management to world-class, get in touch with me today. Simply hit ‘reply’ to email me or call us on 01279 647 447, and let’s talk about how we can help you.
Warmly,
Garry
