Who's Afraid of Losing Customers14th July 2017
Last month, my sister-in-law was looking for some workmen to move a partition wall in her cottage.
After getting her first quote, she phoned my wife in frustration.
“You’ll never guess what they quoted…. I don’t know how they could justify asking so much money for such a small job!”
Here’s what I guess probably happened.
The tradesman didn’t really want the job, which was probably more trouble than it was worth for him.
So he deliberately priced himself very high, to make sure that if he did get the job, it would be really profitable. And if he didn’t get the job, it was a lucky escape.
For him it was win-win.
There’s a lesson in there for the rest of us business owners, no matter what type of business we run.
You must be prepared to lose prospects – and even existing clients – if they are not worth your while.
It’s not as easy as it sounds. Over the past couple of weeks, I’ve sent out several emails about how much more profitable you would be, if you only raised your prices, even by a small amount.
Whenever I mention this, the next question always tends to be: “But what about the clients we’d lose…..?”
The fear is that raising prices will harm you. It’s usually misplaced, though.
Every single business has at least a small number of customers it would be better off without. These are the customers who are worth least to you, and who in most cases are not actually profitable once you’ve actually looked into the figures.
Think about the legacy clients you have who are still paying what you quoted them several years back – although your pricing structure has completely changed for new clients……
The clients who take up inordinate amounts of your time, time which you are not fully compensated for…..
Clients for whom you chronically over-deliver, for whatever reason - cutting away your margins.
The truth is that these are usually the clients that you lose when you raise your prices.
In many cases, the honour of having these companies as clients is actually costing you money (!). In other cases, they are taking up valuable time and effort that could be put to better use, servicing other, more profitable clients or developing your own business.
Raising prices is actually a very good way to get rid of this unprofitable underbelly of your business.
The additional revenue you bring in from the clients who do stay with you should be more than enough to compensate for those who go. I actually can’t think of any business we’ve worked with which has raised their prices, and lost out financially – even when they have lost clients.
Like I said last week, if you are worried, you don’t need to raise prices across the board to start with. Test the waters by raising prices for those clients you wouldn’t mind getting rid of, or for prospects that you are actually not keen on.
You may find that once you’re charging them more, they become more palatable :)
And if you would like help figuring out the correct pricing for your products or services, and raising prices in a sensible way, let’s talk. We’d be delighted to help you become more profitable.