Andy Raynor - Beyond the Brief
Andy Raynor's blog
Pricing – the lost hero of profitability
Spain? South of France? Barnsley last week?
The other day I went to a meeting about profitability and there was a young man toting the latest in a line of business bibles. He’s been inhaling these since his appointment to the board. If he collects many more I suggested he builds a useful den out of them at the bottom of the garden and stop bothering the grown-ups.
But......this time maybe I’m wrong in my vendetta against management gurus. Because this book was about pricing.
Pricing is always the last on the list when you meet to improve profits. The order of actions taken by committees normally goes something like this:
1. Cut costs
2. Get more customers
3. Cut costs
4. Get existing customers to buy more
5. Cut costs
6. Increase prices
I bet you’ve been in meetings like that, too.
And the way businesses should approach things is - in exactly the reverse order. Start by looking at your prices - not the pricelist or the charging rate or full retail - but the real price partners or salesmen are charging for their services and yours.
Why? There’s a very basic point here, and it isn’t technical at all. The original list of actions avoids a conversation you’re afraid of until.....well, perhaps forever. You can cut costs without a difficult conversation with customers, and market to potential clients as badly as you like with (sadly) no consequences at all.
But if you did gird your loins for that pricing conversation, you might find yourself pushing at an open door. Look at the reasons why prices can be higher for the things you sell to existing clients:
1. You’re already discounting, so stop it. Oh yes you are. There isn’t a salesman or professional who doesn’t. Rather than knocking £500 off to make it an easier meeting, add £500 on and get nearer to what you really want. Stop discounting as an excuse for an easy life.
2. Cheaper doesn’t make it easier. Buyers and clients are programmed to sigh loudly whatever you ask for, so you might as well start with the right price.
3. A faster bill is a more profitable bill. The longer you leave it, the less your clients think you’ve done for them. Professional services firms should bill in the afterglow. You'll discount a late bill more, because it's bigger and largely forgotten. Think of work-in-progress as a hand grenade – the sooner you get rid of it, the less likely it is to go off.
4. Your clients value you more than you think. And if they don’t, they’re the wrong clients. In professional services don’t ever have clients that buy on price alone.
5. You’re good at sales. Anyone can sell on price, and they only sell to people stupid enough to buy on price. Pay rubbish prices and you buy rubbish. Good clients know that pricing has to motivate you to do the best job.
Since none of us had any real training in this, we all have pricing opportunities to take. And don’t forget, pricing is the single fastest way of increasing profits. Add a fiver to the price and you add a fiver to the bottom line.
And like most things in
life, it’s only hard until you try it.
Tell me what you think at andy@andypraynor.com
And see what's been said before by looking in the archive:
© Andy Raynor 2013