Post by Pages Personal Cleaning on Jan 14, 2007 16:20:26 GMT -5
I read this today about not selling your services on lowest rates and it is so true. I tell people this all the time. You should sell your work on quality not the lowest rates in town.
BY RHONDA ABRAMS | GANNETT NEWS SERVICE
Whenever I ask first-time entrepreneurs what's going to make their businesses different from the competition, many of them say, "We're going to be cheaper."
They think they can succeed with a strategy of undercutting their competition's prices for products or services. Low prices, they assume, will generate sufficient sales to more than make up for smaller profits. "What I lose in margins, I'll make up in volume."
Competing on price is risky. Low prices mean narrow profit margins, and narrow profit margins mean less cash. With a small financial cushion, you're vulnerable with every slight increase in costs. The landlord raises your rent 5 percent? That may be your entire year's profit.
That, in turn, means you'll have to find ways to reduce costs. The first thing you'll be tempted to do is reduce wages and benefits. This means you won't be able to attract good employees. They're less likely to be productive or loyal.
The next thing you'll do is cut marketing. And businesses that compete on the basis of price almost always depend on high levels of marketing to keep customers coming in.
While price should never be the cornerstone of your strategy, it also can't be ignored. So how can a small company - which may not qualify for the supplier discounts or achieve the economies of scale of a larger business - still maintain competitive pricing?
Carve out a niche. If you "own" a market, you have more room to set prices.
Work smarter, not cheaper. Improve profits through innovative practices.
Focus on value, not price. Value is a term used to mean the combination of price and quality.
Target the right customers. Not all customers are willing to pay more, even for better quality.
Build loyalty to you, not your price. Work on developing relationships that keep customers coming back when the price goes up.
Rhonda Abrams is the author of "Six-Week Start-Up" and "What Business Should I Start?" You can register for her free newsletter at www.PlanningShop.com
BY RHONDA ABRAMS | GANNETT NEWS SERVICE
Whenever I ask first-time entrepreneurs what's going to make their businesses different from the competition, many of them say, "We're going to be cheaper."
They think they can succeed with a strategy of undercutting their competition's prices for products or services. Low prices, they assume, will generate sufficient sales to more than make up for smaller profits. "What I lose in margins, I'll make up in volume."
Competing on price is risky. Low prices mean narrow profit margins, and narrow profit margins mean less cash. With a small financial cushion, you're vulnerable with every slight increase in costs. The landlord raises your rent 5 percent? That may be your entire year's profit.
That, in turn, means you'll have to find ways to reduce costs. The first thing you'll be tempted to do is reduce wages and benefits. This means you won't be able to attract good employees. They're less likely to be productive or loyal.
The next thing you'll do is cut marketing. And businesses that compete on the basis of price almost always depend on high levels of marketing to keep customers coming in.
While price should never be the cornerstone of your strategy, it also can't be ignored. So how can a small company - which may not qualify for the supplier discounts or achieve the economies of scale of a larger business - still maintain competitive pricing?
Carve out a niche. If you "own" a market, you have more room to set prices.
Work smarter, not cheaper. Improve profits through innovative practices.
Focus on value, not price. Value is a term used to mean the combination of price and quality.
Target the right customers. Not all customers are willing to pay more, even for better quality.
Build loyalty to you, not your price. Work on developing relationships that keep customers coming back when the price goes up.
Rhonda Abrams is the author of "Six-Week Start-Up" and "What Business Should I Start?" You can register for her free newsletter at www.PlanningShop.com
