Here are the three steps I’ve taken to succeed in “dark” times:
When all of these signs occur, there’s a strain on businesses and consumers, giving strategic business owners great opportunities to buy.
"Get ahead by preparing documentation in a data room. A data room is a web-based repository of critical documents such as financial statements, legal and employee agreements and your business plan. Rooms range at the high end from Merrill, at mid-market from ShareVault, but you can get started with Box or Google Drive."
"Work with an attorney who is familiar with the process of purchasing and selling businesses to make sure that all of your legal ducks are in a row before wooing potential purchasers. It is much better to make sure all of your legal check boxes are marked before engaging with a potential purchaser than to have to scramble to get everything in order once you have found an ideal purchaser."
"You should clearly define your goals after selling the company. If you want to start a new company, make sure to do the ground work before selling your current venture. If you're going to retire, make sure you have enough money. Don't get in a situation where you would not have much after exit. Don't have a "will-figure-it-out-later" attitude. Planning ahead is always good."
"One of the most costly aspects of selling a business is the due-diligence process. Make sure all of your client contracts and paperwork is buttoned up. The buyers will decrease the value of your business if there are holes in the operation or potential liability due to an incomplete filing system."
"If you want to sell your company for a high valuation, you must be able to remove yourself. You don't want to sell and then have to stay onboard for three to five years. Start hiring people to take over your position or delegate down to your current employees."
"Having sold one of my previous companies to eBay Enterprise, I can tell you that one of the best things you can do prior to selling is cut the fat. The valuation of your business will depend largely on how profitable it is during the negotiation that takes place prior to earning a term sheet and entering due diligence. Cut needless expenses, poor performing employees, and get your books in shape."
"Before you attempt to seek out acquisitions, you should have an understanding of your valuation. This would include potential value, expenses, sales per year and even physical assets help determine what it should be sold for. Collectively, once you add up everything, you can analyze what your company is worth to you. This is important to know so you can shoot for your target sale price."
"Chances are you already have processes for the way you and your team work on everything from advertising to payroll. Get these systems written down in a format that can be transferred in a sale (like a company wiki or operations manual). There's inherent value in buying a company with replicable success, especially if key team members transition during the sale."
"You need someone in-house and fully committed to your company to really take a deep dive into your financials. Having these organized in a manner that’s advantageous to the business is key to getting the deal you want. "
In a study published by McKinsey & Company of the Global 1200, and in the words of Rafi Mohammed, author of the book The 1% Windfall: How Successful Companies Use Price to Profit and Grow, it was found that “if companies increased prices by just 1 percent, and demand remained constant, on average operating profits would increase by 11 percent. Using a 1 percent increase in price, some companies would see even more growth in percentage of profit: Sears, 155 percent; McKesson, 100 percent, Tyson, 81 percent, Land O’Lakes, 58 percent, Whirlpool, 35 percent.”
If pricing is so important, certainly it’d make sense for entrepreneurs to put some serious effort into it, right? Unfortunately, most entrepreneurs skimp out on this opportunity and simply look around to see what everyone else is charging and set their own prices to fit within reasons of the norm. Big mistake. Tim Williams, one of my early career influencers, would say “pricing is positioning,” and they’ve just wasted a perfect opportunity.
So how should we go about pricing then? Here are three questions to help you get on the right path:
Value, like beauty, is in the eye of the beholder.
My buddy Brian and I were chatting the other day and agreed that figuring out what problem you are trying to solve should be top of mind for all entrepreneurs. The problem and the pain that it’s causing your audience would be the main component in calculating how much you can charge for your solution.
When most entrepreneurs are busy figuring out their costs and trying to guess what they should charge, the right thing to do would be to go to the source and understand the value you are creating. Remember, everyone only cares about themselves, and your customers don’t care about your costs and hours spent on the solution. They care about the problem you are solving for them.
A continuation of “What problem are you trying to solve?” would be “Who are you solving the problem for?”
The person that you are solving the problem for, how much value they place on this problem going away, as well as how much money they can actually afford will determine what price you can set. While many entrepreneurs would like to think their products or services are worth X and that they are in a vacuumed market of their own, they are wrong. You cannot charge more than the market will bear and that is just one of the few rules everyone has to abide by.
While a small island in the Pacific might be on sale for the low price of $80 million this holiday season, I am not the right buyer for it no matter how it’s priced. I am the wrong audience because I just can’t afford it, even if I really wanted the island.
While we would like to think that our frontal lobe makes us adults capable of rational decisions, we are not. If anything, scientists have proven that we are predictably irrational when it comes to most things in life. People are driven by emotions, so it is important that your brand speaks to them as such, and there is real value here that people would pay extra for.
If you think your product or service is a commodity where branding and emotions don’t apply, take a walk down the water aisle next time you are at your supermarket. There, you will find one of the best examples of branding’s effect on price. Products like reusable grocery bags and recycled tableware are other examples that appeal to the consumer’s desire to be environmentally friendly.
Does your product and/or brand offer similar emotional value? If not, it might be worth looking into and should be applied to your messaging. It’ll certainly increase your value to your customers and, who knows, you might be able to charge more for it.
So there are the three questions to ask to help you set the perfect price for the value that you are creating for your customers. With these concepts in mind, moving your revenue by just 1 percent doesn’t seem to be all that difficult, right? Remember, even 1 percent can yield a big impact.
A version of this article originally appeared here.
]]>"You constantly need to evolve and be able to change according to your customers’ needs to try to be better. Review and reevaluate your product line and consider what needs replacement or improvement and keep up with this ongoing plan to get better sales opportunities."
"Check your competitors. Know your value proposition. Figure out your cost per acquisition and break-even point - and set competitive pricing based on value. Don't be greedy! All markets will find an equilibrium toward commodification. Globalization, democratization, devolution and ubiquity are strong macroeconomic forces that will force the setting of price. Research and watch the horizon."
"While I am a fan of at least partially reviewing your pricing structure on a regular basis (I’d recommend monthly), I don’t think a major re-examination or overhaul is necessary unless you’ve noticed an issue - a high volume of churn, for example."
"Typically, for a business, you want to look at the breakeven. If you raise the prices slightly, those price hikes are pure profit, and you should take advantage of that. If you price hike enough, you can get 100 percent profit increase without an increase in business. There are so many factors you need to look at, and you should look for the best ways to optimize your pricing plans."
"Our agency is able to identify when market conditions (like seasonality, increased competition or diminishing demand) are changing from paid media channels such as Search Engine or Social Network PPC. The changes that impact the cost or volume of traffic can be compared against sales metrics to see if staying the course is feasible."
"Pricing structure depends on what you're offering and the desired competitive positioning of your business. Hearing "yes" every time means it's probably time to raise your prices. For most businesses, it's normal to hear "no" nine times out of 10. Take the time to evaluate: What my competitors are doing? What are larger industry leaders doing (identify trends)? What are my customer's expectations?"
"How you should price a product varies dramatically between B2B and B2C offerings, but what most founders overlook is the indirect competition vying for their customer's dollars. Customers don't compare products and services in a vacuum, they compare offerings not only in your vertical but outside of it. Find out the common indirect competition and understand how you compare."
"Tiered pricing is a simple way to find out which features are most valuable as well as which price points are going to drive the highest conversion rates. While many first-time customers will gravitate to the "cheapest" package, offering upsell packages to existing customers through segmented market automation can allow for testing different price points without having to publish prices publicly."
"I'd rather get customers paying at a lower price but paying than have too high a price point and zero customers coming in the door. Start by asking a few customers a fair price. Once they sign up, keep raising the price for new users until you notice that the percentage of people singing up is decreasing. That's when you know you've hit your right pricing structure."
"You'll never know how much someone will pay until money changes hands. Many founders make the mistake of asking people how much they would pay for something. Theoretical spending answers do not reflect reality! Instead pre-sell your product or service by actually asking for the sale. You'll quickly find out how much people are really willing to pay."
"If you sell a product (as opposed to an automated online service), price it as high as you can get away with so you still have enough people willing to buy it. You can always come down on price later as your efficiencies improve. Look at your competition, and don't try to undercut when starting out. Just make a better product."
"Identify your ideal customer, and do what it takes to get them in the door. If you connect yourself to the right kind of customers, success breeds success, and you can begin increasing pricing as your experience and customer base grows."
"Read "Priceless" by William Poundstone, and get familiar with the concept of price anchoring. In short, people really don't have any clue as what something "should cost." They often decide based on clues (or anchors) that are immediately available on the spot when making the purchase (like the price of the product sitting on the shelve next to yours). Take advantage of this and anchor right."
As a small business owner, I have watched the rising popularity of the sharing economy and found it amusing that people think of it as something “new” and “hip” and “innovative.” The reality is that we who run small businesses have been applying the principles of the sharing economy since we first hung up our shingles. Whenever we exchanged or bartered goods or services with someone rather than paying with or getting paid through cash, we were using sharing economy principles, even if we didn’t know what to call it.
In the five years that I’ve run my own small business, I’ve had to learn about applying sharing economy principles the normal way – through trial and (sometimes painful) error. But these experiences have taught me quite a few valuable lessons, some of which may sound familiar to you from your own experiences.
Below are four things you can do today to take part in the sharing economy, and benefit your business in the process:
As any small business owner knows, great ideas are worthless without proper execution. Collaborating isn’t an easy process, but it doesn’t have to be difficult either. It requires a collaborative mindset. If achieved, the possibilities are endless. By coming together and uniting local businesses, we become a more visible united brand in our community.
]]>"We have a zero-questions refund policy. You can use our software for a year and cancel (we really hope you don't). But if you do, we always refund your money. That being said, we like to know why, but it doesn't mean it will impact our decision. We ask why AFTER we've refunded you your money so you will give us a real answer! This helps get honest feedback that some hold back to get a refund."
"We have refund requests on fewer than 0.5 percent of our orders. When someone asks for a refund, it's normally because they chose the wrong size or because they found a pattern they like more. Instead of asking them to ship us the product, we recommend they regift to a family member or friend. They look like a hero. And of course, there are then more watches out there for folks to see!"
"In the web business it's vitally important that clients feel they are part of a partnership that works on all different sides. Unleashed Technologies uniquely offers a 90-day guarantee where clients can cancel their contract for any reason if they feel the relationship isn't exactly as they expect it to be. This provides security to both companies and sets the relationship off on the right foot."
"One thing that many vendors don't cover is return shipping on the cost of the item. And if the cost of the item is small, this can prevent a handful of sales. Through our own internal conversion tests we found that saying that we cover the cost of return shipping on our refund policy has boosted conversions by 6 percent."
"We are the only printing company offering a 365-day guarantee, as opposed to the usual seven or 14 days. Our clients have full confidence that we will supply them with the best printed products. If they discover any issues, we'll take care of them throughout the entire year."
"Within 90 days, if you don't fall in love with the first mattress you purchase, we'll happily exchange it for one that'll best suit your needs -- and hopefully exceed expectations. It's a risk-free proposition with a guarantee that you'll find something that will surprise and delight you. A new mattress is a huge commitment, so for big-ticket items like ours, we remove a lot of buyer friction."
As founder of a SaaS company myself, I’ve wrestled with all of these questions. One strategy my company recently implemented is already paying great dividends: offering a completely free, no-strings-attached product to our current and prospective users called Datanyze Insider. Based on my own experience, here are four reasons why it is smart for a for-profit SaaS company to offer a free product:
Many SaaS companies struggle to choose between a limited time offer and a free product. While companies that choose to offer a free trial can share the full depth and breadth of their product with users off the bat, they often face challenges in overcoming the initial sign-up barrier. To keep track of free trials, users are generally asked to provide details such as credit card information, which can be a real deal-breaker. Psychologically, many people would rather register for a completely free product — even if it is scaled down — that can be used indefinitely. The user can then choose if and when s/he wants to upgrade and access additional capabilities and tools. Additionally, offering a free product can bring in new users who may not be inclined to sign up for a demo promoted on a website, by allowing them to test it out on their own time and in their own way. By offering a completely free product, you put your users in the driver’s seat – exactly where they want to be.
Offering a free product can help you capture new audiences and expand into previously untapped industries. For example, in the first two weeks of unveiling a free Google Chrome extension, my company tracked a number of registrants in entirely new markets for us — from human resources and public relations professionals to technology analysts. A free product can be the quickest, most effective way to exponentially grow your database of warm leads.
Vineet Kumar, assistant professor of marketing at Harvard Business School, has done extensive research on freemium models, and has found that “a free user is typically worth 15 to 25 percent as much as a premium subscriber, with significant value stemming from referrals.” He suggests that companies focus on referral incentives and prioritize ongoing communication to increase the value of these referrals. Satisfied users are your strongest brand advocates, so it’s important to listen closely to find out what they like and why, then engage with and encourage them to share their positive experiences with their colleagues and friends across social networks.
Your company is unique, innovative and going places fast! So why rely on companies who sell or rent questionable lists or keep going back to a stale list from an event that took place two years ago? A free product can serve as an invaluable lead generation program that is uniquely yours. No one else can offer what you can. Take full advantage of that.
In closing, it’s important to remember that savvy companies use their free product not only as a powerful way to diversify audiences and deepen their potential customer pools, but also to demonstrate their commitment to continued innovation. A free product will undoubtedly get users in the door, but it’s up to you to develop new, compelling offerings that will tip the scales and prompt them to move from freemium to premium tools, and ultimately, become loyal, long-term customers and brand advocates.
]]>"Let your audience into the story of how you have arrived at where you are together and how much you appreciate them for being part of your journey. Also let them know that now is a time when you do have to begin charging something for your service and that you hope they will continue to support you as you will continue to innovate for them. Be honest. Invite them to continue being partners."
"Make your early adopters feel special and rewarded by offering them the absolute lowest rate available. If you are in the B2B space, your customers understand that you cannot stay in business if you aren't making money! So be honest with them about why you're making this transition now, and ask for their continued business. "
"Early adopters want you to succeed -- they're "early" because they see a lot of value in what you're doing. Any time that you're anxious about a price change, the best course of action is to actually talk with folks. A phone call is the easiest way to find out what concerns your fans face, while also allowing you to share your passion and reason for charging more directly."
"If your early adopters have been using your product and like it, odds are good that they want to know what's coming next -- so show them. As you're communicating your next steps you have an opportunity to tie those new features to the cost of your product moving forward: "We need the money to fund these new features that you'll love." Your early adopters will want the opportunity to stick with you."
"I’m a believer in charging for your product from day one, no matter how un-polished you think it is. It’s difficult to make the jump from a free to paid product. If you’re already giving your product away for free, then use this to your advantage by making an educated estimate as to the value you’re providing your customers. Use the data to set your pricing as you see best. "
"Once you have a loyal following of early adopters, you need to engage them on what enhancements they would like to see in future updates. They see the value in the product and most likely will pay for the service. Asking for their opinion and continuing to engage them through email and blog with changes will keep them loyal to your product and brand. "
"Reward their contribution with a promo code or discount with your company. You receive a new/repeat customer, and the customer values the recognition. If they don’t cash in their promo code/discount, it costs your company nothing, but leaves a positive thought in the customers’ minds that they’ll definitely share with their friends."
"People don't want to pay for something that they previously got for free! From a logical perspective, it doesn't make sense to people and they will reject it. So, what you need to do is somehow simultaneously increase the perceived value of the product or service while starting to charge. How did you feel when Facebook started to make you pay to reach the fans you used to reach for free? "
Yet financing these markups has the power to make a positive impact on both the economy and your business. Companies that can overlook the negative stigma and provide financing options will create a viable business model and attract long-term customers from a variety of backgrounds. Here’s why:
To understand how financing impacts the economy, let’s take a look at the United States’ savings rate over the past five decades. Trading Economics reports that personal savings in the U.S. hovered around 8.39 percent from 1959 to 2015. In May 1975, it reached a record high of 17 percent, and in July 2005, it hit a record low of 1.9 percent. So what do these numbers reveal?
Consumers have been saving less and less over time. By the same token, we can see that people are also earning less: personal income in the U.S. has decreased over the same timeline. It averaged 0.54 percent from 1959 to 2015 — with 3.8 percent being the record high in December 1992 and -5.1 percent being the record low in January 2013.
These trends highlight a major problem: regardless of the statistics, people must keep spending in order to keep the economy healthy. Consumer spending accounts for a large portion of economic activity in the U.S., and it’s a key driver of growth.
Fortunately (or unfortunately), the only way to continue consumer spending in an economy of low personal income and low personal savings is by utilizing financing to continue spending. Customers live in this reality, so it’s vital that your business offers financing as a purchasing option. After all, many of your customers probably can’t pay up front due to these macroeconomic trends, and they need some type of support in order to get the instant gratification they crave. Financing opens up cash flow and turns more inventory. In a world of hypercompetition and thin margins, smart financing serves as a vital tool for staying ahead of the competition.
The state of the overall economy — combined with personal financial struggles — creates an emotional barrier for customers. Luckily, your business has the opportunity to overcome it. A majority of customers are still feeling the effects of the 2008 recession and are working to rebuild. It can be incredibly embarrassing for them to realize that they can’t afford something they want or even need.
Having a simple financing solution for customers builds brand loyalty. When their financial position turns around, they’ll remember the companies that extended a hand when they were striving to get back on their feet. Companies offering bold solutions that meet emotional needs will create faithful customers for life.
Finance options also service fiscally savvy customers: smart consumers may have the cash on hand, but also realize the value of personal cash flow. They might finance to break a large purchase price into smaller future payments or exercise an interest-free loan or a buyout option, while others want to build their credit to decrease their financing costs over time. These kinds of customers understand a dollar today is worth more than a dollar tomorrow.
The fact is that offering a wide range of payment options creates a win-win for your business and your customers. It opens up your customer base, attracting and acquiring a broader range of people who will buy the product. Cash flow is the heartbeat of your business; financing will retain current customers and enable you to turn inventory faster and more effectively.
Smart entrepreneurs understand the macroeconomics of the market and know that not offering financing will only give their competitors an edge. By busting through negative stereotypes and offering financing, you will be investing in your business and consumers — now and in the future.
]]>