Choose your clients wisely

Several years ago our family took ownership of a small business. Soon afterwards I attended a training meeting offered by our primary vendor. During one session another owner made a statement that has always stuck with me: Do business with people who can afford to do business with you.

One reason he said that was that the product we offered was one of the highest priced products in our field. When quoting jobs we were very unlikely to get the job if the primary concern for the homeowner was cost. My cost for some of our products was more than what some of my competitors quoted for the entire job which included the mark-up on their equipment, labor and taxes. Obviously, for the consumer only comparing prices our competitors would win every time. We either had to offer lower priced equipment or focus our sales on people who could afford to do business with us. We chose the latter.

In order to do that successfully it’s important to differentiate between price and value. We believed we offered superior value over many of our competitors. The equipment we sold was regularly recognized as some of the best in the field, our company had been in business for many years (I was the third owner.), most of our employees had been with the company for most of those years so we had experience over some of our competitors and we had a good reputation in the community. We could not compete on price alone, but when our potential customers wanted true value for the money they invested some other companies could not compete with us. We just had to make sure the difference between value versus price was presented in every interaction with our potential clients.

For several years I had a sign in our showroom that read “(1) We offer the best equipment in town; (2) We offer the best service in town; (3) We offer the lowest prices in town. Now, you may pick any two of the three.”

Some businesses will reduce their mark-up in order to get new clients. We did not. Doing so impacts your bottom line more than some might think and it cheapens your brand. If a client wanted us to reduce our price we would discuss what features or options they were willing to give up for the lower price. “Yes, we can substitute this lower priced item if you want, but here are the features you are losing if you decide to do that.” That helped the client understand there was value in what we were offering, and any substitutions they made to reduce the price would also reduce the value of what they were buying. When you reduce your price without taking anything away you leave a negative impression in your client’s mind that what you were offering didn’t have much value.

A good example of this comes from the last time I bought a car. I went to a different dealership than I usually buy from because they had the car I wanted. As we began to negotiate the price of the car the salesman kept insisting he couldn’t go any lower because of the extended warranty they offered on the car. The car was only three years old with low mileage, and the dealership had put a two-year warranty on the car. The salesman asked if that warranty was important to me. I replied it was, but I wasn’t paying any more for the car just because it had the warranty. Of course, he brought his sales manager over to explain they couldn’t sell the car at my price with the warranty, and I kept insisting they could. Finally, I bought the car at my price with the warranty. That immediately told me that the value of that warranty was highly inflated in their original price of the car. For that, and some other reasons, I won’t be back to that dealership.

There is nothing wrong with targeting people who are seeking the lowest prices for your goods and services. Most of my competitors made a good living serving those folks, and I think they served them well. Because of the product line we offered those individuals could not be our focus. Our marketing and sales strategy had to focus on other potential clients. Regardless of your focus, remember to do business with people who can afford to do business with you, and you should do very well.

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