A long time small business owner once again closes her office door at exactly 8:30 AM. She accesses today’s prospects call list. She recites her daily mantra, “These bills ain’t gonna pay themselves.” Then she starts pushing buttons on her phone. This routine has kept the lights on in the business that she founded. Furthermore, the routine has facilitated occasional growth spikes. Enduring the industry average for customer churn has become a routine. Unfortunately, too many entrepreneurs struggle with growth even through good times. Then, they hold on with white knuckles to whatever business they can conjure in tough times. In this particular case growth remains pedestrian, because the owner and her sales support walk meekly through their revenue generating process. What they need is a New Factor!
What is Your Factor?
The New Factor is important because it can influence the top line on any business. Simply, the New Factor is the percentage increase on the price of products. A factor of 5% means that a $100 product is now a $105 product. No new features, nor clever marketing gimmicks drive the change. The new price is 5% more, period. Nervous about the increase? Consider what vendor has recently raised prices 5% in the local marketplace. They got over it. You can, too! The number is less important than the mindset. Some consultant will undoubtedly appear and talk about how elasticity will adversely affect your profits with your higher price point because of the type of good or service that you provide. The rare consultant will concede that aggregately the customers’ pain by changing providers is at best a nuisance. In reality, customers value consistency in routines just like vendors do.
Change can be painful. Nevertheless, many customers do not really want to change, nor endure the pain either. Customers that leave over a mild increase were probably going to leave anyway. A convenient excuse simply presented itself. Do not discount them to get them back! Go take someone else’s customer! Consequently, the owner makes daily sales calls. Growth is intentional. A moody customer will only escape over minimal price hikes, if the vendor was already on a slippery slope; or the vendor refused to let the individual customer win by not recognizing them as a superior negotiator.
Earn Your Next Increase
Business leaders must be able to reverse engineer their worth. In the event that a price hike is met with legitimate resistance, new value still has to be recognized in the strategic decision. An old saying proclaims, “Pride is a foolish man’s burden”. Beware of the Pride Tax! If a customer decides not to absorb the revenue increase, explore the possibility of selling a greater quantity. Packaging often presents an option to save. Is the unique packaging really worth the extra cost? Ultimately, the business leader is responsible for profits. Feel free to humble one’s ego, if ultimately the increase is not a cost effective decision. Above all concerning an individual, final decision, “If it doesn’t make dollars, then it doesn’t make sense (cents).”
Regardless, the New Factor permits the economics to work in favor of the business’ growth. Too many entrepreneurs treat economics as an academic exercise. In reality, it focuses on allocating scarce resources for maximum benefit. Consequently, if prices can be increased with no loss of sales volume, the economics declare that the business wins! Of course, none of this exists in a vacuum. Still, by increasing revenue more than an increase in expenses, the result is larger profits. The New Factor provides a modest way to communicate more value with a slight numerical increase that allegedly disrupts the provider as well. To the savvy entrepreneur, everyone shares in the New Factor’s pain, the customer happens to endure a little bit more.
Entrepreneurs are resourceful by design. Ask someone smarter to endorse the decision to deploy the New Factor. Mentors, gurus, subject matter experts, are titles that help to justify and articulate the tough decisions to increase prices. Most importantly, assure every customer that must now endure the New Factor, that pain is shared by multiple parties. From a business perspective prices do increase. Business economics are tricky. Nevertheless, savvy entrepreneurs who truly understand their business fundamentals will undoubtedly endure price increases at some point. Inflationary pressure promises that result. The New Factor is just a tool to get ahead of that curve.
By Glenn W Hunter
Managing Director, Hunter And Beyond LLC