Money Matters – Part Two

DTMFA – Dump the Major Failures Already!

Given all the challenges that come with doing business and daring to take the first steps in the entrepreneurial journey, we often feel we have to take every job, every customer, every opportunity to “make money”. It’s all about getting paid, and there’s no such thing as bad money, right?

If you’ve been in business for more than a year or two, you know that there is bad money, bad customers, and opportunities that end up costing more than they profit. A key aspect of “real” business success is recognizing the difference between good and bad opportunities, and avoiding the bad ones.

As a business owner, you get to choose who to do business with. This isn’t the conventional view of business, but it’s true. In the first few years of the entrepreneurial journey, one of the biggest challenges for most of us is realizing that we are not employees. The people we work for do not hire us – they contract our services. When we’re on the desperate search for customer #2 this may seem pretty presumptuous, but as our businesses mature we must develop a more mature and nuanced attitude about customers, business and money.

Let’s take a look at a few of the aspects of this “more mature” approach toward customer relations and financial management:

Everybody is not your customer: don’t take every job that’s offered to you

You’ve formed your company, printed up business cards, and launched a five-page website. Now, to find some customers! When we’re newly launched, any customers seems like a good thing. After all, it means money coming in, and emotionally it’s reassuring that “somebody out there likes me“. While this isn’t a bad thing – especially when it’s an uptick from zero revenue – if we’re not careful we can develop bad habits that will be hard to overcome.

Most importantly, all businesses must learn to distinguish their target market from just “available customers”. Who will be the source of repeat business? Who can we upsell and cross sell to? Who will be the best source of quality referrals? Before we get to whether they are pleasant or demanding, good-natured or foul-tempered, we must always remember that the purpose of business is consistently getting paid and making a profit.

Taking on all comers can have us wasting time with clients who want to bargain for price, demand more than they pay for – or both! Bargain shoppers are usually “one-and-done” types – not much repeat business there, and it’s quite possible to have what seems like a windfall one month, only to be faced with a dry spell because we were chasing the available customer, rather than being selective, and building a quality customer base.

It’s not an audition, it’s an interview

You don’t have to do business with anyone. In fact, you’re not obligated to do business at all – it’s a choice. So make sure when you do choose to do business, that you’re checking out your potential clients AT LEAST as rigorously as they are checking you out.

As soon as possible, lose the “employee mentality“. You are not working for their payment: they are hiring YOU to provide value and quality. This may seem strange when you’re still at the stage where you’re uncomfortable “asking people for money”, but they have to be worthy of being your customer. They’re not doing you a favor – you’re doing them a service.

Don’t be shy about letting difficult customers go, or breaking off conversations with hagglers. When faced with someone who tries to get you to lower your price or take on more work than you’re bargaining for by telling you “I know someone who can do this for less” – by all means, inform them (politely) that they are of course free to do business with that person or company. Here’s the dirty little secret that should make this sort of thing easier: if that person were really such a bargain, that’s who they would be talking with instead of you. Don’t be fooled – be firm.

Know your Value

Part of why it’s so difficult for newbie entrepreneurs and startup business owners to overcome “asking for the money” difficulties is that they are not confident that they are worth the price they are asking. If you don’t know what you’re charging them for, and why. you’ll always choke when it comes to asking for the money.

I always use the example of a lawyer that charges $500 an hour. If you ask that lawyer “what can I get for $300?”, they’ll tell you “not an hour of my time!”  They know the value of the service they provide, and they know they don’t have to justify it. They will probably be accused of being overpriced… so be it. The sooner they let that complaining prospect go, the faster they’ll get to the client that appreciates the value they offer, and won’t flinch at the point that price is mentioned.

Let’s not get it twisted though: “knowing your value” is not the same as just picking a price out of the air because you’re in a rush to get rich. This is where market and competitor analysis are essential. You can’t be a novice in your field and charge 3x what experienced pros are asking even if you get one or two suckers… er, unsuspecting prospects to pay that price, word will quickly get out, and once you’re branded as gouging the market, you’ll soon go down in flames based on negative word of mouth… not to mention being hit with demands for refunds, or threats of legal action.

Go slow and play fair, but don’t underbid yourself either. Pricing is an art and a science, and it takes time to get it right. Examine your financials regularly, constantly evaluate your market and, most importantly, remember that once you’re established, you’ve got to raise your fees every few years. The cost of living and all expenses constantly increase — don’t put yourself out of business out of fear that you may drive customers away with a price hike.

Prepare your customers, explain things clear and justify your increase without appearing defensive. You good customers will stay – the bad ones are just as well done without. And you should always be working on increasing your customer base; that’s typically where you should apply you new fee schedule anyway.

Don’t back down!

You can bargain for services, or value offered, but NEVER bargain for price. Your price is your price: if they want to PAY less, they GET less – it’s that simple. Bargaining on price too easily and too often makes you appear unskilled and uncertain.

You don’t go into a restaurant and insist that they charge you 20% less than the price on the menu. You don’t haggle with your doctor or dentist. You are a professional – your prices are not negotiable. This isn’t a hobby; don’t let anyone ever treat you like an amateur just because you work for yourself, or you’re just starting out. Remember: they can always choose to walk away and find somebody else at a cheaper rate if that’s really the deal-breaker. But once you’ve established your pricing, stick to your guns.

Those same hagglers may end up coming back with a sheepish expression, tail tucked between their legs. That “cheaper deal” ended up being a nightmare instead of a bargain. And now, rather than appearing “difficult”, you now occur to them as a professional that’s worth the price you ask. So don’t gloat – just stay (reasonably) humble and, by all means, TAKE THEIR MONEY. That is, if you decide that THEY are worthy of YOUR time and effort.

Remember: customers and clients must also provide value…

 

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