Defending Your Prices 2.0

There is a lot to like about the Freelance life, but recurring paycheck anxiety isn’t one of them.  If we’re not waiting to get paid by a client who should have mailed the check 10 days ago, then we’re fretting that the check is rather too small anyway for the amount and quality of work that was done.  But how can one be choosy when the possibility of being replaced is so real? No matter how you earn your living, by 1099 or W2, the employer is in the driver’s seat.

Nevertheless, we Freelance consultants do have some leverage.  While there are thousands of Freelancers willing to accept small hourly rates and project fees, hiring managers in the know realize that the quality of their work is often less than ideal.  As always, you get what you pay for and pay for what you get. Below is a list of selling points that in your next pricing negotiation can help you to justify and defend the premium price I know you are worth:

Expertise

Shopping for B2B services is not like shopping at the old (and sorely missed) Filene’s Basement, where frugal fashionistas could find premier designer label clothing for a fraction of the retail cost.  The caveat was, one had to expect certain shortcomings, like maybe a  missing button or two because one of the infamous button thieves got to the item first (there were apparently several such individuals over the decades).

Inexperienced or less skilled Freelancers may request lower prices for any number of reasons, including perhaps the inability or unwillingness to perform complex assignments.  Some people like to compete on price and there will always be those who respond for whatever reason and that sometimes includes an antipathy toward paying people.  Those who like the low-ball figure should be advised that they are vulnerable to receiving only the bare minimum of work because they’re only paying the bare minimum price.

Make it clear to your prospect that you produce the highest quality work. The prospect can totally hand the project over and trust that you and your team will successfully complete the job as specified, on time and within budget. There will be no need for the client to perform after-the-fact do-overs of your work.  Your base price may be higher, but in the end you save clients time, money and aggravation.  You make them look smart for hiring you.

Dependability

In sum, you will produce what has been asked of you and if there appears to be an obstacle to doing so, you will alert the client as soon as that is recognized and suggest collaborate on making adjustments or creating a Plan B, especially for time-sensitive projects.  You meet deadlines and respect budgets.

Follow-up

One of the biggest mistakes a Freelancer can make when negotiating project or hourly rate pricing is to limit the scope of what you offer solely to the project work as described in the specs.  Make it known to prospects that you are selling an entire service package that includes not only the project spec work, but also includes responsiveness and prompt follow-up; good communication and feedback; efficiency with logistics; and the willingness to ensure that deadlines will be met, even if that means working outside of the 9:00 AM – 5:00 PM, Monday to Friday paradigm.

Showcase your value-added services by ensuring that your project proposal answers all of the standard or required questions and is sent to the client on time.  Respond to client follow-up inquiries quickly, efficiently and cheerfully.

Testimonials

While any confidentiality requests must be respected, revealing selected names on your client list, newsletter or blog statistics, links to published articles and webinars hosted and publicity listings for your noteworthy speaking engagements will provide tangible proof of your reputation and expertise and in that way, justify your pricing.  Depending on your specialty, an online or hard copy portfolio of your work to show to prospective clients is yet another effective way to demonstrate the quality and sophistication of your work and help to explain why you do not price your services at the bargain basement level.

Don’t be shy! Prospective clients want to see what you can do, so that an informed decision can be made.  Build your case, present it well and show them what you are worth.

Thanks for reading,

Kim

Shoppers at Filene’s Basement  (1974)  Photograph courtesy of Nick DeWolf

 

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Building Your B2B Consulting Practice

Regular visitors to this blog will notice that over the past few weeks, I’ve devoted special emphasis to tactics and strategies that will help Freelancers keep our consulting practices alive and well.  Competition in the field is intensifying and clients are aware that they can be very exacting in their hiring requirements, since there is no shortage of available talent, especially in mid-size and large cities.  According to Statista, the number of management consultants has grown every year since 2012 and as of 2016, there area 637,000 management consultants working (or trying to!) in the U.S.

As we all know, ever since the late 1980s, when the concept of “downsizing” gained popularity in corporate offices and the ways to separate citizens from full-time, long-term employment became numerous, many workers who either found ourselves highly skilled but nevertheless unemployable, or who eventually tired of endless cycles of  hirings and firings (a common occurrence in the IT industry), decided to strike out on our own and exert some measure of control over our professional and economic destiny. What did we have to lose? We were already in trouble.  Manage the risk before the risk manages you.

When you’ve worked in the Knowledge Economy and find yourself contemplating whether to launch your own venture, by design or default, a solo consultancy that offers B2B services that you already know seems a simple and obvious choice.

Start-up costs are minimal—there’s nothing much to invest in for the launch, except for business cards and a website.  There’s no need to rent an office and no need to hire employees.  You already own a smart phone and some sort of computer.  At most, you might invite a couple of your unemployed coworker buddies to come in with you.  In no time, you’ll be ready to see clients and charge a pretty penny for the advice that you give. Easy, right?

Well, not exactly.  Unless you’ve worked for a consulting company that provides you with a stable of clients that know you and value your expertise and there’s no non-compete hagreement that prevents you from, ahem, stealing a few clients from your former employer and bringing them to you roster—-a time-honored and usually successful practice, BTW—you may find yourself floundering when it comes to obtaining clients.  If you’ve got a well-placed pal or two who is able and willing to divert a contract to you, you could be twiddling your thumbs for quite some time, despite the furious networking that you do and your growing social media presence.  The truth of consulting is, no one gets a client unless that client knows you and the value of your work.

The “catch 22” is that you can’t get a client without experience and you can’t get experience until you get a client.  A business plan that is in reality an extended marketing plan that encourages you to think strategically, rationally and in detail about the following items should be written. Bear in mind that your services are valuable only insofar as there is client demand.  There may be no market at all for several of your strongest competencies, alas.

  • Services for which there is demand and you have the expertise and credibility to deliver those services and prospective clients who will pay you to do so
  • How to price your services
  • How to make clients perceive that you are worth your asking price
  • Your access to clients with the motive and money to hire you
  • The need for a partner (or two) and how that person can help launch and sustain the venture

Without a pre-existing reputation in the industry, you’ll find the early days of consulting to be quite difficult. Lining up part-time employment will help your cash-flow. Teaching at the college level is always a good option because it enhances your credibility and pays well for a part-time gig.  Whenever possible, find work that not only gives you money, but also demonstrates your expertise to potential clients.

If you can become at least an occasional contributing writer to a noteworthy publication, or get articles included in a local business publication, you will enhance the perception of your expertise, as will college-level teaching of a subject related to your B2B services.  Joining a not-for-profit board that brings you into contact with potential clients and referrers who can watch you take on committee work that demonstrates your bona fides will be helpful. Becoming a mentor at a respected new venture start-up center will likewise enhance your credibility.

If you can participate in a webinar, YouTube video, or podcast, where you can elaborate on the application of your expertise and the results that you deliver, you will be able to post the link on your website and social media accounts, so that prospective clients can see you in action and hear what you know.

Those who do not have a ready stable of potential clients must work very hard and very smart to make up for that deficit, but it will not impossible to build a consulting practice that will support you financially and of which you can be proud. There are many paths that lead to a profitable B2B consulting practice and with a dose of god luck, you will find your path, too.

Thanks for reading,

Kim

Price Your Way To Profits

Pricing your products and services is a critical element of a well-conceived marketing plan and appropriate pricing is integral to the development of a successful business venture.  The burgeoning field of behavioral economics reveals why certain pricing tactics work and how you can incorporate some of them into your pricing strategy.

Have an anchor baby

Your “anchor baby” can result in a positive outcome for sales and billable hours.  A cognitive bias called anchoring can cause us to perceive a lower-priced item as reasonable when it is viewed after we first see a higher-priced  version of a similar item. A $2000 item is perceived as a relative bargain after one has seen a similar version priced at $5000.  A prospect could be moved to envision him/herself purchasing that “bargain-priced” item.

Therefore, placing premium-priced products and services in proximity to the similar but lower-priced offerings that you hope to sell can potentially lead prospective clients to perceive the lower-priced items as providing real value, once they know that functionally similar items can be much more costly.

Zeros kill sales

In a previous post I discussed why, especially in retail sales, it is standard practice for merchants to list prices that end in .99 (or .98 and .95) and never .oo, because prices that end in zeros are often perceived by customers as being expensive, according to a study that appeared in the journal Quantitative Marketing and Economics in 2003  The Less Than Zero Pricing Tactic.  Yes, we really do think that $5.99 is cheaper than $6.00 and there’s still more downside to zeros— when pricing your services you should not only avoid listing, say, $3000.00, because you’re presenting too may off-putting digits, but you are also recommended to avoid listing your price on a proposal as $2995.00.  Prospective clients will feel better about your price when it’s expressed as $2995, according to the findings of a 2011 study conducted by the Society for Consumer Psychology.

Be a Lexus and more than just a Toyota

A Vanderbilt University study demonstrated that customers are willing to pay more for a Budweiser beer in a fancy hotel bar than they would for that same Budweiser in a dive bar. Why? The economist Richard Thaler of the University of Chicago explains that the power of perceived prestige allows the luxury set to get away with charging higher prices. Freelance consultants (so much more classy and deserving than a mere Freelancer, no?) are advised to in various ways present cues that make the case for charging premium prices.

Let the value you bring be known to those who matter. Teaching at the college level and speaking at respected business associations showcases you as a thought leader and an authority.  Producing long-form content that appears in a respected print or online publication, monthly newsletters sent to your email marketing list, or weekly blog posts that draw your followers also adds to the perception of your expertise and as well brings your writing skills to the forefront. The design and content that appear on your website should present you and your entity in a way that communicates competence and good taste, as should your business card and client invoice template.

The organizations of which you are a member, the quality of your clothing, where you vacation, the books you read, how you socialize and the boards on which you serve (along with the related committee activity) also enhance your reputation and reflect on your brand.

How to raise your prices

Weber’s Law (1834) indicates that your clients will probably accept a 10% price increase of the products or services purchased from you and some may not even notice the change.  You already know that other factors can impact your ability to raise prices, including supply and demand, the urgency of the need for your product or service, the presence of competitors and the perception of the value of your brand.

Thanks for reading,

Kim

 

 

Pricing Primer for Freelance Service Providers

“The business world is driven by the desire to increase three elements: market shares, sales revenues and of course, profitability. Pricing is the key player in any strategy concerning the growth of these three goals.”   Mohammed Nosseir, Senior Marketing Adviser, Simon-Kucher & Partners, Middle East

Determining the pricing structure for intangible services provided is a real challenge for Freelance consultants. What is the value of our time and expertise in the open market? What if we promote our services, set the price and no one hires us? Should we lower our project fees? Can we ever raise prices?

Clients are motivated to spend as little as possible for the products and services that they require. However, they are known to pay premium prices when they “feel” that a particular product or service delivers exceptional value. That value can mean an expert solution to a business challenge; a long-lasting product that performs very well with little maintenance; the ability to meet a deadline; or other factors that have meaning to the decision-makers.

Often as not, different clients will have different priorities that define what is valued. It is the Freelancer’s job in the initial face-to-face client meeting to figure out what the client feels is important. That knowledge will achieve two objectives:

  • You will know the expectations that must be met (or preferably, exceeded) to justify a premium price.
  • You will know how to price, based on the time or other resources that will be devoted to meeting and exceeding client expectations and you will grasp the urgency of client needs, which impact your price.

Most likely, there are standard benchmarks and signifiers of high-value service in your industry and they should be incorporated into your marketing and operations, along with other value-addeds layered on as necessary. Knowledge of what competitors do would be most helpful as well, but it is very difficult to learn how competitors deliver their services or price them. Nevertheless, it is advisable to choose three or four to research. Visit websites to learn what services your competitors offer and how those services are described and packaged. Then, you can better identify potential competitive advantages for what you have and find a way to describe your goods.

It may sound like an obvious no-brainer, but part of your premium value-added that will be reflected in your pricing strategy should be your positive attitude and willingness to help prospective clients find the best solution to their business needs. Friendliness and the aim to genuinely want to offer good service go a long way in life and in business. Showing a good work ethic is likewise important.

For example when on an assignment, pay attention to emails. While I don’t recommend that one should be obligated to answer emails that a client dashes off at 3:00 AM (unless this is an urgent and high-revenue project), check emails through 10:00 PM and resume at 7:00 AM. If you can anticipate client needs, so much the better, They’ll think you’re a hero and will be happy to pay for the pleasure of doing business with you.

Step by step, client by client, focus on exceeding expectations on every project, building the trust and confidence that lead to a respected brand (reputation) as you do. You will receive referrals from satisfied clients (and you can also make referrals to your clients, enhancing your brand each time you do). Good brands create good word of mouth and that supports and justifies premium pricing.

As Mohammed Nosseir concludes, “Pricing has been, and will continue to be, the most complicated element in the marketing mix family…A proactive pricing structure will help companies…to maximize their profitability.”

Thanks for reading,

Kim

Trends That Will Drive B2B Going Forward in 2015

July 1 carried us into the last half of the year and we are advised to take a few moments to think about what our June 30 financial statements indicated. Are you pleased with your company’s first half performance? Is your enterprise positioned to have a profitable second half? Forbes Magazine business experts predict that as we enter the last two quarters of 2015, the following strategies will drive business.

Make selling about education

High-pressure or slippery sales techniques are out of vogue and destined to fail. Solution selling is the smart choice and consultative sales skills must be honed. Successful sales pitches are those that are delivered as a discussion of how your services or products will solve or avoid a problem for the customer. Customers will value your grasp of their situation and your expertise in describing the best solution. It’s salesperson as physician, as you diagnose and prescribe the treatment. Articulate the outcomes very well.

Marketing & sales hand in glove

Recent research done by Google showed that the average customer is more than half way through the buying decision process before seeking out a vendor. In other words, customers window shop. They spend time considering possible solutions first and then think about where those solutions can be obtained.

Micro-targeted marketing strategies are recommended to not only attract your ideal client groups, but also to weed out those who are unlikely to buy. As always, one must know the customer to understand why that individual has become a customer and know how to encourage repeat business going forward. Design marketing campaigns that define, speak to and pull in excellent prospects and avoid broad-brush marketing strategies that only entangle you into engaging with those who will waste your precious time.

Appropriately written and distributed content marketing along with traditional marketing techniques are how you persuade prospective customers to picture your products and services as credible solution possibilities. Consultative selling approaches that educate the customer as you tactfully assume the role of expert and confirm or refine the initial diagnosis of the problem, that is the client’s need. Obtain client agreement on the extent of the need and then recommend treatment options, that is the solutions, that your product or services will provide. Do that well and you will generate revenue.

Price and value

According to Forbes, there are two competing forces at play in the 2015 marketplace. The first is increased downward pricing pressure on any product or service that is perceived to be a commodity. Those products and services are price dependent and will be acquired as cheaply as possible. The only ways to succeed when selling a commodity are to sell at the lowest price or deliver very efficiently to customers, that is make it convenient to buy.

Do whatever is possible to package and present your products and services in away that conveys their value to prospective customers. Additionally, Freelance purveyors of B2B services must demonstrate their expertise in a variety of ways: content marketing, case studies, webinars that feature you, teaching assignments, appearances on panels as speaker or moderator, or publishing a book. Demonstration of expertise is the number one marketing strategy in that it creates trust, enhances your perceived value and allows you to price accordingly.

An equally effective way to demonstrate your value is through customer testimonials and referrals. When those who have used your services or products recommend you to others, it is the highest compliment. Other than a 30 second ad during the Super Bowl, nothing is as effective as a personal recommendation or testimonial.

When customers consider you to be effective, knowledgeable, dependable and trustworthy, you can then command a premium (but not over-inflated) price for your products and services. Prospective customers must be assured that you will deliver the results, in full and on schedule. They must know that when they hire you, they’ll look smart to their boss and colleagues, because you are the very best.

Thanks for reading,

Kim

Open Enrollment: Freelancer’s Health Insurance

Open enrollment for 2015 Affordable Care Act health insurance began on November 15.  Individuals who earn maximum $46, 680 and families of four (couples with two dependent children) that generate a maximum total income of $95, 400 are potentially eligible for a tax credit that will help defray the cost of insurance premiums. In tax year 2015,  the penalty for not carrying insurance will rise from $95 to $325,  or 2% of household income,  whichever is greater.

Business entities of 50 or fewer employees and located in Delaware,  Illinois,  Missouri,  New Jersey or Ohio can set up a Small Business Health Options Program (SHOP) account by completing an application that determines eligibility and if accepted,  investigate plans and prices and contract with an insurance company.  A 2014 University of Chicago study found that 2013 insurance prices offered through SHOP exchanges in 26 states were on average 7 % lower (about $220) than comparable insurance bought outside of the SHOP exchanges marketplace.

Freelancers and small business owners who did not buy health insurance in 2014 will need information to guide decision-making about the upcoming year.  The Freelancers Union  http://freelancersunion.org,  a New York City-based nonprofit organization that advocates for the interests of self-employed workers,   plans to help its 233,000 members purchase medical and/or dental insurance in all 50 states.

Freelance Union members also have access to retirement plans and disability,  liability and life insurance.  Additionally,  the Union operates two health and wellness centers in New York City,  where members can obtain primary care services at no charge and also participate in classes such as tai chi and yoga.  Membership in the Freelancers Union is free.

I went to the Union website and found that medical insurance is not offered in my state,  but dental coverage is available for $60.77 /month  ($112.32 /married couple and $164.89 /family).  The twice-yearly cleanings are 100% covered as are annual x-rays.  Services such as crowns,  fillings and anesthesia are covered at 80% after a $50 deductible and root canals,  endodontic and periodontal services are covered only after a 12 month waiting period and then at 50 % after the $50 deductible.  The yearly maximum benefit is $1250.

An individual pays about $730 for the year.  I might spend that amount in a year paying out-of-pocket for two cleanings with bi-annual x-rays averaged in.  My gums are not great and I must very soon see a periodontist.  Heaven knows what he will charge but the visits will not be covered,  since only two are allowed in 12 months.  Periodontal work would only be half covered and the maximum annual benefit is only $1250 for a premium that costs $730/year.  In sum,  health insurance is all too often not an advantage,  unfortunately.  Maybe the medical plans are better?  An individual Bronze level plan in New York City will cost $393/month in 2015.

Still,  it appears that Freelancers can benefit in other ways from Union membership (I am not a member).  There are plans over the next five years to open 15 primary care clinics across the country,  including Los Angeles and Austin, TX.  The clinics will not charge co-pays for office visits and will be open to all who purchase health insurance through the Freelancers Union.  There are numerous professional benefits as well.  Maybe I will join before too long.

More good information on health insurance prices is available at the Consumer Reports Health Law Helper,  which walks you through questions to help you understand your options for buying health plans,  with links to marketplace sites   http://healthlawhelper.org.  The American Association of Retired People AARP sponsors the Health Law Answers site,  which provides information for health insurance seekers of any age  http://healthlawanswers.aarp.org/en.  The Kaiser Family Foundation provides the Insurance Marketplace Calculator,  which helps you estimate the cost of health insurance based on your location,  age and income,  along with pricing for various level plans  http://kff.org/interactive/subsidy-calculator/.

Thanks for reading,

Kim

The Break-Even Analysis: Find the Pricing Sweet Spot

To continue the topic of pricing,  in this case pricing a new product or service,  it is a must to know when fixed costs will be covered by unit sales at a given price and determine when in time the item or service breaks into profitability.  Performing a break-even analysis will reveal how many units must be sold,  or how many times the workshop must be delivered,  at a given price,  before production costs are behind you.  Integral to that question is unit selling price.  Costs are recouped faster when selling at $100.00 rather than $50.00.  Also related to pricing is what customers expect and agree to pay.  Appropriate pricing can increase profits faster than increasing sales volume.  One can sell fewer items and make more money per item.  Conducting a break-even analysis is Step 1 in locating your ideal price range.  Here’s the Break Even Volume (BEV) formula:

Fixed costs                                                      Fixed costs

BEV     = ______________________________        =         __________

Revenue per unit – Variable cost per unit                         Unit margin

Let’s add some numbers to the formula and assume that the fixed costs associated with delivery of your service is $5, 500.00: $1,700.00 went to the graphic artist for Power Point slides; $1,300.00 paid to the wordsmithing wizard for marketing collaterals used for promoting the service; and $2,500.00 for the wholesale value of your labor,  the time you spent crafting the intangible service.  These costs are fixed because they will not change,  no matter how many times the service will be delivered.  Variable costs associated with service delivery would be printing hand-outs for participants ($50.00) and the advertisement placed in an industry newsletter read by the target audience ($400.00),  meaning that the unit variable cost =$450.00.  If the service is priced at $750.00,  the profit,  or unit margin,  is $300.00 each time the service is delivered at that price.

$5,500.00

BEV     =        _________     =   18.33

$300.00/unit

At a per unit price of $750.00,  the service must be delivered 18+ times before a profit will be made.  From there,  a series of  “what if”  scenarios can be floated.  Chiefly,  what are competitors charging or is there a spike in demand that makes the product more valuable and can you increase the price?  Also,  can you lower fixed costs and obtain graphics services for a couple of hundred dollars less?  What if the marketing collaterals text was produced in-house by you and not outsourced?  How much will that increase the price of the time you spent developing the service,  another fixed cost?

Let’s say that you find graphics services for $1,500.00 and ask a marketing communications wizard to edit text that you write yourself for $800.00 (your personal labor increases: 6 hours writing at $50.00/hour = $300.00 + $2,500.00 = $2, 800.00).  Now,  the fixed cost is $5,100.00 and you think that $950.00 is a price that clients just might accept.  The variable costs will remain unchanged at $450.00,  because your printer is good,  his price is right and you’ll definitely need to advertise since you may want to charge more for the service.  At a unit price of $950.00,  the unit margin would be $500.00.   As shown,  by raising the price of the service by $200.00,  fixed costs are covered by delivering the goods 10+ times,  rather than 18+ times.

$5,100.00

BEV=             ________      =   10.2

$500.00/unit

As you can see,  the impact of other values such as increased advertising or higher quality materials or labor,  can also be assessed for impact on the pricing sweet spot and timeline for reaching BEV.  When bringing a new product or service to market,  take steps to identify the ideal pricing structure.

It is also useful to calculate the profit margin,  that is the percentage of sales revenues retained after all expenses are paid,  for each product and for the total line.  From the P & L Statement,  divide net profits by total sales revenues  (bottom line divided by top line).

 

Thanks for reading,

Kim

expert_author_1

 

 

The Less Than Zero Pricing Tactic

Psychology counts when pricing a product or service.  Take note that in every store,  the price of items always ends in .99,  .98,  or .95 and never .00.  Number psychology research has persuasively shown that buyers do not like zeros.  Stores do not sell items for $100.00,  they sell them for $99.95,  because customers associate zeros with premium prices that they’d rather not pay.

Furthermore,  the phenomenon called the left digit effect causes our brains to misinterpret that $99.95 as having a value closer to $99.00,  instead of $100.00.  Lindsay van Thoen,  columnist for The Freelancer’s Union,  says that our clients are like any other consumer and Freelance consultants should bear that in mind when pricing contract proposals.

When we are invited to submit a proposal,  we are all excited.  Here comes money!  The last thing we want to do is to wind up in a wrestling match with a client who wants to nickel and dime.  We take pains to itemize the major components of the project and provide the rationale for the total project fee.  Nevertheless,  haggling may ensue.  According to van Thoen,  Freelancers are wise to follow the lead of retailers,  cut the zeros from our proposals and make it easier for clients to agree to our price.  Resist the temptation to price your project at $5,000.00.  Instead,  price the project at $4825.00 or $5175.00.

Unfortunately,  clients sometimes feel that Freelance consultants pad price quotes,  even when an itemized accounting is provided.  A figure that does not appear to be rounded-off,  but appears to be specifically customized to the service requested and contains few zeros that may imply that we’ve  “rounded-up”  the fee,  can be more trust-inspiring and believable to certain clients.

Other ways to make it more palatable for clients to accept our proposals are to  1.) Ask the client for the project budget and work with them to provide services that you can afford to provide within that valuation and  2.) Provide three levels of service: good,  better and best,  so that clients can choose services according to needs and budget.

Pricing pundit Rafi Mohammed,  founder and CEO of the consulting firm Pricing for Profit in Cambridge, MA,  offers two valuable pieces of advice to keep in mind about pricing.  First,  prices must reflect the value that clients place on the service.  Second,  different clients place different value on a given service.  Offering  “good, better,  best”  options allows the client’s need for the service to be met in a way that is in line with the value placed.  A good pricing strategy is an important part of your marketing plan.  It sets the stage for building a profitable enterprise.  It is imperative to set prices that reflect the client’s value of what we sell and,  equally important,  to help the client perceive that listed prices are trustworthy.

Happy 4th of July!

Thanks for reading,

Kim

ID Your Target Customers

Step One in evaluating the prospects of a business venture requires that you know who is likely to become a customer.  Here are 8 smart questions that will help you gauge whether you have a viable target market for your enterprise:

1.  Who will pay a premium price for my products or services?

  • Investigate how much business those who would be your closest competitors are doing and learn what motivates their customers to do business with them and find also pricing info,  if possible.
  • Assess your competitive advantages: do you possess a  “secret sauce”  that will make customers do business regularly and pay a little more?
  • Assess the value of your personal brand: who will do business with you because they value what you represent and do?

2.  Who has already done business with me?

  •  If your business is up and running,  growing your business often means persuading those who are already customers to do more business with you.  Which upgrades and extras to your service line might your current customers buy?
  • Speak with customers you know well and ask what adjustments in service,  features or delivery system would make their lives easier.
  • Design a survey and send it out to your mailing list and also add to your website and social media,  so that you can get more opinions and validate the findings of the customer Q & A.
  • Beta test new products and services with current customers,  to gauge their acceptance and refine the concept,  packaging,  marketing message,  delivery system,  price point, etc.

3.  Am I overestimating potential demand for my products and services?

  • Hire a marketing research firm to run a focus group to estimate the size of the market for your product or service.
  • Smaller budget holders should refer to numbers 1 and 2 and figure out how much business competitors are doing and if applicable,   ask current customers which new offerings would be useful to their organizations.

4.  Am I assuming that everyone values what I value?

  • Reality test your take on the priorities of your target market by asking them,  in face to face meetings or via surveys.  Read industry blogs to confirm how customers use similar products and services.
  • Find the thought leaders and listen to what they say about the need for what you plan to sell.  Without revealing your motive,  you can write in and ask questions.

5.  Does my business model match my target customers?

  • The business model is the blueprint for positioning your venture to make a profit.
  •  The ideal customer groups for your products and services must receive the right marketing message in the right way.  Products and services must be sold in the right way at the right price,  using the method of payment that customers expect.
  •  Design a business model that inspires trust and confidence and is user-friendly convenient.

6.  Who are my main competitors and how did they get started?

  • Study three or four close competitors and learn the back story of the founders.  What competitive advantages do they possess?
  • How long have those competitors been in business and what may have changed,  or remained constant,  in the business environment that allowed them to find success?
  • Define critical success factors for your venture.

7.  How will potential customers and I find each other?

  • Hair dressers,  manicurists and employees of consulting firms have the great advantage of being able to steal future clients from their former employers.  If you are employed in the industry in which you plan to open a business,  start now to strengthen relationships with those customers who might jump ship and go with you.
  • Learn how to reach your target customers.  Which organizations do they join,   which conferences do they attend,  which blogs or newsletters do they read,  does social media for business resonate with them and where should you advertise.

8.  Do you see opportunities to expand your target market?

  •  Eventually, it will become necessary to find ways to expand your business either vertically or horizontally. Stay abreast of happenings in the industry and maintain good communications with your customers to understand what you might offer in the future.
  • Can you create a niche market or two by tweaking what you have,  or offering it under another name and advertising in different media?

Thanks for reading,

Kim

Cash-Flow Woes and Antidotes

Lucky you.  Your sales pitch to prospects is working and clients are stacked up like planes landing at O’Hare.  Receivables are numerous and the balance sheet rocks.  So how can it be that you almost didn’t make payroll  (again)?  How can you come up short on cash,  with all the business you’ve created?

Like so many business owners,  especially those who are new or who suddenly acquire a competitive advantage that creates a tidal wave of business,  you did not recognize the signs that a cash-flow crash was impending,  regardless of how much money was scheduled to flow into your coffers.  You placed your primary focus on creating business (which is vital),  but neglected to monitor the ebb and flow of revenues and expenses (which are vital).  Every business owner must keep an eye on the money ball and take corrective actions as needed,  if we want to keep the business alive and thriving because quite perversely,  as sales go up,  cash can go down.

Here is one example of how a cash-flow crash might happen.   As business expands,  staying on top of accounts receivable becomes more time-consuming.  Those in service businesses  (like website design or public relations) may find that clients,  oftentimes larger businesses whose names we crave for our client list,  may unilaterally decide to pay receivables in 60 days,  instead of 30 days.   Meanwhile,  you have payroll,  office rent,  phone bills,  auto insurance and numerous other operating expenses that are due somewhere between right now and 30 days.

Another cause of cash-flow crashes is improper pricing.  You may sell a ton of T-shirts but if the profit margin is too thin,  you’ll find that excellent sales volume as demonstrated by number of items sold does not overcome an inadequate mark-up.  Revenues generated will not cover expenses.  It will be necessary to either acquire the product less expensively,  or raise the price.

A growing business brings up still more issues that keep its owner awake at night: capital expenditures.  You will need to decide whether or not and when  (or not)  to upgrade office equipment,  open a new office or move to larger quarters,  or hire more workers to keep up with the growing number of customers.

Fail to invest in capacity and you leave money on the table,  plus dissatisfied customers who are likely to kill you on social media.  Get fooled by the romantic delusion of further growth,  invest in demand that never materializes and you are stuck with potentially crippling debt that can bankrupt the business.

That is quite the dilemma and only the best fortune-teller can give the right answer.  John Terry,  of Churchill Terry business advisers in Dallas, TX,  recommends that the business owner focus on one question only when evaluating the possibility of making large capital investments:  will it bring money in the door?  If not,  find a less expensive alternative or learn to make do without it.  Successful business owners learn to preserve and protect liquidity.  Here is an effective antidote:

  • Hire a savvy bookkeeper or accountant to function as the business controller ( full or part-time)
  • Each week,  collect the data on key financial indicators: accounts payable,  accounts receivable,  available cash and the quick ratio (cash + receivables / current liabilities + payables) to monitor that all-important liquidity
  • Each month,  collect the data on these indicators: accounts receivable turnover ratio (how long does it take to get paid?),  the operating cash-flow ratio (cash-flow from operations / current liabilities)  and the pre-tax net profit margin

It is imperative that you are able to pay obligations when they are due and for that you need cash in hand.  Analyze the above indicators weekly and monthly and learn what is really happening behind the scenes of your business.  Track the available cash trends over time.

Seasonal variations may become evident.   You may have to step up collections of receivables or approach certain clients about speeding up payments.  You may have to request more money up-front before taking on certain projects,  so money will come in faster.  You may need to trim expenses.  You may need to raise prices.  The decision of whether to invest in capital upgrades will become clearer.

There are software programs that will track important data and help business owners resolve problems and set priorities.  Accounts receivable,  cash,  inventory and liquidity can be monitored,  along with confirmation on whether the business is on target to meet budget and revenue goals.  For those businesses that get a lot of repeat business,  it is also possible to track the profitability margins of key clients.

Thanks for reading,

Kim