A nickname I’ve earned from long, hard nights in places only the brave would dare to trod is Disco Danny. I admit it; I love all kinds of music, even disco. At the risk of even further dating — or, worse yet, downright outdating myself — I’m reminded of a song by The Contours, of Motown Records: “First I Look At The Purse.” We all know it; we’ve all done it. You get the proposal, and where’s the first place you turn? To the page where you can check the price. Given its importance, the last subject of this blog series is pricing — an area where much thought is required. Some of the following guidelines just might be priceless.
Have you ever thought about why pricing is so important? Whether you’re maximizing profits as a business, or services provided as a nonprofit, there are competing forces for the same dollar. Generally, that type of competition results in a win-lose situation. While that’s not necessarily bad, focusing instead on win-win possibilities is a worthy endeavor. Consider what might happen:
- New customers/clients, including owners and users, think their need is met — or, better yet, exceeded — for a fair price.
- You build trust with new relationships that may bring additional opportunities with them.
- A win-win situation creates a potential booster — and perhaps referrals.
- You — including owners and those involved in or impacted by the sale — think the price is fair.
The pitfalls of not having guidelines can cause irreparable harm, which often leads to lose-lose results. Try to avoid frustrating the following players:
- Your “hunters,” due to lack of clarity in the pricing process — including failing to specify their particular role, or lack thereof, as appropriate.
- Those who have pricing responsibility, by interjecting 20-20 hindsight criticisms.
- Yourself, by agreeing to take on work that has no profit — or, worse yet, work that has no marginal cash contribution.
Guidelines are like plans. They are essential and need to be viewed as subject to change if and when new information is compelling enough to warrant a change. Once you have your pricing guidelines, hold them with an open hand, rather than a clenched fist. Establish a process for pricing outside the boundaries — who has the authority, and under what circumstances? The reasons will vary, but may include:
- Underpricing when trying to enter a new market.
- Underpricing to fill capacity.
- Underpricing to establish a new relationship.
- Overpricing because you either think you must put in a proposal for other than profit motives, but you don’t really want the work, or you’re at capacity and would need outsourcing help if you were successful in obtaining the bid.
Whenever you’re not successful, it’s always helpful to try to understand why. Learning provides useful market data that may help you with future proposals.
Do you — and, equally important, your team — have guidelines for pricing your new business opportunities? Singing from the same song sheet may produce just the tune you want to hear.
By the way, just for the “record,” the 1962 release of “First I Look At The Purse” came many years before my disco days of the ’70s.
Thanks for following the series. It’s been a privilege and blast to do!
Tom’s editorial comment: If, while reading this series, you believe Dan could be helpful to your company, please contact him directly at [email protected], or 248-701-8787.