When you run your own business, when you are a solopreneur, there is a natural sales cycle – business booms, business fades. So what do you do during those down times? One common answer is to cut your fees. The question then is - is that really a good way to drum up more business, or will it cut too much into your profit margin?
One rule of business is this: Ask them what they want, then give them what they want. And what people want today, for the most part, are ways to save money. As such, if you can figure out to do that in a way that works within your business, there is no doubt you will get more business; less profit per sale, for sure, but more business.
The key is to look for products or services that are both popular and in which you have a healthy profit margin.
The danger of course is that if you slash prices too much, then you risk losing money, damaging your brand, or both.
Thinking About How Price Cutting Can Be Successful: Real World Examples
That said, when cutting prices works, it really works. Consider: In the past year, two Fortune 500 companies that had banner years were Wal-Mart and McDonald’s. What they have in common, of course, is that they try to offer value for less.
Another advantage to cutting prices is that it fosters loyalty, and in an economy like this, that is no small thing. For instance, when Nolan Ryan and his team of new owners bought baseball’s Texas Rangers, they announced that they were “lowering prices on concessions, parking, and merchandise” because this was a way of “showing appreciation for the fans’ loyalty and support.”
If it works for the big boys, it can work for us.
The Do’s and Don’ts of Cutting Prices
Figure it out: Usually it is not a good idea to simply cut prices across the board because 1) that makes it look as if you were charging too much before, 2) it turns your brand into a cut-rate warehouse sort of deal, and 3) it lessens the “thrill” for customers of finding a great deal on a few, selected, desired items.
The key is to look for products or services that are both popular and in which you have a healthy profit margin, so you can afford to take a hit.
Look for less expensive items and/or vendors: Another option is to buy and sell less expensive items than you normally carry. I have a pal who sells antiques. His motto is “It’s all in the buying.” He knows if he can buy an item cheaply enough, he’ll make a profit.
So consider buying cheaper items from your regular vendor, or look for new vendors, and sell these products for less.
Let people know: Toot your horn. Have a sale. Advertise it. Tweet it. Since the whole point of this exercise is to get more people in the door, it follows that the more you let people know you are having a sale or discounting, the better you will do.
Offer value for less: Cutting prices on quality items that people want is usually better than discounting junk you want to get rid of. Offering value for less is what fosters loyalty and enthusiasm.
Do it across the board: You have to maintain your brand, and unless your brand is “the low-cost leader,” then cutting prices too widely will backfire. Be judicious and do it only on items that are certain to get people to buy from you.
Lose money: You may use the “loss leader” strategy, whereby you take a loss (or close to a loss) on something to get traction and sell more of your other items. That’s smart, but be careful. The point here is to make money, not to lose money.
Lose sight: Another risk here is that customers will come to expect the lower prices – that might be good, but probably not. You don’t want to train them to expect discounts, or worse – to wait to shop with you until there is a sale.
So remember that discounting works, but usually it is best done conservatively.
Do you have a great success story about a deep discount you offered, and how it worked out for your business? Why not share a guest post in The Self-Employed Blog today!