Most customers leave a supplier, and change to a new one, because of Perceived Indifference
Very few customers change supplier because of price
- They were happy with your price the first time
- They are in your price range
They may SAY it’s price so as not to cause offence or get dragged in
It’s OK to lose customers on price – some people just can’t afford you
….but NOT on customer service – that’s just stupid!
If everyone can afford you you’re too cheap
If you are doing work for no profit, or at a loss, then you should get rid of those customers
The best way to get rid of them is to put the price up to a reasonably profitable level – then you win if they stay and you win if they go
Customers can be loss making without you realizing – if they are high maintenance and you don’t count the extra management time required as a cost – but it certainly IS a real cost
The 80/20 rule says that 80% of your profit comes from 20% of your customers – look after those!
And therefore only 20% of your profit comes from the remaining 80% of customers – have a close look at those and consider putting up the price on the bottom half of them (40% of your customers) – who are probably breaking even or loss making.
Most companies are making about 10% profit, or less – so if you put your prices up by 10% you’ll double your profit margin, at least
And you WON’T lose 50% of your business (though if it’s loss-making then who cares!)
Even if it’s making you 10% profit, consider putting your prices up by 10% and doubling your profit
You can do experimental pricing and see what happens. Try it on a few customers or products and measure the effect.
Make a spreadsheet model of your demand curve – how much would you sell at each price, what’s the profit at each point, and therefore the turnover and total profit.
The point of maximum profit is usually the point where your price is high enough that 50% of customers are not prepared to pay it. You make more from the 50% who will than you would from a lower price for everyone.
The ones who won’t pay it are usually the ones who are a pain anyway. Isn’t that true?
Thinning out your customers allows you to focus more on the ones who matter, and give them better service.
If your customer service is brilliant then you can charge more. People will be prepared to pay more for what you do. The 50% point will be at a higher price level.