Pricing of any product is a blend of science and art. It is a function of both your marketplace (what people are willing to spend for something - the 'science') and your own marketing strategy (what value your 'brand' has in the marketplace - the 'art').
I am doing consulting work with a small specialty internet retail company that sells 'aromatherapy' products. After three years of 50% annual growth, sales have flattened unexpectedly. The first question I asked the owner was "when did you last implement a price increase?" She looked at me like I was crazy and replied, "We haven't had one in years - business is down so we're thinking of lowering our prices to attract more sales." I then asked if she thought sales were flat because customers believed the products were too expensive. She replied confidently that price was not a sales objection, which led to the obvious next questions: "Then why lower your prices? Instead, why not raise them and increase your marketing, advertising and promotional efforts?"
It's a classic mistake made by companies when sales get tough: they lower prices and cut expenses in the areas that drive sales, (marketing, promotion, customer service), and then wonder - as if it were not a self-fulfilling prophecy - why sales and earnings continue to fall.
On Jan 1, 2000 I purchased a small, well-established domestic placements service company. Between then and Jan 2003 I slowly raised our fees by approximately 30%. Our placement fee for a permanent domestic employee went from $1,495 to $1,595, then to $1,750, and finally to $1,950. I set a minimum fee of $1,200 for part-time placements (formerly, we charged a flat fee of 10% of the annualized part-time salary - so if a client hired a nanny for one day/wk @ $90 our fee was only $468). Lastly, I raised the on-call fee from $14/day - to $15/day, then to $16/day with an additional $9 surcharge for job orders placed with less than a day's notice. A few clients balked - but fewer than you might think - and after a few weeks we never heard another complaint.
Our annual sales are up 48% this year, in a slow economy. We are far more efficient than we have ever been and the quality of our service has improved measurably. Yes, our client count is up, but not by 48%. The increase in revenue (and profit) has come primarily from our effective implementation of price increases.
We strive to offer the best product in our marketplace, and we never discount our services or negotiate fees. Our pricing reflects our marketing strategy of being the most respected and professional service company of its in kind in our market.
Higher fees dissuade unqualified prospects and bring you clients who appreciate your services. Qualified clients will understand that the decision of which agency to engage is one of quality and service, not price. Pricing your products and services below the market can backfire, attracting clients who are both more difficult to work with and more focused on price than quality. Those clients that make a purchase decision based primarily on a price comparison are simply not the clients we want to attract. That type of customer costs us MORE to work with, and is far LESS profitable to our organization.
UNDER-SELL, OVER-DELIVER:
EXCEED EXPECTATIONS
One colleague wrote: "I am confident that I provide a better service. Confidence is everything! And customer service, of course."
True, and if you're planning on growing the business, it helps to deliver a superior product and have a strategy to guide you. Over 75% of new clients and domestic employees that register with our organization come to us through Word-of-Mouth referrals. Some agencies use reward and loyalty programs very effectively. We, however, choose never to pay for a referral. We want our clients to send us business because they are thrilled with their experience. Our client retention rate is well over 80%. People come to us because they believe in the quality of our service or know someone who believes in us. We demonstrate our commitment to our clients by presenting a reality-based assessment of the position they are seeking to fill and the candidates we believe may be interested in interviewing for the position. By 'under-promising' we have the opportunity to 'over-deliver' and exceed our customer's expectations.
During a recent conference of industry experts, agency owners discussed the idea of 'negotiating fees' to capture borderline prospects. Some felt that in challenging economic times the practice of negotiating fees to capture a sale was necessary. This makes no sense to me. When the PRICE of a service becomes the central focus of your conversation with a client, it becomes increasingly difficult to convey the VALUE and BENEFITS of the services you offer. Unless you believe that price is the most important factor to be considered when evaluating your services, then whenever a conversation turns to the topic of price it should be steered back to the subjects of value and benefits.
Consider: If a client has a problem with a $2,000 agency fee, then they are going to have all kinds of other problems down the road; they do not value your services - or do not understand them. When a prospective client tells you that they can't afford a placement fee, don't you wonder how they will be able to afford an employee salary of $30,000/year?
Qualifying A Prospect
As you can see, pricing is just another one of the tools we use to 'qualify' a client. As any sales veteran will tell you, qualifying your prospects is the most important part of the sales process. While it sounds like a terribly insensitive term, "qualifying" is actually the first step toward providing excellent customer service. Through the qualifying process you come to understand both your client's needs and desires, and determine how you can best meet them. Fail to employ a well thought out qualifying process and you will spend an inordinate amount of time with people who will never do business with you. That will waste the prospect's time, degrade the quality of service you provide to your existing clients, and undermine your business productivity.
The Client Interview
Many agencies will visit a family in their home to have the parent(s) complete a registration form and sign a contract. This practice can be very impressive to the client, but it also has drawbacks that should be considered carefully. First, under most state laws, a contract signed in a consumer's home may be rescinded and nullified by the consumer within 72 hours. This consumer protection was put in place to undermine high-pressure sales organizations from taking advantage of innocent consumers. Consumers are often duped by highly trained and experienced con-artists into signing contracts, only to discover, after the fact, that they have agreed to buy home repairs they didn't need or entered into long term contracts to purchase unwanted services or products. These are good laws that protect consumers from fraudulent practices. However, having your prospect sign a contract with you in their home may not be in your best interest.
Consider the family that signs a contract with you one night, interviews and hires an employee you refer the next day, and then subsequently sends you a letter rescinding your contract. Even if you can convince a court that your contract is binding, the cost to do so would be prohibitive.
Our office manager offers a second reason to avoid in-home interviews. How many times have you set an appointment with a prospect that turns out to be a 'no-show' or a last minute cancellation? After years of setting appointments, both in families' homes and in our office, she has discovered a universal truth: 'No-Shows' are unqualified clients. We have found that those prospects that do not respect our time enough to call and let us know they cannot keep their appointment, also do not value the services we provide. They are, therefore, more likely to be extremely difficult to work with - even if they do choose to eventually sign-up with us. If a client is committed enough to show up at an appointment in your office, they are far more likely to engage your agency to help them hire a high quality household employee. Our interview process, first on the telephone, and then in our office, becomes another tool in our qualifying process.
There are side benefits to office interviews as well. Clients come away with a mental image of your offices and staff; subsequently they feel more comfortable with your fees because they know you are a "real" business, just like the other professionals whose services they engage: their accountant, doctors, attorney, etc.
The benefits of an In-Office interview compound because:
They are LESS EXPENSIVE
They are LESS TIME CONSUMING
They help you QUALIFY THE CLIENT
Properly and effectively qualify a prospect and you will have a great new client, a great new ambassador for your company - or both! Identifying qualified prospects is usually not difficult. The challenging part is turning an unqualified prospect in to a walking, talking billboard for your organization. I know that sounds contradictory; so let me explain by way of an example:
A prospective client arrives at our office and speaks with a consultant who will quickly determine that the client is not a good match for our services. We could just sign the prospect up knowing that it is unlikely we will ever make a successful placement, but what good would that do anyone? Many agencies charge an application or 'search' fee - and there is no way that a small application fee will make up for the time you will spend over the next two months not doing business with an unqualified client. When you don't serve a client well, they are sure to tell lots of people how ineffective you were for them. And it gets worse; it is a mistake to under-estimate how much damage can be caused by an unhappy client. When it comes to personal service companies, word spreads very quickly in communities.
Instead of telling a client we can't (or don't want to) help them, our consultant will explain that the job order is one that may take some time to fill due to the current 'market conditions'. Here's the kicker - we will then send this prospect to our strongest competitor.
Imagine:
With the client sitting in front of her, our consultant will pick up the phone and call our competitor:
"Hi Sally, it's Vicky - how are you?...
Listen, I'm sitting here with Mary Jo McDermott and I don't think that I'm going to be able to help her find what she's looking for...
She can be at your office in half an hour; do you have time to meet with her today?"
Sounds crazy doesn't it?
Remember 'Miracle On 34th Street'? The client is enormously grateful when you put her needs above your own desire to generate fees. She will likely say wonderful things about you to everyone she knows - for a very long time to come. Your competitor can never say anything negative about you because you're the one who made the referral to her. (What can she say to the client? "...they only sent you here because you're crazy and difficult to work with." - I don't think so!)
If you are lucky, your competitor will actually make a placement with the family, which you know will likely fall apart down the road. How do you know that? - Because you have properly qualified them as being a poor client. And even if your competitor makes a successful placement, you still benefit because that client will always remember that it was YOUR agency that helped her find the solution she was looking for - and she will tell her friends. I find this scenario far more attractive than telling a client that they are too cheap or too insane to work with (i.e., that they don't 'qualify').
Our own client consultant is fond of saying "the best clients I have are often the ones that I choose not to work with."
In the end, pricing is important, but it is only one piece of a puzzle that makes up the overall marketing strategy for a business. As consumers, we hate to be sold anything - but we sure love to buy. If you develop, implement, and execute your marketing strategy properly - and qualify effectively - clients will be competing for your attention.
About The Author: Michael Gerard is the Executive Director of Childcare Solutions in Beachwood, Ohio, and SitterCafe.com. He has served as a Director on the Board of the National Alliance of Professional Nanny Agencies. Mr. Gerard has been employed as National Sales Manager; Bemis Manufacturing Co., Executive Vice President Sales and Marketing; BMSC., and Vice President U.S. Sales; Tye-Sil Corp. He is owner of The Patio Network, a sales and marketing consulting firm which works with clients worldwide to develop and implement strategic marketing plans. Write to him via email at:
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