You want a profitable business right? Your business offerings may consist of services, physical products or a combination of both. For your business to be viable your products and services must satisfy a demand in the marketplace, at a price that is acceptable to your target market.
Many businesses have failed because of a lack of one or more of the following critical business components.
- Pricing Model
- Ascension Model
- Product Analysis
- Productising Services
Don’t be a statistic…by reviewing the following concepts, and implementing them, you can avoid the common ailments of many businesses.
Your pricing model is the framework you’ve developed to compensate you for the time and effort expended in delivering your goods and services when satisfying your customers needs. It’s critical that you are aware of how many hours of paid work you need to perform, at a minimum rate, to cover your overheads and break even.
Your pricing is one important aspect of your business.
Your pricing model should be based on thorough research of your competitors, the level of demand in the marketplace and your unique offering or solution. Your pricing structure may consist of an hourly rate, plus a component for resources or materials required in delivering the service. The issue with a lot of small businesses is that their pricing model is slightly flawed and focuses on one-off transactions that limit their revenue earning potential.
This has an impact on the business, both short and long-term.
The real money in a business is made via recurring transactions, a higher value offering path and a focus on retaining and marketing to valuable customers. Of course one of your objectives will be to bring in new customers through your lead generation efforts. However, without an Ascension model in place, chasing one-off transactions is exhausting.
To realise the full potential of your business you need to have a documented path that makes it easy for prospective clients to select an offering that suits them. Once you delight and prove to your clients you can deliver solutions to their problems, they know you have their future needs covered.
By keeping in touch and promoting special offers to take them to the next level of service your revenues can grow quickly. To develop an ascension model you can start by performing some product analysis.
Create a Microsoft Word document with a table or use MS Excel, if you are comfortable with that application. Document your existing services/products in the table. The idea here is to identify the profitable services/products that you currently have, what unprofitable services you are still offering and any opportunities to promote associated products in your sales efforts. Look at the benefits of your goods and services from your customer’s perspective. Ask yourself these questions:
- What am I selling?
- What other associated services could I offer?
- Which product or service is in demand?
- Which product or service is the most profitable?
- What is different about the product or service my business is offering?
- Do I have one big offering that could be decomposed (unbundled)
- Do I have various associated services that could be packaged (bundled)
An example table for a business that produces physical products.
|Product||% of Revenue||Cost of Goods||Labour Costs||Indirect Costs||Price||Gross Profit %|
You can add columns to the table that depict possible new products/services and which offerings could be packaged together. A product ascension path can be developed from this type of review. Going through this exercise on a regular basis will enlighten you on what is making you money and what services are loss makers.
Loss makers can be dropped or, in some cases, re engineered and used as bonuses or “loss leaders” to higher value services. Knowing what makes you money will focus your promotional efforts on the best return on investment. The other benefit of this exercise is (if you don’t already know) it prompts you to dig into how many hours it takes you to deliver a service or make a product on average.
Breaking down and measuring your delivery process, whether service or physical product, then enables you to improve it and optimize the time taken. Less time taken for the same fees means better bottom line. Of course the quality of your offering cannot be compromised purely to save time!
Bundling & Ubundling
Sometimes an offering is more valuable, overall, when it is segmented (unbundled) into its components – the sum of its parts sold separately may return a greater number. For example, a ticket for a plane flight used to include your seat, a snack and your baggage. Now you pay for a seat and have a choice of paying for food, selecting your seat or paying for baggage. There are rumors that airlines will introduce charges for carry on baggage as well…
Value can be added to a physical product by incorporating associated services and packaging this into a premium product. Bundling several smaller service offerings together can create a perception of higher value in the customers eyes. Each of the separate offerings would satisfy an issue or need the customer has. Once bundled and tweaked (research needed here), the overall offering solves multiple issues – enhancing value.
Services are intangible and sometimes can be challenging to market as they cannot be “felt”. To give your services a “physical” aspect, package them together and give the packages individual names. An example : A website design business may offer the design, build, content creation/migration, web hosting and a set amount of changes per month as separate services. Components of these services can be packaged at varying price points and given names such as “Basic” , “Basic Plus” and Total Concierge Pack” as one high end offering.
This article from doubleyourfreelancing.com gives 3 examples of productising consulting services.
You would list all of the inclusions and pricing for each “product” allowing the customer to self select their price level. The customer would be educated on what they are getting and what it will do for them. This approach enables the customer to “feel” the product and its benefits.
So, how many of these profitable business concepts have you got in place? If you have all five, you have my permission to do a happy dance. If not…time to get serious about scheduling the time to implement them.
Over to you. What is the first thing you are going to put in place? I would love to hear what that is. You can comment or like my Facebook page, if this post has been of value to you.