TALKING CHEAP

      Are you pricing your products in a manner that is profitable for your small business, which will offer you a long-term future, and allow you to expand, prosper and thrive? Pretty much anyone with no business training could have a short-term one-hit wonder company, if they offered a product or service for a fifth of the price of their competitors. But, your company probably won’t be around to celebrate its 10th anniversary – or even your second anniversary if we’re being brutally honest. As American author Zig Ziglar says, “Money isn’t the most important thing in life, but it’s reasonably close to oxygen on the ‘gotta have it’ scale.”

      This was a home truth I had to face – and quickly. So, when I came back from that weekend seminar all those years ago, I upped my fees overnight. Just like that. I took back control. Now, I know I’m a ‘back of the envelope’ type gal but let me make one thing clear – I didn’t just pluck a figure from the air. I sat down with a notepad and, over four hours, I logically, objectively and realistically wrote down how much work really went into our average projects. I looked at the margins other publishing companies added to their production costs (those that I was aware of) and theorised others. I thought realistically about how much I could shave off and calculated a fee that made us appear competitive without being mugs.

      Of course, our new business model didn’t go down well with everyone, especially returning clients who were used to hiring us in exchange for a pocketful of small change. However, in the new iteration of my company, I learned an important lesson in the power of ‘no’ and focusing on the long-term picture. We did lose some clients, but we soon picked up others who didn’t think twice when we mentioned our fees. We went from potentially being the cheapest to being far from the cheapest, but I would certainly argue that we were absolutely the best at what we did and so I felt comfortable and authentic about stepping into this new model. As an aside, so ballsy did I become that I had banners and business cards made up with the slogan “Revolutionising the publishing industry globally”. It was about 2006, approximately seven years before The Collective was born.

      I heard an analogy about cars years ago that has stuck with me and guided me. There was a simple question: do you want to be a Lamborghini or an Audi? It wasn’t a trick question – both are perfectly good cars, both service different markets, and both have become household names because of it. But you can’t try to be both, you can’t slap a Lamborghini price tag on an Audi and vice-versa, or try to convince your customers that you’re one when you’re actually the other. You need to choose where you want to sit in the market and then ensure that your messaging, which includes your marketing, your price tag and your promises, are consistent. In the instance of Lamborghini and Audi, they are two completely different business models. In 2013, Lamborghini brought out a new model with a price tag of US$4 million, building only three (which were bought by private buyers before they’d even set eyes on the finished product) in a quality-over-quantity business model, where customers aren’t just buying a car but exclusivity, bragging rights and being part of a special club of elite owners. Yes, it’s an ego-driven sale, but it’s undoubtedly commercial for that end of the luxe market. And having driven one full-speed around a track in Vegas, I can certainly vouch for the hotness factor.

      On a lesser scale, some people baulk that we charge AU$9.95 for one issue of The Collective, yet let’s remember that magazine costs over AU$350,000 per issue just for us to produce. When a reader holds that magazine in their hands, they are benefitting from AU$280,000 per month in fixed staff and office running costs, plus AU$40,000 in writing and photography, then all sorts of other fees to do with contribution, distribution and consultations. They are holding a AU$350,000 baby in their hands. I purposefully priced the magazine at less than a tenner because it was my mission to build a community, not be hoity-toity or too exclusive, and we were relying on our readers’ passion and loyalty to keep our circulation up so our sale price could be low. There are other magazines, especially in the UK and US markets, who opt for a different approach, bringing out one issue a year but pricing it extremely high and marketing themselves as a collectible artwork. Look at Visionaire magazine, whose 63rd issue retailed for US$350. It was printed on metal and they only produced 1500 numbered copies. That’s a seriously pricey publication, but kudos to them for identifying a market, valuing and backing themselves. We now charge AU$200 for a mint-condition copy of our very first issue, because we don’t have many left and it is in such short supply that it has become a more valuable commodity. Some of our readers see it as an investment they’d like in their collection. Simple economics of supply and demand.

      It can take a lot of courage to price your worth in our bargain-hungry culture, especially if you’re launching a new, groundbreaking or disruptive product or service and have little or nothing to benchmark it against. One entrepreneur I know says that when pricing a new product, he looks at its closest competitor and then adds a 20 per cent “innovation tax” to get to his RRP. “That covers the cost of all the sleepless nights, self-doubt and false starts that it takes to launch a brand new product,” he says, and he has a good point.

      In 1976, the first Apple-1 computer went on sale for a retail price of US$666.66, which was seen as controversially high by many. But Steve Wozniak argues this was a fair calculation when you factor in expertise, material and a little margin. The wholesale cost to stores was US$500, they added on a third to get the retail price to US$667, then rounded it down to US$666.66. “I was into repeating digits,” explains Steve, adding it was “just easier to type”.

      In the business world, I firmly believe you get what you pay for. If you’re offering an eye-wateringly low price, what are you saying about your standard of service? I recently spotted a quote on Instagram posted by Kelly Gregorio a writer for Advantage Capital Funds, the business finance incubator. It read, “Don’t demoralise your efforts by setting rates that are beneath your results.” These days, those are words I try to work by. As Oprah Winfrey says, “When you undervalue what you do, the world will undervalue who you are.”

      Another interesting point that I’ve heard from many experienced business owners is that while we assume customers want cheap-as-chips services, they can be suspicious if you sell yourself short. A client of mine did a very interesting experiment. They were selling Italian-made handbags for about AU$90, which was far cheaper than their competitors, and yet nobody was buying them. So they decided to do a test and hike the price up to AU$350. That’s a 288 per cent price increase. Yet this reverse-sales tactic oddly worked and the exact same handbag started flying out the door. It was as if customers couldn’t understand why they were so cheap before, and is a fascinating look at human psychology and our expectations, perceptions and suspicions.

      That’s not to say I always get it right. I still have moments everyday when I think, “sh*t, why didn’t I charge more?” when I realise I’ve underestimated the effort a project will take to finish. But that happens less often these days and if it does, I don’t beat myself up because I learn from the nuisance or twist presented by every single project. If I had to sum up this chapter it would be this: have faith in your