What are you worth? It is a hard question to answer, especially for someone who comes from England, like me. The Englishman within me doesn’t like talking about money and certainly doesn’t like to be as crass as to ask someone for it. By building the confidence in what you are doing is of value to someone, and that they are willing to pay you for it, is a fundamental mindset in making your business successful.
I am always reminded of a story I heard about around fifteen years ago when someone was advertising an island they owned for holidays in the Sunday papers. For months they got no enquiries, and I understand they were close to having to stop offering holidays and selling the island. The paper one week made a mistake with their advert and added an extra zero to their advertisement. Suddenly, overnight, they were inundated with enquiries.
Whether that was the exact way it happened or not doesn’t matter, but I like the parable that the perception of value is linked to the perception of quality. Certainly, the people who rented private islands were more used to spending £30,000 for a week rather than £3,000.
The same was true of Concorde which for years struggled to make any money. It was only when the marketing department decided to ask travellers what they thought the ticket cost, did they realise was that their perception was much higher than the reality. The key insight was that they found out is that most people who flew Concorde didn’t buy their own ticket and therefore didn’t actually know they price of it. This allowed British Airways to raise the cost of tickets of the service, turning around its fortunes and making it the most profitable service for the airline.
I’m not saying that we should all go away and double the costs of our products and services, but certainly we shouldn’t focus too heavily on discount and volume as a way to build your business. You need to really understand the value of your product, as I discussed in the previous episode. Once you know how much something costs, then you can work out how much to sell it for.
In the restaurant business, margins are high, but profits tend to be low. This is because that business model is very susceptible to income disruption due to changing levels of client footfall, expensive human capital that it takes to run the business, as well as high rents and business rates. Having high margins is a necessity, therefore. A product that you are trying to sell on Amazon, however, that has many low-cost competitors, might not have the same level of overheads. Although the margins will be lower, the volume can be greater to make up for it.
In the last part in deciding what you are worth is agreeing with yourself what you do and what you don’t. Too often I have seen businesses fail or get into difficulties because they spend too much time saying ‘yes’ to customer demands and not focusing on their repeatable, scalable product offering. It is, in my view, important to be an expert in your field. And you can’t be an expert in everything. When your customers ask for changes to the core product or a different level of service that you are offering, it is important that you push back. Saying ‘no’ to something is very important in business. Most people bend over backwards to accommodate client demands, only to realise later that the headaches multiply as the customer begins to see discounts and add-ons as ‘standard’.
Remember, the aim is to create a repeatable product that sits on the shelf with your other products, rather than create one-off products that use too many resources and aren’t repeatable.