Posted on 17 Mar 2014
Did you fall in love with the new corner coffee shop because it was so cozy and the prices were half of Starbucks? Weren’t you equally or more disappointed when it went out of business 9 months later? Starbucks hasn’t weathered the economic storms by selling cheap coffee.
A small business that sells goods or services must make wise decisions in regards to pricing to have staying power in the business world. We are passionate about helping small businesses succeed and we know that the odds are against them. 90% of new startup businesses will fail, and between 70-80% of all small businesses will fail within 10 years. We may not understand the intricate details of your small business or the coffee business, but we have survived a very competitive marketplace in the telephone time-keeping industry for almost 20 years, so we have learned a few things that may benefit you.
We want to help you beat the odds by providing a few pointers on pricing.
Pricing Pointer #1
Don’t try to be the cheapest game in town. You might actually win. Your customers want high value at a fair price. Give them high value in the quality of service or products that you provide. If you can provide better quality than your competition, don’t offer bargain basement prices. A business can’t deliver steady, long term high quality at cheap prices. (Heard of ‘bottom out’?) Long term customers don’t make decisions on cheap. They decide based on value and value comes from the effort you exhort after pricing is determined.
Pricing Pointer #2
Think long term. This means that you will need to reinvest in your business to hire the best employees; be in the most strategic location; marketing smart; use the finest materials and most durable equipment. Then maintain a capital reserve for unforeseen circumstances. Again, all of this is required to consistently deliver high quality. A business can’t do these things without PROFIT. How can a coffee shop stay in business very long selling great tasting cups of coffee served by friendly, competent staff if they are half the price of the competition? Quality must suffer when the lowest price is the primary driving force. Do a huge favor for the customers who love you. Position your prices to make a profit that allows you to stay around to serve them. They will be happy to pay to keep you.
Pricing Pointer #3
Keep it simple. Doesn’t it get on your nerves to get suckered in on a low price and then realize you didn’t read the fine print? Yes, the cup of coffee is 25 cents, but add a $1 for sugar + $1 for cream + $1 for a stirring straw and $3 to have it hot. A long lasting relationship is built on openness and trust. Instead put a sign in the window that says, “Only $6.25 for the most delicious, aromatic cup of coffee made from the highest quality beans and served by the brightest and friendliest baristas in town.” In other words, consider everything that goes into calculating a fair price and put it out there. Then be the best coffee shop in town.
Pricing Pointer #4
Be prepared to defend your pricing. Occasionally someone will inquire why your coffee costs more than what they can buy in the drive-thru at the local fast food chain. You’re thinking, “If they have to ask, why would I want them as a customer?” But clearly understanding your position in the market and being able to confidently communicate it when necessary demonstrates that your decision was carefully considered and calculated for the all of the reasons above. To stumble with your response is a vote of no-confidence and isn’t reassuring to potential customers.
We want you to beat the odds and build a great business that stands the test of time. This requires a big picture, long range perspective and a calculated understanding the importance of pricing. We also agree with Henry Ford who said that a business that makes nothing but money is a poor business. Your business will have to make money so that you can survive to make something much more important…a positive difference in the lives of the people you serve…
For those of you whose morning comes too quickly – it is that great cup of coffee before reviewing the Chronotek Dashboard to see who is clocked in.