Category Archives: Pricing

Ways to Put the Spurs To Your One-Legged Pony

Businesses with just one revenue stream, sometimes called one-legged ponies, tend to drop off the radar when the single revenue source dries up.

The one-legged pony business killer seems like a kind stranger when starting out. For example, after you’ve driven Uncle Joe’s truck for a couple years, he offers you a contract and helps get you set up to buy your own equipment. Who in their right mind would turn down a lucrative, long-term bread and butter contract offered by a friend or family member? These special deals sometimes work very well, but the dependence on a lone client can become more of a problem than an asset.

The time to deal with the one-legged pony issue is long before it becomes a problem, as early as the first business plan. Here are a few actions to help diversify your business to avoid falling prey to the one-legged pony.

  1. If A Good Deal Falls On Your Desk, Take It. By all means, take advantage of the amazing evergreen contract when the opportunity comes along. A bread-and-butter contract gives any business a solid base from which to build a great business. Plan from the start to use the stability as a benchmark from which to diversify and build a broader base.
  2. Develop Efficiencies. Get the business running and become proficient at providing top-notch service for your customer. Fine-tune the business to ensure you can provide a high level of service with every engagement. More importantly, become competitive.
  3. Research Similar Businesses. Learn about other businesses similar to yours, how they are surviving, what additional services they provide, and what other clients they attract in order to broaden their base.
  4. Add Revenue Streams. After an appropriate amount of research and comparison of different opportunities, make a plan to diversify your business and increase your sources of revenue. Here are a few examples:
  • A log hauling trucking business could buy a gravel box and start competing for gravel-hauling contracts to fill in the cracks whenever logging gets slow.
  • A service station selling only gas could add a mechanic, incorporate a car wash, or begin selling high-margin trinkets to entice its customers to spend more while on-site.
  • A web designer who builds websites for small businesses could partner with a search engine optimization specialist to sell a broader range of services to its customers.

5. Keep An Eye On your Financials. Your financial reports will tell you if you’re adequately diversified. A one-legged pony’s cash flow rises or falls each time the lone customer hiccups, whereas a suitably diversified offering brings financial stability to the business.

As you work to diversify your business, make sure you look after Uncle Joe. Assuming it was your Uncle Joe that helped you get into business, it’s important to keep him happy as you seek opportunities to branch out. Keep your original customer happy. The one thing less enviable than a pony with one leg is one with no legs.


Cheaper Prices Don’t Help Build Goodwill

You’ll never build goodwill by under-charging your customers. Those new to business are prone to undervaluing their products and services. This is one of the great pitfalls when starting a new business.

Whether from insecurity or just not knowing the costs, new business owners tend to want to shower their customers in great value by charging less than the other guys. Aside from the fact that undercutting is a sure recipe for going broke, it invariably leads to problems down the road when you want to increase your prices.

Once customers are used to your low prices, it’s difficult to train them to pay more, and you are sure to lose a few when you increase your rates.

Customers who have received your goods at lower prices tend to think you’re cheating them when you start to charge more.

When you do begin to push your prices upward, you are bound to lose a few of the old customers who were just along for the free ride.

If you underrate your goods, your customers are almost certain to downgrade them too. A well intentioned deal might be perceived as worth a bit less, but you don’t want the customer thinking your services are completely worthless.

As a new business owner, one of the first pricing decisions you’ll make is to decide whether you really want to compete on price. If your strategy is to compete mainly on price, keep in mind that a large competitor will almost always crush a smaller business like a bug. Deeper pockets always prevail when price wars occur.

Here are a few suggestions for anyone tangling with the issue of pricing.

1.Decide whether you want to be the cheapest, the fastest, or the best. Pick any two; trying to be all three is a sure recipe for going broke.

2.When you’re setting your prices or rates, learn how much your competitors are charging and then position your prices where you want them to be. You don’t have to charge a lot less than the other guys to be perceived as giving a better deal.

3.When it comes to providing a service, you will need to determine a value for your time. If you’re transitioning from a role as an employee to become self-employed, it’s important to remember that your hourly charge-out rate now needs to be much higher to help cover the cost of operating your business.

4.Instead of simply attempting to undercut your competitors, find ways to provide more value to your customers; sometimes it makes more sense to compete by offering higher quality, or better service.

5.If you’re already in business and your prices are too low, it may be time to begin to ratchet them up a bit. Be prepared to lose customers who refuse to adjust. In some cases, you may feel a shameless sense of relief as the more tenacious hagglers head off to buy from your competition.

When all is said and done, business owners need to pay the bills and earn a living. If your prices are too low to achieve these two goals, it may be time to increase your prices or consider winding down the business.