Change: How about…the Price Model?
Subscription?
Have you noticed that the most expensive (hidden) element of your cost structure is probably the cost of customer acquisition, that is, the cost of getting new customers or getting existing customers to come back and spend again. Here are a few pointers to what you might do:
• Increase the price point.
• Increase the amount of money each customer spends at each transaction (volume of purchases).
• Increase the frequency of purchase (every week, every month).
• Make it easier to stay buying from you longer (before they go looking elsewhere).
Each of these levers, either applied individually or in combination, will vastly improve the returns you get from the dollars you spend to win these customers in the first place—this will release immense energy for growth.
Additionally, if your business finds itself with idle staff when the frequency of customers visits changes, then you might want to significantly change your pricing structure toward subscriptions. But we suspect you might not think of your business as a subscription business. We never thought of gentleman’s barbers as a subscription business model, until we became a loyal customers a year ago!
Imagine if you have a chain of hairdressers, beauty spa, nail spa, massage parlors, and so on and your business relies on customers coming back multiple times in the year. Can you redesign your price from being a price per visit to a price per month or per quarter with unlimited (within reason) visits within that time period? If the price is based on a per-visit basis, then we might only get our hair cut, when we notice our hair is getting unruly. But if we have signed up for a monthly price of say $80, paid monthly or maybe further discounted for quarterly or annually, we might be tempted to come as frequently as our weekly timetables allow. Illustratively, instead of paying $45/visit, and where we might get round to visiting once or twice a month, if we pay in advance, and can come weekly, then the price per visit becomes $20. Let’s further review the pros and cons from the consumers’ perspective and for your business:
Pros for us:
• Cheaper per visit cost.
• We look groomed all the time.
• We can build a weekly pattern, and the whole scheduling is much easier.
• We can get into a habit with the same hairdresser each visit.
• Each haircut is more efficient, and doesn’t take as long.
Pros for the business:
• Although less price, per visit, greater annual fee from each client.
• Staff are less idle, so their time flies by.
• Staff’s income doesn’t fluctuate so much.
• Each haircut is more efficient, and doesn’t take as long.
• Tips from customers go up as the customers don’t feel the impact of the payment on each visit.
• Customers that visit weekly are more likely to refer new clients, further reducing the cost of customer acquisition.
• Increased customer loyalty.
And perhaps best of all, a number will keep paying and not visit at all—remember all those people with unused gym memberships you know.
Are you using a discount coupon type of promotion as your marketing tool? There are many marketing companies who will approach prospective customers for you on their own databases, persuading them to try you by offering a coupon for a deep discount off your usual price. Be warned: 60 percent off your regular price is not unheard of, and of the remaining 40 percent, half might go to the marketing company, leaving you with perhaps only 20 percent of usual price.
But it is not all doom and gloom. Once these prospective clients have tried you, and enjoyed your service or product, they’ll want to come back and pay the normal price. To make sure they do, show them the advantages of signing up for a subscription. If you follow our hairdressing numbers, the subscription could still appear as deep discount from the one off price, but benefit your business as above.
If you have any business where each incremental customer doesn’t add any additional costs to your business (within reason), for example, a yoga class, or in fact almost any type of class, then this is an absolute no-brainer.
Pause: Did you make notes of things in the Action This Today section in the back of this book? If not, please take this opportunity to review the prior pages to identify again any thoughts and ideas you want to follow up on.