Business

Via this last week’s CotC comes an excellent pricing post at The Laundry Capitalist. While it makes specific reference to the laundry and fast food industries, the lessons are more widely applicable, and relate to my need to decide on prices. Which are always about more than naked prices, as pricing is part of overall marketing and business strategy.

With the business as beta approach, there’s room to experiment and vary prices, at least on paper. In reality, a customer you attract at one rate may be too price-sensitive to remain at a higher rate. Thus care is needed with what might appear to be the obvious strategy of low prices to break into the market. My father advised me to take that approach, and I have used it in the past, for my first business, mowing lawns in a mobile home park. I got trapped into never being able to charge more than the original $5 each. One customer volunteered $7, so I did extra for them in response. When they found out my official rate was $5, all the extra didn’t matter. Meanwhile, the people who did lawns for $8 had plenty of work and made more. And could afford better equipment. As a side note, inflation from when I started that makes it $20 today, and I can guarantee nobody is paying that. I’d be surprised if it’s much more than $10. Each yard took between 20 minutes and an hour (because they were so uniform).

It also makes a difference what you’re selling and where, as you run into demographics, perceptions, and competition. One company that overlaps significantly the services I plan to provide has explicitly targeted wealthier communities in the state. That has to make it easier to charge a membership fee and $120 an hour in quarter hour increments.

In my old business, the official rate was $80 from 1996 onward. An inflation calculator says that ought to be more like $102 these days. As recently as a couple years ago, I got grief over that $80 rate from someone who called me because the $99 another company had quoted was too high. Around the same time, I had computed that the rate needed to be $95 to be adequate. However, what you need isn’t a good basis for pricing. In either direction! If I needed $95 for it to be adequate, but could stay busy while charging $125, I’d be silly not to enhance my revenue to what the market would bear.

Anything that is charged by the hour seems especially tough. It’s hard for me to get my mind around rates of $80 and up, which is where IT services live. I think there are two factors at work there.

One is that I’d hesitate to pay that kind of money myself. I mean, since I can do it myself, I undervalue the activity in my mind. On some level I can see paying a lot for someone to rescue you from a particularly severe and puzzling problem. Another angle is the cost of service versus the cost of hardware (much like the cost of software versus hardware). Yet it’s not about those numbers relative to each other. It’s about data and configuration accumulated on a computer. It’s about productivity; keeping the machine in use and at speed. It still feels boggling to me, but that’s personal psychology.

Another is wrapping my mind around the price relative to other things and relative to historic prices. I came of age at a time when an annual income of $20,000 was excellent. Not wealthy, but you were doing okay. I remember how shocking it was when candy bars went up to 25 cents, though really the rise from 5 cents to there in my early life was fairly rapid. I adjusted to 25 cent candy bars, but anything more than that still feels excessive to me. At the same time, I have a surprisingly hard time thinking of $20,000 as impoverished. Inflation says it’s the same as $64,250 these days, and I know it takes that kind of money just to manage around here, yet $20,000 is there in the back of my mind as real money. Even a decent downpayment on a house. Certainly not the price of a car!

I hate when I stop writing a post for a while, or overnight, then forget where I was going with it. Not to mention feeling that I’ve gotten off track even before the pause.

As someone pointed out to me recently, the real trick is to break the grind of hourly rates. Absolutely! Everyone can see $200 an hour and think it’s absurd you make that much. If you make and sell 100 widgets and it works out that you earned $200 an hour, nobody cares, because each widget is worth what you got. If you make a million dollars to produce a film, nobody stops and computes that it means you earned $1000 an hour for your efforts. It’s one of the reasons that I was mainly interested in creating “off the shelf” software when we started the old business.

So perhaps the support outfits that charge by the task have the right idea. Need an eighty dollar hard drive installed? That’s $400, thank you and ka-ching! Whaddaya mean that only took an hour? We don’t charge by the hour, bucko. Besides, it could have taken longer, so it all evens out. Lucky you.

The answer, for me specifically, is probably between the two.

Someone suggested an introductory/signup special of checking and cleaning up machines for, say, $50. That turns out to be a common practice. Well, at least one of the local computer shops advertises that for a similar price. Since that would be on-site, it ties into the location post.

Such a checkup would start at about half an hour. If it included a blanket cleanup of any malware found, it could run as long as several hours. Plus as much as a half hour or more each way of driving. Because of the ambiguity, scheduling back to back cleanups would be harder. A disclaimer or ceiling, perhaps? It is likely that some places that offer a checkup merely check and find you need. Cleaning it up costs real money. Given the possible downside, that does make sense. A low flat fee for the whole thing could be worse than $5 undercutting of lawns.

Another reason the location post comes into this is the relative value of a given amount of driving for a given amount of money. If a typical housecall is two billable hours, it’s more compelling to drive a given time for that at, say, $120 and hour than at, say, $80 an hour. Which, incidentally, is my floor. There is no way I will set an hourly rate below the one that was reasonable ten years ago. I’m thinking in the $90 to $100 range, to the extent that there are hourly rather than fixed rates. For housecalls, anyway; it might be worth my while to do remote support for less.

There’s also the matter of volume. If someone is paying $80 an hour for help with a large upgrade project at a business on a Saturday, it’s worth extra driving for 8 – 10 hours of solid work in one place.

I have reservations about the whole housecalls model at all, but I neither can nor want to open a computer store, and at least initially won’t have a place for people to drop computers off for service. It’s worth trying out. It may only be worth doing at particularly premium rates, though.

Since I started the post and got it to the above paragraph days ago, I have actually had the same experience cited by the Laundry Capitalist in the link in the first paragraph. We had not yet tried any of the local sub shops, and I remembered there was a D’Angelo’s nearby; a known quantity. The online menu listed no prices, which I know is because some shops are franchised, and prices may vary. I ordered two of the famous “Number 9” subs, which are what might be called a steak bomb or steak combo elsewhere; steak, cheese, onion, pepper, mushroom. Confusingly, D’Angelo now has something they call a “steak bomb” that contains extraneous meat. The small turned out to be $4.99, which is even more shocking than the $8.99 for the large. In both cases, the subs seemed to be smaller than the same size was in the past when I was a more frequent customer of the chain. For slightly more than the combined price, I could have bought enough Chinese food for two meals for the four of us (my large was to share with the kids).

That answered the question of why the store never seems to be that busy.

They also inexplicably had no takeout menus available to grab so I would have one for future reference.

The counterpoint to the bleeding edge pricing I encountered is that the wife’s first encounter with a Number 9 was not disappointing. They were indeed as outstanding as ever, to the point where it at least bordered on worth the price. Presumably it’s worth extra for the best steak & cheese sub ever.

Which is another point about pricing. If you charge $80 an hour, spend three hours, can’t solve the problem and then are found to have not done customary and obvious things implicit in the work described, how is that better than charging $100 an hour and doing a thorough job solving the problem in two hours. Or even the same three hours, so it nets out to greater cost but you don’t have to go hire someone else or live with it. Pricing is a multidimensional aspect of marketing and the broader customer experience. It may be tougher to attract customers initially at the higher price for quality work, but you’re not the only one for whom that is better.

All of which doesn’t really lead to specific conclusions, apart from leaning higher than lower, the premise with which I started the post. Pondering while this lay fallow, I’ve concluded I probably won’t post rates on the web site, much as I think it’s great when companies do that. If only because it makes experimenting or charging situational rates easier. I already knew I’d go lighter on certain people I already know; ones I anticipate sending me referrals. By the same token, I’ll go out of area more readily for those people. All of which makes me wonder if I should try a referral fee, kickback, or discount. If word of mouth is going to be vital, encouraging it seems to make sense. Using discounts as the referral currency could be ideal, benefitting everyone without cash outlays for me. But I am digressing here.

What do you think? What’s it worth for someone to go to your house and service your computer if it’s seriously balky or down? What’s it worth to be able to call or e-mail questions to help you work on it yourself? Or the same, for to help you use or solve problems with your software? Would you buy prepaid support at a discount? Would you buy prepaid support as a gift for a less tech savvy relative? Do you think it’s better to have fixed prices for common items? This blog is, in part, about working out some of the details of the business in pretty raw form, so feedback is great.

The Integrative Stream presents the April 30 Carnival of the Capitalists.

Next week’s host will be Race in the Workplace.

One of the services I have in mind is to make housecalls for computer problems and support. I learned that it’s bad to go out of your geographic comfort zone to go on-site, unless it’s well worthwhile. While living in Quincy and working in Easton, I did work for a client in Fall River, all of which I have labeled on one of the maps below to give a visual of what that means. While living in Stoughton and working in Easton, I did work for a client in Quincy, which had pretty much ended by the time I moved to Middleboro. The earliest work I did for the Quincy client involved driving to a temporary office in Framingham.

I’ve been agonizing, probably too much, as it will change, and it will be dependent on how much work I get, who I get for help, and where they are located, over what my coverage area should be. Originally I thought I would have help in West Bridgewater and Hanson. I figured a large radius from my location, and a smaller one from those. West Bridgewater will be available on the side, off-hours, if needed. Hanson will only be available for now if I need an extra body with me and provide transport. I also have possible on the side help in Abington, which is not labeled but is the town immediately north of Whitman.

If I tighten it too much, it limits the target market and potential work. If I go too far out, it gives too much potential for worthless work. Suppose the minimum fee is an hour. If I drive half an hour each way and spend 20 minutes on a problem, I’ve generated an hour of revenue for 80 minutes. I could be happier, but hey. The customer has paid an hour for, from their perspective, 20 minutes. How can they possibly be thrilled about that? Worse for me, if I spend an hour, it’s two for one. It gets better after that, so a lot depends on what the average visit runs, and whether people will actually pay that.

It’s a conundrum. Obviously I can hold myself willing to travel anywhere… for a price merely to show up. Or for jobs inherently large enough to justify the travel.

I have to start somewhere. My theory of business as a constant beta applies here, in that if the coverage area isn’t working, it can change later. So what did I come up with? Here’s the map. The green towns are considered core territory; especially close. Yellow is the next tier. Blue is the final tier. Plymouth barely made it. Brockton barely missed. Click the map to open a larger version you can see better, in which the names are visible.

What I ended up doing was using Google Earth to determine the distance in minutes and miles to the town center of each prospective town. The results were sometimes surprising. I then applied dollar figured per mile and per minute, ordering them by the result. Every town that fell within a half hour of dollar value at the rate I used was included, and the others were not. The downfall is that the town center and the far points in the town can be worlds apart. Thus my concern about including Plymouth. At the same time, you can see how the locations of highways influenced the shape of the map. Highways are why Mansfield is there, but Hanson, two towns away, to my surprise is not. Below is a map that compares what’s above with what I expected or perhaps wanted to include, and what I expected or wanted to exclude. Again with the click for larger, though the need is less because this one lacks names.

The towns in gray; Brockton, Whitman, Hanson, and Pembroke, are towns I had thought I would include. Pembroke is the one I was shakiest about.

The towns that are a grayed shade of their original blue or yellow are ones I thought might be excluded; Freetown, Norton, Mansfield, Kingston, Plymouth and Wareham. Wareham might seem a little odd, but Middleboro is huge and I am in the tope third of the town. Wareham is only an adjoining town because it briefly touches Middleboro at its most northern and western point. Yet Google Earth liked it better than Rochester.

I think I’m going to run with this coverage area, shown on the map and listed below in order of score:

Middleboro
Lakeville
Raynham
Bridgewater
Taunton
Plympton
Carver
Wareham
West Bridgewater
Halifax
Berkley
Norton
Freetown
East Bridgewater
Mansfield
Rochester
Kingston
Easton
Plymouth

I’ll make exceptions for certain people (employees of current and past clients who will be a big focus of my word of mouth campaign) or larger jobs, but otherwise I think I’m going to have to concentrate on whatever I can get that doesn’t depend on being there. Which is a whole other story; figuring out what will sell for long distance help and marketing it.

Welcome to this week’s Carnival of the Capitalists. It’s supposed to be about excellent quality, highly relevant posts. If I really kept only the very best, there would be under ten entries included. Perhaps Steven Silvers was onto something last week. Oh well; I’m a softy I guess.

Here’s one at Dispatches From Blogblivion musing about the sometimes conflicting pricing pressures of inflation, costs, competition and market expectations.

Gameproducer.net wonders should you burn the ships? That is, leave yourself no escape so you’ll try harder.

Green Rising thinks Coca-Cola’s new direction in charitable activity – which is really marketing activity in a somewhat communistic sounding form – marks a big improvement for Coke and the targets.

Sophispundit talks about diminishing returns and economic pressure.

Apparently League Tables are a big yet problematic thing in investment banking, as The Epicurean Dealmaker attempts to explain.

Ideas in Progress on illegal aliens, robot mowers, automation and productivity.

Anti-corporate forces using amateur video? Steven Silvers notes the latest platforms make it easy and inevitable.

The BFU Journal compares the startup approaches of entrepreneurs and MBAs.

Econbrowser examines a study of the macroeconomic effects of tax changes.

Wally Bock makes the case for firing, despite the lawsuit-happy climate.

Find the hidden talent you already have in your organization. Blog Business World says it’s well worth it.

Perhaps you should Break the Shackles and profit from China’s massive railroad expansion.

This one borders on Personal Financial Advice, which is off-topic, but starting a business with pocket change is an interesting concept.

Businesspundit has tongue in cheek advice for how to sound smarter than you are. He asks:

Do we care less about what people do and more about what people say? We want to reward people for performance, but do we sometimes build corporate cultures that encourage BS more than anything else?

Speaking of productivity and specialization, along the lines of another post above (and the one following this), Political Calculations talks about the division and diversification of labour, comparing it in part to portfolio diversification.

Greg Swann of BloodhoundBlog would have arguably my favorite submission of the week even without having mentioned the James P. Hogan classic Voyage From Yesteryear. He takes on the topic of Zillow.com, the age of abundance, and anti-consumer conspiracy by anti-capitalist “business” people.

Finally, Small Business Buzz compares men and women as entrepreneurs. I was thinking of ordering business cards from GreatFX, sponsor of Small Business Buzz, which is an excellent example of blogging as a promotional tie-in to a business, since I know them through CotC. It looks like I can’t readily get what I want, ironic because it’s simple, without going local. Perhaps next time…

That’s it for this week’s edition. Next week’s host will be The Integrative Stream.

The latest Carnival of the Capitalists, the October 30 edition, is up for your eclectic business reading enjoyment.

If business blogging interests you, check out Carnival of the Capitalists each week, including the latest; the October 23rd edition hosted by Blawg Review.

You might also enjoy CommerceBucket, along the same lines, but operating on an ongoing basis and inviting anyone’s participation.

Do you think that using the word “geek” or “geeks” as part of a business name is overdone? Does it have negative connotations due to bad experiences with established companies that are Geek something or something Geeks or whatever? If so, is that so severe that a newcomer couldn’t overcome it and create their own connotation in a target audience?

The April 11 edition of Carnival of the Capitalists is up at TJ’s Weblog, featuring a specially selected set of twenty links.

Here are the entries that were not included:

DAtum
WOLves
Fresh Politics
Blog Business World
The Unrepentant Individual
Political Calculations
Random Thoughts From A CTO
Steve Pavlina’s Blog
Spooky Action
Conservative Cat
BPWrap – A Different Point Of View
The Other Bloke’s Blog
voluntaryXchange
The BUFFALOg
Roth & Company Tax Update
Pro Wrestling Impact
The Skeptical Optimist
Crossroads Dispatches
Management Craft
Interested Participant
Catallarchy
Hamstermotor
Mover Mike
Mad Anthony
Goobage

Next week’s CotC will be hosted by Brian Gongol. For other future hosts and info, check out the Carnival of the Capitalists page.