Do you run a service firm? Create your initial offering priced with the highest margins.
We’ve seen company after company under account for the total effort cost of onboarding new customers. Their ventures waste too much revenue on client acquisition costs.
Generally, acting on something for the first time requires reducing your initial goal sufficiently. Oftentimes, that’s the key to creating a good initial offering. But low risk doesn’t mean low margin!
New buyers often want to experience what you offer before committing to their top spend. Then, from there on the pricing precedent you establish tends to become the expectation. If you offer a discount, you could unintentionally imply that your customers are suckers if they fail to negotiate that same discount the next time they buy from you.
You’ll also find that the price of your initial offering is an important gatekeeper to your customer selection criterion — meaning that it’s a structured way to ensure your buyers are willing to spend their time and money on the rest of what you have to offer.
What are gatekeepers?
As anyone who engages in recreational overlanding — multiday 4×4 driving and camping adventures on unpaved roads and trails — will tell you, there are obstacles at the start of a trail known as gatekeepers. The gatekeeper is a difficult situation you have to drive across at the very beginning. These gatekeepers could easily be eliminated during regular trail maintenance, but that’s not the point. They’re there as a deliberate hurdle to turn back drivers who don’t have the vehicle or the skills for what will come further down the road when it is far more costly to try and turn back around.
Similarly, going forward with the wrong buyers can be worse for your bottom line than not attaining the revenue at the outset.
Keep these considerations in mind when making any initial offering:
- Focus on loss avoidance, not prevention
Snatching victory out of the jaws of defeat will always be valued more than avoiding getting close to failure in the first place. Your potential value capture is increased any time your buyer’s intended progress is stopped and at risk of being lost. Prevention of that same obstacle is generally valued at a level of magnitude less than resolving it once it’s faced. While one may be willing to pay $10 million to resolve a current obstacle in the way of making $100 million, they’re likely only willing to spend $1 million to prevent that obstacle from ever arising again. And this is assuming the challenge is well known and appreciated with limited options to overcome.
- Build in the right-sized gatekeeper
Often, service firms will find that the best time to sell proactive prevention is only after solving a failure or near-failure. While one can rightfully scoff at this strategy — objectively, the buyer would be better off with prevention in advance — most prospects won’t value the prevention offering enough to buy it proactively. The exception to this is if it’s required for achieving something else they want. For example, they may buy a cyber security audit to get the insurance required to be a qualified vendor and sell to a large customer. Nevertheless, once you’ve discovered your strongest way to get customers to say “yes” to an offering, there’s a useful element in building the right-sized gatekeeper into your initial offering. This can ensure that those who go past that point truly embody the values required to be mutually beneficial long-term customers.
- Provide transparency around the full complement of your offerings
It’s also important to be transparent with your intended next sell as part of the customer journey. Then, if people find what you offer valuable, they’ll buy from you again. When you openly present, “This is the type of relationship we would like to have with you,” and it resonates, you’ll see people drawn to it. If it doesn’t, take that as loud feedback for honing your offering. When the context and intent are clear, leaving the power in the customer’s hands as to whether they value it every step of the way, your sales team’s effort in progressing the customer through each step can be greatly reduced. As you highlight and extend out into the future what your customer ultimately hopes to achieve, the value you offer will often increase, but the total amount they’ll pay you for helping them achieve it will be discounted. If you bring the timeframe too far forward, it may shrink the true value you offer but increase the likelihood of converting them.
Essentially, there’s a Goldilocks zone for every offering, and it’s critical to discover yours, especially for your first sale to a new client.
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