In a recession, you need to make smart money decisions.
Dropping prices is one of the worst choices you can make.
It’s so, so tempting in this economy to price low in order to get what little work is going around. It’s also the fast track to bankruptcy.
First of all, let me say that I remain convinced that this economy will rebound quickly as soon as we all get over the shock of how fast it imploded. I predict that even if we are not back to the levels we were a year and a half ago, by summer this year we should be back to a place where credit is freed up and money is moving through the economy again. Until then, what do we do?
We don’t drop our prices.
I’ll let you in on a little secret. Here at EstiMate, sales have been slower just as they have throughout the economy. Not hugely slower, but enough that we have been asking ourselves, “how can we bring more value to our customers, and at the same time increase sales?”
It would be tempting to slash our prices and have a quick sale. But we never would … been there, done that, both in the sign business and in the software business. Why not? Well, first, it would be a slap in the face to the thousands of shops that have paid full price. Second, there are more creative solutions. Third, it would destroy profitability.
Remember: A Linear Decrease In Price Causes An Exponential Increase In Time
“Mark, I’ve got plenty of time! I can’t seem to find much work right now, so who cares if my prices are less, I need the work!”
I hear you.
You’re heading for bankruptcy if you think that way, though, and I hope very much that by the end of this article I can help you see things my way.
Let me give you a simple example of what I mean. Let’s say you have a sign project that you would normally bid at $750, and your profit on that job is $200 after everything is taken into consideration - overhead, taxes, materials, and the rest.
Today, you might bid that job for $650 because “you need the work.”
If you really study that, your take on that job was not the $750 — but the $200 profit. Which has now been cut in half.
“Yeah, but Mark, it’s $100!”
I know. But you needed the $200, which you know from looking at your monthly expenses. And now, you’re stuck. Here’s the kicker: it’s not the $100 difference that matters. What matters is the fact that you now have to make two signs for $650 instead of one sign for $750 to break even.
Please, reread that. Take a minute and let it sink in. Actually, I’ll say it again.
What matters is the fact that you now have to make two signs for $650 instead of one sign for $750 to break even.
Assuming that job would take you 6 hours, you now have to invest 12 … not to mention that you have to find the second sign job in a work-scarce economy, and you’ve killed 6 hours of your time that could have been spent finding profitable work.
The Paradox of Time
We all have the same number of hours in the day – you, me, and Tim Ferriss. It’s how we use those hours that counts.
I know you’ve heard that before, but think about it. Would you rather spend that time doing cheapo project after cheapo project, or would you rather do a few choice – and highly profitable – jobs, while using the rest of the time you have to pursue other lucrative projects, take some time for yourself, and maintain your standard of living despite the economic “crisis” we’re in?
The easiest way to make sure you follow these principles and not get caught up in a spiral of fear and doubt is to take a deep breath and control your thoughts.
Economic fear leads to some very bad decisions. Don’t let cutting prices be one of yours.