Know why your customers spend
Have you ever wondered why customers spend money with your business? I don’t mean “why” as in what issue or problem they are trying to solve, but the reasons that customers choose to spend money in your business and not with a competitor.
Your “why” is your value proposition.
It is important as a business owner that you have a good understanding of your value proposition, because once you know and understand it, you can leverage off it.
There are a number of reasons why a customer might choose your business including:
Location
Service experience Quality of product Warranty/guarantees Terms and conditions Price
After-sales service No matter what your business sells, be it products or service, business is about people and relationships.
I can’t stress enough the value of relationships in business. People do business with people they like and trust, even if they aren’t the sharpest
price in town.
The deeper the relationship with your customer, the better; how can you really help a customer if you don’t know what they’re about?
With inflation tracking at historically high levels, prices are increasing across the board.
Coupled with increased interest rates, the cost-of-living crisis has some bite to it. Facing increased costs themselves, business owners have no choice but to increase their prices too.
But by how much and how often?
If your profit increases by CPI (at the time of writing 4.7 per cent), in real terms, you’ve stood still. The purchasing power of your profit is no different to a year ago.
Understanding the components and drivers of how your profit is derived is important.
A key component of this is revenue and intertwined with this is pricing. I have lost count of the number of times clients have sought advice around pricing.
Kiwis have a tendency to undervalue themselves. Remember, it is the customer who determines value, not the business.
It is for you, the business, to articulate this value to your customer.
As long as the value the customer perceives is more than the price they pay, they will keep coming back.
More often than not, clients have reported nothing significant happening after increasing their prices. My advice is to listen to the market. For example, if you put your prices up 10 per cent, you can afford to lose a few customers, continue serving the ones you keep and still be in a far better position.
The bottom line is to be courageous and value yourself, know your customers’ “why”, get clear on your value proposition and don’t hesitate to remind your customers of it.
For advice regarding your business and value proposition contact the accounting and business advisory team at findex.co.nz.