Business Development Rants and Resources

Unlimited Messaging and Other Wrong Pricing Models

As entrepreneurs, it pays to establish sustainable pricing models. Give away the store in the heat of competition and you might find it boarded up in two years, with all of your potential gone. Yes, it’s tempting to try to “hook” people, feeling that you can make adjustments down the road, but that rarely works, for a couple of reasons. First, it’s really difficult to go back to your original customers, who believed in you and helped MAKE your company, and stick them with a new structure. Second (wouldn’t you know it?),  more often than not, downward price pressure in popular markets will not allow you to bump anything up significantly.

In our AMG Alerts notification system sales efforts, we have encountered many customers who want a one-price “unlimited messaging” plan. And some of the companies in our business actually try to accommodate this. But how can they, when the cost of telephony and SMS and even email messaging is variable?

It’s easy. If you are in the employee notification system or emergency alert system business, you have a clear choice to make. If somebody is to lose, it can’t be you. So it would need to be the customer. Charge enough so that in any realistic scenario, you’re covered. If the customer might realistically send 50,000 messages per year, make sure they pay for 500,000 just in case.

And of course, the customer is hoping that you will charge them enough to cover 50,000 messages per year, and if they happen to use 500,000, they won’t have to pay extra. The “vendor” will just take the loss. I literally had one of the nation’s largest propane gas suppliers approach us to do customer messaging. It would start at perhaps 10,000 messages in various modes per month. But after a certain number – for which they were willing to pay – they wanted the messaging to be free, even if they sent 10 million per month. Yes, FREE. They eventually did not sign up with us, saying “we don’t like your pricing model.” But alas, the world has tied our hands until many magical things happen. For now, it would be like their buying gas for their trucks from petroleum company XYZ and asking that after the first 100,000 gallons, the gas should be free.

It’s an open economy and everyone is free to do their dance and roll the dice. But we make the point to our sales prospects that our going out of business is not an option. As a supplier of their alert system, they don’t want us to. And even they are willing to take the risk with us, thinking that they will just find another supplier, we owe it to our OTHER customers to stay in business.

So what do we do? We just won’t do “unlimited” pricing. Since we know we would need to offer a price where we would be the guaranteed winners, the customer would usually need to pay anywhere from 5 to 100x more. That just doesn’t make much sense as a LONG RUN pricing strategy.

At the end of the day, it is best to educate your customers on the economics of the business and be fair and establish pricing and policies that reflect the cost of the service. Honesty will cost you business every once in a while, but you will win with increased loyalty on the part of your customers. This is especially true if you are providing a critical service. They may be trained in their consumer lives to look for what appears to be a “deal”, but in a partnership scenario, it gets a little more complicated.

June 17, 2012 Posted by | Business Building | , , , | 1 Comment