THE CHALLENGE OF PRICING "If you want it fast and cheap, it won't be good." The old curmudgeon at the service station pointed to the sign above him. My car was acting up (that's as technical as I can get when it comes to cars, folks) and I was in a hurry. I read the rest of the sign and grimaced. More on that later…. One of the most critical decisions that any business owner will ever make is pricing their product or service. The right price can lead to high sales and optimum profits. The wrong price can lead to bankruptcy. I'd say that makes it pretty darn important. Since we are turning into such a service economy, we'll examine the pricing dilemma as it affects a small service company. And that dilemma can always be summed up in three little words: Service versus price. Generally speaking, every company selects their marketing path and makes the decision to either sell price or sell service. If you sell price, you hold your prices down as low as possible and market yourself to all the price-sensitive customers out there. If you sell service, you price yourself a bit higher than the norm and tout your super service as being worth the extra dollars. Here's the deal. It's always easier to sell price. Sales resistance is lower and virtually everyone likes to save money. But the hard lesson is that there simply is no free lunch here. The trade-off is that you must have high enough sales volume to generate enough cash for your expenses. Usually "selling price" means you have to accept a lower profit margin per sale, pay your staff less or both. I've tried selling price before and I've found that for every dollar I cut and save in cost of goods, I spend another buck on customer service efforts to keep my accounts. Paying the staff less so I can hold down prices usually results in poor service and unhappy customers. Not exactly a win/win. So, I usually suggest selling service instead of price. That way you can charge a bit more but you have to back it up. With higher prices comes greater accountability. You should pay your staff more and demand a higher level of performance. If you have a service failure, you need to step up and make the customer whole again. The key is: You have to know who you are. Develop an image and stick to it. SmallBiz Rule #25: Develop your image and stick to it, but in a flexible sort of way. OK, now watch closely. This part is a bit remarkable. Before your very eyes, I will now begin to talk out of the other side of my mouth and start spouting contradictory thoughts. Here it is: Even if you are selling service instead of price and even if you have cultivated that image, you can still sell price now and then. What?! But didn't you just say… Yes, yes, I know what I said. But if you sell service you can still be on the lookout for opportunities to lower your price for specific customers. In recognition of high volume or some other trade-off, you may decide to cut your prices for that one account but not for all your customers in general. Maintain your identity but seize the opportunities that present themselves. But Gary, it sounds like you're making this stuff up as you go along. Yup, that's the beauty of small business. In contrast to the big boys, you can be flexible and opportunistic. Now let's go back to my car problems. The service station owner sitting behind his desk was pointing to his sign. The sign said "If you want it fast and cheap, it won't be good. If you want it good and fast, it won't be cheap. If you want it cheap and good, it won't be fast." He smiled at me and said, "Take your pick". My guess is that he did not graduate from Wharton Business School and probably did not have a PhD in economics. But he understood his business AND his customers well enough to sum it all up in a few words. Without saying much he demonstrated his marketing skill and taught me a lesson in the price versus service dilemma. In small business everyone is a teacher!