Posted by Patrick O'Shei on Fri, Aug 13, 2010
Austere times suppress spending even in the face of no change in inherent demand for a good or service. How do your sales change as you raise or lower pricing?
How cyclical is your business? What discounts or premiums are built into the pattern of your cycle?
A cohesive pricing strategy with fine tuned price adjustments can help your business nuture demand into sales with retention of as much revenue as possible. All too often price adjustments are made on an across the board basis. Flatline pricing adjustments both produce the least optimal financial result for a given level of change and indicate a deficiency of either understanding the market or the capacity to execute skillfully.
The plot below gives a visual image to the dynamics of demanded capacity (1.0 equals sold out) at various pricing levels (1.0 is the average price of the standard product) across a multi-tiered product line (Economy through Deluxe).
The darkest green is the highest demand. The mountain ridge going from bottom-left to upper-right reflects the nature of lower prices for economy products and premiums for deluxe products.
A key learning from this study was that the standard plus product (ST3) was over-priced. Priced correctly it should equal or exceed the demand for the standard product.
An additional learning was the inferiority of the economy product, as no level of discounting seem to generate demands equivalent to the standard product. here the solution would be either improvement to the product or shedding of capacity depending upon which made more sense.
To read the full story of this specific applied pricing strategy and its ability to support a purposeful and succesful effort to raise revenues just click on the link for On The Case.
For more information on Metamorphosis Consultant and author Patrick O'Shei, click here.
Posted by Evan Smith on Sun, Dec 06, 2009
The economy is apparently emerging from recession-good news for all, hopefully to include those who need jobs. However, there's one group of people for whom the hard work, introspection and self-examination about their future cannot and should not be over: private business owners, especially those running small businesses.
Most small business owners are running hard to meet day-to-day obligations, serve customers, make payroll, hire the next employee, file the taxes. The economic downturn for many has taken substantial income out of their pockets.
For too many owners, the urgent reality of "today's market" overshadows the far more dramatically important: the looming and critical decisions about how they plan for their exit from their business-and how they package the business to enable this exit, at the time of their choosing, with the economic nest-egg they need.
I recently spoke with a group of about 20 private business owners, running retail service businesses, for whom this issue was front-and-center. They are "subject matter experts", technically adept in their fields, most in business for more than a decade, some for several. Many of their businesses gross $1-5MM annually. Like many, they're working hard to make ends meet these days.
Over the last 10 years, a fragmented set of studies paints a potentially worrying picture for business owners like these. While the data are a little sketchy, enough "data points" exist for the direction to be clear (these data sourced from entrepreneur.com; for more information, you might want to review these sources provided by some small-business experts: http://bit.ly/SmallBusStats ):
- 45%: proportion of small-medium sized business people who say their biggest regret was starting to save too late for retirement. Harris Interactive, September 2006
- 30%: proportion of self-employed business owners who say they have no retirement savings. National Association of Self-Employed, January 2006
- 30%+: percentage of private business owners who've done NO exit planning.
- In a related topic, Inc. Magazine cites a 2005 PricewaterhouseCoopers study of 364 CEOs of privately-held companies:
- 65% of the respondents said they planned to leave their company within 10 years.
- 51% thought they would leave via a sale to another company.
- 43% of the respondents said they had done little or no succession planning.
- #1 reason why private businesses don't sell: lack of planning by the seller. PriceWaterhouseCoopers study
These statistics worrying enough-but here's a final one to sharpen the point-this one courtesy of Rick Taft:
- 25%: estimated proportion of small businesses for sale, that actually sell.
Most private business owners, especially in smaller companies, are "fully invested" in their businesses-and yes, that means that "in the business" is likely where they've put "investment" that might have funded retirement. Most must be banking on "good luck" at that moment of successful sale-but apparently many haven't begun to imagine what's required in order to get there, quite yet.
As a small-business owner-how are you thinking about your exit? How are you positioned to manage your transition?
We've assembled a high-level questionnaire to touch on the key areas related to preparation and "packaging" of a private business for sale (here). These questions don't assume that every owner wants to sell-but do assume that every owner seeks as much value as possible from what he/ she has created.
We welcome your feedback, comments, thoughts-and want to hear your experiences.