|June 13, 2011
from the desk of Chuck Violand...
Good Monday morning, <<First Name>>—
The longer I’m in business the more I marvel at all the free stuff being offered by some companies. It’s easy to get lulled into thinking some of these free offers actually ARE free!
The true cost of free offers goes much deeper than just the direct costs associated with them. Today I start a series to help illustrate just how deeply ingrained, and nearly invisible, some of these costs can become.
SOMEBODY ALWAYS PAYS, PART I
by Chuck Violand...
There’s a story told about a government official who wanted to get to the heart of the meaning of capitalism. So, as politicians naturally do, he formed an exploratory committee to investigate and come up with an explanation.
A couple weeks passed and the committee returned to him a 20 page report. The official told the committee the explanation was much too long and difficult for him to understand and requested it be shortened.
The committee reconvened. Another two weeks passed before they reported back with a much shorter version of the original. This time the report was only two pages. Once again the official told them it was still a bit too long and confusing, so back to the drawing board they went.
Finally, after an extended period of time, the committee returned to the official with an explanation they thought he would be able to understand; they boiled the meaning of capitalism down to just one sentence: “There’s no such thing as a free lunch”.
I’ve always enjoyed this story. Some of you may recognize it as an illustration of Violand’s Second Law of Business: “Somebody always pays”. It highlights the concept that when you own a business, the meter is always running and somebody has to pay the fare. Either the customer pays by agreeing to compensate you for the goods or services purchased or the business owner pays by taking the money out of the company’s profit margin or out of his own pocket (frequently one and the same). When you understand this concept you understand how vital it is to know what your costs are and what you must charge to make a profit. You also understand there is no such thing as a “free offer”. Either the customer or the business is actually paying for the freebee. But who among us, this author included, hasn’t fallen into the “free” mindset with our business from time to time?
How many times do we offer our customers something for “free” and actually delude ourselves into forgetting the associated costs? It’s almost as if we convince ourselves there’s some kind of business sugar daddy picking up the tab.
An even more alarming aspect of “free offers” doesn’t have to do with the hidden costs, but with the “free creep” that often accompanies them. I’m sure you know what I’m referring to. Free offers usually start out innocently enough—small and seemingly harmless. But, as with many other things in life, we seem to gradually build immunity to their affects. The original free offer no longer captures our customers’ attention. Before long we have to up the ante, increasing our free offers just to stay in the game. What may have started out innocently can grow so large it becomes downright vulgar and impossible to sustain. Worse yet, free offers can undermine the reasons our customers actually buy from us: value, service, etc. or they redefine the relationship itself, giving it a name few of us are comfortable using.
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