Looks like we just priced ourselves out of the market...
Are you comfortable that your pricing strategy is aligned with your goals and your values?
Smarta co-founder Richard Myers shares some uncomfortable truths about where his business journey has taken an unexpected turn, how he’s handled it personally, and how the company has adapted to change.
For ten years, Transmit Startups delivered the Start Up Loan scheme.
We provided more than £175 million in funding for over 15,000 UK entrepreneurs who may have been refused by traditional lenders. We started in 2013 as the smallest provider and grew to be the largest within 5 years. How?
We delivered a better customer experience than our competitors
We relentlessly improved our processes to maintain profitability, spending years optimising our delivery of the scheme to achieve consistently high conversation rates at high volume
We built a great team that genuinely cared about our customers.
By 2018, we had around 30% market share, generating 2,000 loan applications per month, disbursing considerably more loans than all of our competitors, and maintaining a 96% customer feedback score for the last 5 years.
COVID created an unexpected increase in demand, so we expanded our team to deliver more loans than ever before. But in 2022, things got tougher.
The post-pandemic economic climate combined with the cost of living crisis began to make lending through the scheme more challenging and placed additional pressures on business advisors to get as many loans approved as possible.
As a Delivery Partner (DP) of the scheme, we faced increasing pressure to operate at lower margins. Demand for Start Up Loans remained strong post-pandemic (2022 onwards) but it was certainly less than in 2020/21 and we still had the same cost base. Something had to change.
Standing our ground
Each year, we submitted our bid to continue delivering the Start Up Loans scheme, feeling confident our contract would be renewed.
We’ve always prioritised the quality of our customer service because we genuinely give a sh*t about people - inside and outside our company. So the price we put in was the price we felt able to deliver at.
We're a commercial organisation and just breaking even wasn’t acceptable, especially if the quality of the customer’s experience, or our staff’s enjoyment of their work, would be compromised.
In for a shock
Our 11th year of delivering Start Up Loans became our last. I’ll never forget the day I found out we hadn’t been awarded a new contract, and that the DPs who had been successful had put in a much lower price.
It’s a hard lesson when you lose a contract you’ve come to rely on as the “bread and butter” of your business.
“Despite the huge sadness we felt at having to drastically scale down our workforce, I’m proud that we made the decision to stand our ground on price. It shows what we believe our people are worth.”
There’s no right or wrong way to price your B2B services
We made the call that we’d rather deliver at our price or not do it at all, because we wanted to maintain our excellent quality and keep some flexibility. We could have easily said we’ll deliver Start Up Loans for 20% less per product and potentially won the contract. But we're not prepared to compromise our values.
If you’re facing pressure to cut your prices, get in touch. We’ll offer an objective, impartial perspective on your pricing model, and support to make the tough decisions about which corners you’re not prepared to cut.
No regrets
We don’t regret pricing ourselves out of that contract. If we’d dropped our price any lower, we would have resented the fact that our team would have been busting their balls, and we’d only just be breaking even.
As my co-founder Ian Straker said:
“We have always prioritised customer experience alongside efficient processes and systems. Making a profit is what enables us to create a positive experience for everyone.”
A big part of what worked well at Transmit for the past decade was the culture: everybody felt their work was valued.
Piling more pressure onto our delivery team, for less financial reward, could have had negative consequences for individuals psychologically and impacted the culture of the whole organisation. That’s not OK.
“The psychological effects of being undervalued cascade up and down a company. If you know you’re delivering the same great service but you're getting paid less, it demoralises everybody.”
Profit isn’t everything, but when you generate profit, you can explore and reinvest in other things.
Our investment in Smarta and Generic AI came largely from our cash flow. If your business is just breaking even and you've got no cash reserves, you can't reinvest in growth and it’s extremely difficult to diversify your products and services.
For advice on how to price your products and services fairly, get in touch.
Don’t sit still
It might feel risky to price your services higher than your competitors (you could potentially lose a major contract - just like we did), but it’s equally risky to just sit at breakeven point.
Don’t get stuck at a price where you’re making little or no profit - you need room to keep exploring.
If your business is only just covering its costs, you're likely to miss opportunities to go in new directions. You need enough profit to give you room to explore other avenues and the headspace to look at how to spread that profit across a few income streams. (I’ll unpack this in my a future blog, so please keep an eye on my LinkedIn page.)
Pricing is paramount
If you're manufacturing physical products, you know what it costs to produce a specific quantity and what you’d need to charge to cover your production costs + overheads.
But it's quite difficult to get pricing right in the service industry because you’re selling your time, knowledge and expertise - the value of which is subjective, depending on who's buying it.
A lot of businesses get caught in a cycle of constantly cutting prices just to win work.
I saw it all the time when I was running a web development company down Silicon Alley, and I’ve seen it many times with business owners I’ve mentored over the years.
When businesses were really hungry for work, they’d put in a price and the client would come back saying, “it’s too expensive”.
So they’d slash their prices, sometimes by as much as half, and there'd be no profit. When you’re stuck in that cycle, there’s no chance of ever growing or expanding your business.
Even if you're a very early founder, don’t be tempted to undervalue your work.
Ready to scale up?
Get advice on how to remain profitable as you grow from Smarta Coaching & Consulting.
Don’t get squeezed
Your business exists to solve a problem for your customer, and you’ll achieve this faster if you’re making a profit.
“If your client doesn’t value what you do, or can’t understand why you're charging what you charge, it's the wrong client for you.”
It can be tempting to say; “OK, I really want to work with you so I’ll going to give you a 50% discount on this piece of work”.
But when it comes to the next piece of work, the expectation is that you'll continue to deliver at the discounted price. That’s b*llocks.
I believe SMEs have to work out what their price is, and then stick to it.
Sometimes, you discount a bit if you’re building a longer-term relationship or buying in higher volume. But don’t forget that your customer is paying for years of experience, your unique skill set and relevant knowledge, and your diligent approach to work.
“If you’re dealing with a customer who wants the cheapest they can get and is pressuring you to discount your rates, there's no long-term value in that relationship. Even if they're a big brand.”
REMEMBER: ‘value for money’ does not equal ‘cheap’!
Value for money means many different things. It is not the same as price. You could be paying top dollar for someone or something, but if you feel like you're getting excellent service then you're still getting great value for money.
It takes a lot of confidence to turn work down, or bid for work at a higher price than your competitors. But both parties need to feel like they're either valued or getting value from the relationship.
That’s where SMEs can benefit from expert guidance on communicating:
Why you charge this price (your competence and credibility)
What the customer will get from you (the impact you’ll make)
How the relationship with be mutually beneficial long term
If you’d like a no-obligation chat with one of the Smarta coaches, please use the link below to book a call.