Too big for old customers?

[Deleted User]

Horrible situation and I don't know what to do?


We run and events management and hire company. I have been talking about it a lot on here recently and some people will already know.


When we started, it was me and my partner, we did everything ourselves. We had a product at £25 and it was great at the time.


Fast forward 12 months, we have staff and now find that £25 product now costs us £60 to provide, because we are paying wages and mileage costs.


Although the actual costs hasn't increased, who and how we pay has changed, meaning we will loose a lot of money by taking bookings like this.


New customers are happy to pay more, lots more in fact which covers our costs and provides profit.


However when our old customers come back from just last year they are amazed how we have changed and what our prices now are.


We aren't making more money, we just have a new way of working, increased costs and lots more to consider.


Do I turn them away? Or do we take a hit on the loss?


I'm being told by so many places to remove loss factors, yet these are the people that made us who we are now?


I feel terrible... and no I'm quite confused what to do...

nearlyrich

You need to make a profit or there is no point in being in business even if it means losing old customers you can't let sentiment dictate your costs...

jjlandlord

Your £25 product seems way too cheap.

If it costs you £60 to provide because of the wages and mileage costs, my guess is that your have always been losing money on it, even if that meant effectively working for free when you did it yourself.

Just adjust your price, you might lose a few customers but that will be the ones who want bargain prices only (ie. the unprofitable ones).

[Deleted User]

Yes you are right. I just find it difficult when they say we are returning loyal customers and now you no longer want us. We do want them, but we cant give them the product for free :-/

paddyrg

Can you make a cheap version as well for legacy customers? Or offer hires? I can see your concern about historical customers as even if one product is at a loss, they may account for other business too.

How about saying you can do it for half price for them on orders of £100+, or similar? Use it as a chance to upsell related products and services and yet still give them preferential 'loyalty' pricing on that item?

Opinion

Keeping costs down is the key to most businesses. Cutting costs will generally be easier than trying to get customers to pay increased prices.

Do you need the extra staff? What has changed enough that you and your partner can't handle it like you could?

jjlandlord

Opinion wrote: »

Cutting costs will generally be easier than trying to get customers to pay increased prices.

The single biggest mistake new businesses make is not charging enough.
OP looks like a textbook example.

Pennywise

Yes, textbook small business growing pains. Standard practice for a new start up with few costs is to go in cheap to get new customers. But it's not realistic. Someone working for themselves from home has very cheap fixed overheads - use the spare room or garage, use their own car. As the business grows, the fixed costs start to creep in, firstly staffing, then premises or vehicles, then insurance, then professional fees, then VAT registration, and so it goes on.

You should only do work on the cheap if there's something in it for you, not out of a sense of loyalty. No harm in giving a discount to old customers, but it should be a token discount, say 10/20% of your current pricing, and you should still make a profit on it.

Your problems stem from being too cheap in the past. Very difficult to convert old cheap customers to the current business model. Some will stay with you, others, the cheapskates, will look elsewhere and maybe find another new start-up with low overheads who are under-charging!

Mistral001

This is a problem often encountered by small businesses and freelancers. You have to start as you want to continue as far as everything goes and especially regarding prices.


Have you thought of a complete rebranding. It might mean even changing of name for the business. Changing a name of the business would be quite simple in fact apart from reordering stationary and packaging and any associated graphic design costs . Even if you have formed a Ltd company you would not need to change that but just put at the bottom of all invoices "XYZ Ltd trading as New Name".

colino

I think you need to step back from this, you are already intellectually aware of it, but recognise why you are in a business.
Do you want to give old customers a free, and very expensive, present every time they buy from you?
Are you there to provide income for your suppliers and staff?
Will you be happy when your cash flow dries up and you don't have a business anymore!
Do not be a busy fool, run an efficient, profitable business. Price hikes are just part of business, sell the service, not apologise for the costs.
(An obvious one for newbies is to value yourself and set a handsome price point. It is easy enough then to sell a discounted (still profitable) price to attract clients, but only for a limited time for them to come on board, and come back. Much more difficult to start low and constantly be in selling mode to justify genuine price increases.)

mimmy1977

We too run an event business,a little different from you though.
We started in 2006 and soon expanded.
With our expansion we upgraded to bigger equipment,which meant more staff.
We explained to customers that had been with us since the beginning that our prices did have to rise,but offered them a discount.In doing this we still made a profit(not as much as new customers)and kept them happy.
It was then up to them if they stayed with us or looked elsewhere.

I am pleased to say we still have those customers and most of our work is repeat clients.I think if you have offered a good service and people know that with you they know they getting a reliable company that they trust they will pay the extra.

However you are a business not a charity,this is your livelihood.
Sentiments don't put dinner on the table.