Hitting the Recession "Value Wall"

August 20, 2009
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Put your financials under the microscope

“Always run your business based on the emotions of your customer, but never make business decisions emotionally!” - Steve Toburen

It is no secret that it is a brutal economic climate out there. And while the carpet cleaning industry is reasonably recession-resistant, even long-time successful carpet cleaners are getting slammed. But why?

For most homeowners, carpet cleaning is an emotional buying decision paid for with discretionary income. Less income, you say? Then the carpet cleaning gets “postponed,” many times indefinitely.

And honestly, can you really blame your customers for putting the carpet cleaning way down their financial priority list? Even the tidiest homeowner will suck it up and sacrifice her next carpet cleaning if it will keep the electricity on or food on her family’s table.

This financial prioritizing is simple, logical Economics 101. However, the current economic scene is anything but logical.

Without question, selected industries and certain areas of the country have been devastated by the current recession. But my guess is the vast majority of your customers are making the same salary (or more) than they were two years ago, and have the potential to enjoy the same exact lifestyle they did back then.

Yet many of these same people are cutting back on their home maintenance costs. Even worse, customers who have unquestioningly paid your premium prices for years are now asking for a ‘discount” or are price-shopping you! Why?

Once again, carpet cleaning is an emotional buying decision and, interestingly, for many this current downturn is an “emotional recession.” People feel like they are poorer than they were two years ago, even when their pay stubs have stayed the same or even increased!

Now, it is true their euphoric feelings of 2007 may have been unrealistic. However, the current gloom and doom among most of your customers is equally unfounded.

When people “feel poor,” like a hurt animal they retreat to their den and lick their wounds by stopping their spending. Therefore, sellers of high-ticket, discretionary items (furniture, boats, RVs, snowmobiles and even autos) have been ravaged by this downturn.

And yes, my guess is your business has also been hit by some of the financial shrapnel out there. So what can you do?

Open up a “sympathetic dialogue” with your price-conscious client

Don't Panic

You probably have invested years of hard work building a profitable network of high-end and free-spending homeowners whom have been delighted to pay well for quality work performed by trustworthy individuals.

Now all of a sudden this wonderful free-flowing financial spigot has dried up or at least been greatly restricted. Your panicked emotions are screaming to cut your prices to woo these folks back into your fold and keep your cash flow (if not your profits) coming in.

However, drastically lowering your prices may be the biggest mistake you have ever made. Here’s why:
  1. Remember, that carpet cleaning is largely an emotional (not a financial) decision that will not be motivated by low prices. In other words, just cutting your prices may not bring your clientele back but it almost certainly will lose the respect they have for you!
  2. Eliminating your profit on most or all of your work to nothing guarantees eventual bankruptcy!
  3. Once you do open up the Pandora’s Box of low prices, it will be very hard to raise your current high-end customers back up to where you currently have them. In fact, many will be turned off by a low-price operator and, with better economic times, eventually move on to a high-end carpet cleaner – sort of like you used to be before you chopped your prices!
So what to do? What to do?

Obsessing over the “small stuff” can go directly to your bottom line

Put Your Financials Under the Microscope

Before you “go off” on your customers, look inward at how you can reduce your overhead. (This is especially important with pricing commercial contracts.) After all, bloat creeps into even the best-run company.

Do what you should have been doing all along: start carefully examining each and every business expense. Is every single invoice on your Income Statement absolutely vital to your company’s functioning? What ROI is it giving you? (Especially ask this of your marketing costs.)

Obsess over even the “small stuff.” Remember, to generate the profit to pay for an unnecessary $10 expense may require you doing a $100 job! In other words, cut – if you cut a $10 expense, that money goes straight to the bottom line!

This “financial forensics” is a boring task requiring difficult and sometimes painful choices. (I always hated it!) But poring over your expenses may be some of the most profitable work you have ever done.

Three “financial microscope” reminders:
  1. Once again, “never make business decisions emotionally.” Don’t get so excited chopping out the fat that you cut into the muscle of your business. Yes, let this current business slow-down motivate you to get rid of the marginal performers and unneeded expenses in your company. But don’t cripple your current operations (or your eventual recovery) by demoralizing superb employees that may get discouraged and look elsewhere for a career. This type of financial surgery requires good judgment and a sharp knife, along with keen sensitivity to the emotions of your employees! (As my mentor in this industry told me forty years ago, “Steve, all I sell is people, so my job is to take care of them!”)
  2. Don’t forget that in addition to cutting your overhead, you should also look at ways to become more efficient. Doing more work with the same people/costs will have the same effect as laying off employees and with considerably less emotional “blood on the tracks” within your company.
  3. After having gone through this agonizing financial pruning process make a firm vow to never have to repeat it, even when the “good times” come back. Keep your company from bloating back up by developing good financial habits now. Instead of blowing off expense items with the rationale that “Oh well, it’s tax deductible,” start focusing like a hawk on your overhead every month. Words like “frugal” and “value” have become quite fashionable and with good reason.

Don't Take it Personally

This is, of course, much easier to write than to do. Customers who in the past have practically viewed you as a member of their family are now boldly and shamelessly mentioning “You know, Steve, I can get my carpets cleaned cheaper elsewhere.”

But before you emotionally suggest they do just that let’s look at the current situation through their eyes. For many months now the American public has been subjected to a steady stream of economic doom and gloom. On top of this your clients have been fed endless stories on how the new chic is to ask for discounts everywhere.

Even Paris Hilton is stating that conspicuous consumption is out and frugal is in!

So when a previously loyal client starts negotiating with you, they have not logically decided you are worth 20 percent less as a person to them than you were a year ago! Instead, your customer is just responding to the negative media blitz and the social, emotional and financial pressures of the last couple years.

Above all else you need to be on an even emotional keel before you respond to a customer trying to “low-ball” you. Remember that if you emotionally turn this negotiation into an emotional “win-lose” confrontation it will help no one. Instead, please focus on an essential “tough economy” phrase…

Your attention to detail and quality of work might be your best leverage

Commiserate, Negotiate, But Never Capitulate

Instead of getting defensive (re-read entire point above!), reach out to your customer with an “I feel your pain” statement.

This paragraph is based on a tried and true three-step sales technique called “feel-felt-found.” For example, after a client says, “I just can’t afford your prices anymore, Steve, when I can get the whole house cleaned for $129.95,” you say:
  1. “I don’t blame you if you feel like you need to get maximum bang for the buck out of every dollar. These are challenging times for all of us.” (Said with a wry smile.)
  2. “In fact, Mrs. Jones, many of my clients that I’ve had for years have felt the same way lately. So you’re not alone.” (This statement takes the guilt off of your customer by showing them that this is a very common feeling and also lets them know you’ve been though this process before.)
  3. “However, when I sat down with my clients and we worked together adjusting my services to fit what they truly needed to get the job done they found that I provided better value than the fly-by-nighters out there. For example, let me ask you …” (With this statement you are moving out of the commiseration phase and into the negotiation part of the process.)
The mechanics of how you reduce the amount of work to bring the price to an “emotionally affordable” amount to the customer while it still stays profitable is up to you. The important thing is you have now opened up a “sympathetic dialogue” with your client instead of reacting emotionally and burning your bridges for future work.

By the reasoned actions of cutting your business bloat and calmly negotiating with your clients, you will vault the “value wall” and position your company for incredible growth in the future.

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