Cash Flow: Revenue (Actual, Part 4)-Differentiate Services
July 30, 2009, 7:07 pm
Copyright © 2009 Integrated Profitability TM
This is the fourth article on increasing actual revenue to improve your company’s Cash Flow. The last article focused on differentiating products to create opportunities to increase prices or to naturally influence customers toward certain products. This one looks at the same type of opportunities for services.
● Differentiating Service offerings
Similar to differentiating your products, this approach adjusts the level of service that is provided, either as an adjunct to a product (such as extended warranties with differing coverage and differing lengths) or as differing levels of service (as when spas offer a series of more and more complete packages).
Differentiating your service levels usually also has an expense component. More service costs more to deliver–and we will cover that side of the equation in the articles on the expense side of improving Cash Flow. For the revenue side, the better the level of service, the higher the price. The higher the quality of the service, especially in comparison to competitors, the more a premium price may be charged.
If your product or services already have a set type of service support, review the usage of that support with your customers. Services that are rarely used, or for which customers will not pay, may be reduced or eliminated. Services that are asked for and which provide a value in the mind of the customer, may be separated out as premium, add-on services that are provided and priced separately, or are offered as part of a premium package.
Services which are used by only a few customers, especially ones that cost a fair amount to deliver, should be explicitly priced. There are several benefits in doing this. First, the additional cost to customers will only be borne by the few of those actually using the special service. Second, it will confirm whether the service is valuable: if it is, the current customers will continue paying for it. If it isn’t, they will stop using it. Third, if the service is proven by the customers to be valuable, assuming the price exceeds the cost of providing it, then other customers could begin using it. If the service is not valuable, then as customers stop using it, you will be able to eliminate the work and cost associated with it. In either case, your profitability will increase.
And finally, by explicitly pricing a service used by a small portion of your customer base, the de facto price increase will not impact the majority of your customers, which means you won’t suffer lost sales.
Bottom line: surround your products with supporting services that provide enough value to your customers that they are willing to pay separately for them. That way, your core product and its price will remain competitive while additional revenue streams can be generated from unique and escalating levels of valuable, high-quality services.
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 34
Copyright © 2009 Integrated Profitability TM
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