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    « We Are a For Profit Business! | Main | Trademarks »

    November 03, 2006

    Conditioning Customers

    Reprographers are hesitant to add new charges to customers invoices.  There is a fear that these increased charges will cause the customer to go to a competitor that does not charge these fees.  This is a valid concern.  If the new charges are significant and your customer can get the same level of service somewhere else for a lower price, they would be foolish not to consider it.  The dilemma is your costs are increasing because you are providing these new services for free and there is constant downward pressure on the price you can charge for your standard services.  How do you start charging for digital services (or any other service for that matter) without loosing customers? 

    The first step is to have faith that the market will converge on the best practice.  Those who don't charge will see there profits erode to the point they can not sustain their business.  They are "burning their furniture to heat their home".

    The second step is to start conditioning your customers to accept these charges.  Don't focus on maximizing profits, or even covering your costs.  Your primary goal is to condition your customers to accept these charges.  One extreme is to add zero dollar line items to your invoices.  This way your customer becomes accustomed to seeing these charges on the invoice.  This is better than nothing, but personally I believe there should be a nominal charge.  Even one dollar is better than zero.  There is a big difference between something and nothing.  I would focus on a price that is material, but is low enough that it won't cause a huge debate within your customers organization.  Minimize the "shock factor".  Once customers becomes accustomed to these charges, and hopefully the competition follows suite, you can start gradually increasing your prices and covering your cost.  You will eventually start making a profit on these services.

    If you can go from not charging to charging at a profit - all the power to you, but if you are in a market that doesn't value the services and your competition is not charging the approach above allows you to "ease into it".  Even though you may not be initially covering your costs you are loosing less.  When you start adding up the incremental profit you receive from these nominal fees it can be significant.  If your competition is not charging these fees they are at a disadvantage because they have lower profit margins.

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    Comments

    Tracy Albinson

    John:

    I've been reading the blog for awhile, but just haven't commented. So, hello!

    This post, however, got me thinking about what one might say versus what one might actually do. Although someone may preach that charging for digital services is good (i.e., the head of a publicly traded reprographics company), those who work for that person do not necessarily practice what the leader preaches (if, indeed, it is truly preached internally at the aforementioned company).

    The local branch of our publicly traded competitor continues to give away digital services for free, even after "absorbing" the second local branch of that same company. I had high hopes that when Branch 2 was absorbed they would start charging some sort of minimal fee for posting projects, but they have not. They merely charge for scanning and any additional indexing beyond 3 fields. This is extremely frustrating, especially when you get back from a convention where you heard the vaunted leader telling his competition that they need to charge for digital work.

    You write, "The first step is to have faith that the market will converge on the best practice. Those who don't charge will see there profits erode to the point they can not sustain their business. They are 'burning their furniture to heat their home'." That may be so, but what is bothersome is that a company like the publicly-traded one has an awful lot of furniture to burn - far more than I do.

    Anyway, that's off my chest! I don't believe you post comments, but I just want to be clear that this comment is meant just for you, not for public consumption.

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