Eight Advantages of Charging Premium Fees and Eight Disadvantages Of Failing To Do So

by Tom "Bald Dog" Varjan

Most organisations desperately aspire to sell more of their stuff, that is, increasing gross sales, but pathetically negligent of increasing profit margins. They make a lot on the surface, but don't keep much after all the overheads are paid. So, let's look at a few points of why it's a good idea to become a premium firm and charge somewhere at the high end of the industry's fee structure.

1. By charging more than the competition, you pre-empt both your company and merchandise as being something different, something-one-of-a-kind. You can also offer better overall working experience than your competition. You put your firm on an upward spiral of improvement.

2. You can do exponentially higher quality (this higher value) work for your clients. Think about it. A Ferrari doesn't take 10 times more time and effort to me make than a Ford. Yet, even an entry level Ferrari costs more than 10 times of a Ford. And there is a huge difference in the quality of service.

3. You can retain top-tier talent to provide top-drawer service. Unlike junk food joints that can produce consistent and predictable results using minimum-wage kinds and rigid systems, selling high-margin stuff need both good systems and real talents, not merely workers. Go to a specific junk food joint and order only some deserts. The kid on the other side of the counter will ask you, following the rigid system, if you want fries with it.

4. You can create a fatter piggy bank to finance various initiatives in your firm. You can be more responsive to your clients, you can send your people to the best skill building programmes. You have more time and financial resources to respond rapidly to customer emergencies which will put you head and shoulders above your competition in your customers eyes because you are most valuable in your customers eyes when there is an emergency.

5. You can better focus on servicing the few existing clients and stay in touch with your five star prospects. It means you can create value beyond the scope of the basics of your merchandise because you're not watching the watch and you're not on an airtight schedule.

6. You're overall sales may drop a bit, but, rest assured, your overall profit margin and cashflow will increase. If your cost of doing business is the same, a 10% fee/price increase means you make the same profit on 68% of your previous sales volume. So, choose now. What will it be for you? Volume or margin? And you can't have both.

7. Morale, enthusiasm and passion will be higher and higher in your people because they know they are part of a firm that is going somewhere. Your people will be less stressed and more cheerful, which increases their ability to attract great clients. No one wants to do business with a miserable company staffed my minimum wage, minimum skill, minimum commitment frustrated people who focus on the next job appointment.

8. Premium buyers are loyal and committed to the success of their projects they use your stuff. They also understand that business is a value exchange, not an all-for-nothing deal. They respect your boundaries, and, while they expect you to be responsive, they know you're not on call to them.

Now let's look at the disadvantages foregoing the "premium" status of remaining a "low-budget alternative." If you're there, you know it's a shitty situation. If you've never been there, then avoid it like the plague.

1. Since, often due to financial constraints, these companies are forced to do some shortcuts, they attract clients who don't mind some shortcuts to save some pennies. Performing quality work is always undermined by cashflow problems. These substandard clients create bidding frenzy for "lowest bidders", so they can get to each other's throats to even kill if necessary for the pathetic reward. It means they live the rest of their lives from bidding frenzy to bidding frenzy, never achieving even marginal success.

2. Because their quality of work and overall service are constantly undermined by casflow problems, "budget" companies can never create the kind of perception to that would attract premium clients who would willingly pay higher fees for the firm's services.

3. Since money is always an issue, these companies forced to hire minimum wage workers, often the ones whose applications the competition has already rejected. Yes, these people cost less in compensation, but they can create exponentially less value in their performance. In time substandard clients further undermine morale, passion and enthusiasm that gradually lands the firm on a downward spiral.

4. These companies live in constant "client chasing" frenzy because their budget clients almost never do repeat business and hardly ever give referrals. So, an awful lot of the firm's time, effort and money are spent on acquiring new clients to sustain the already dismal cashflow.

5. Price buyers go for low price regardless of quality. And most companies serving this segment of the market don't mind compromising on quality in order to get more clients. This approach leads to arguments with clients over fees/price and quality, which undermines the company's reputation. And unhappy clients lead to unhappy employees.

6. Since these "budget" clients are also budget suppliers to their industries, the low margin mentality goes to the next level. Any problem they have with their "budget client" rubs off on you. They pay late or give you reasons for not paying, "We expected XYZ client pay us, but they have cashflow problems." Cashflow and other problems ripple through several companies.

7. For "price" buyers, loyalty is an unknown entity. They squeeze the most out of their suppliers, vendors and consultants, and the kick up a big fuss about paying for the extra work they requested. This is the proverbial car buyer who buys a car, and demand free driving lessons and free insurance from the dealership to get a driving licence to actually drive the new car. And justify the free request because they've just paid a pile of money for the car.

8. Due to living on a shoestring, "budget" buyers have developed a scarcity mentality, and tend to see everything in the wrong way. They are looking for faults in people and errors in their actions. In their eyes everyone is out there "to get" them, but they've become "price smart" not to be ripped off by "premium" companies. They are pathetic negotiators but class act hagglers. They have a habit of wanting it all, now and for as cheap as possible.

Now, hopefully you can better see why it's in your best advantage to work hard and become a "premium" firm. You have a better life, get better paid and will be surrounded by higher calibre people. The good news it that it's up to you which end of the fee scale you belong to.

As the saying goes, birds of the feather flock together, so flock premium clients to premium firms with premium talents, and mediocre clients to "budget" firms with "rest of the mediocre bunch" talents.

Choose wisely!

And remember! Don't sell harder. Market smarter. Both you, your employees, your clients and prospects will find it more enjoyable, profitable and attractive.

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