I’m trying a new service. The bidder responded to an open call for bids from the international elance.com service, which usually attracts the best prices from far-away offshore countries, but in this case, is in the US, in the same eastern time zone as our organization. The contractor offered to rebuild and set up one of our websites at a price significantly lower than the others.
In assessing the proposal, the contractor introduced me to his service with a modest (but not insignificant) monthly fee which will ultimately generate his business much more continuing revenue than the one-time quote for the initial website rebuild. “Aha,” I thought — this is the case of a loss leader to attract recurring revenue.
I usually run for the hills when I see these deals, commonly observed in cellular phone services. The provider will give you the phone for free (or nearly free), if you lock in for a three year contract. But the provider reassured me that (a) there is no contract and (b) the work provided will actually reside the server under my direct control so I can continue business without disruption even if I cancel the contract.
He practiced a second marketing and business development rule: Reduce the (perceived) risk to the potential purchaser.
The trade off of course is if he delivers a great initial service at a truly low price, and I bail on him, he loses, big time. But if he delivers satisfactory work and I stick with him, he receives recurring monthly revenue and (perhaps) a ringing endorsement from someone who has some influence to recommend others to use his services.
I’m not naming the business here yet because the relationship has just started and, if things fail, I would be in the awkward spot of having to report negatively — and this blog has one rule: Never name any business or organization in an identifiably negative light.
Can you apply these approaches in your own marketing?
Well, I would never make this offer if i had a one-time or infrequent service to offer. If you are a general contractor or sub-trade bidding work, all you are doing is losing your shirt if your clients will take the low bid on one job and then say “next”. However, if you package your service as an ongoing maintenance or service agreement with recurring monthly payments, then the one-time loss-leading gift can make real sense, even if you do not force a fixed term contract on your potential client. Your goal is to cause your clients to be so happy with your service initially that they embed the monthly cost of your service into their budget so it seems almost painless, and then as you build your base of business, you can enjoy steady and relatively predictable cash flwo without the peaks and valleys common to the AEC business. Your clients, as well, can ultimately receive better prices — certainly we charge much less for monthly advertising contracts than one-time deals; reflecting the obvious business and budgeting advantages of stable revenue.
Hopefully I’ll be able to report on the contractor’s name and provide a solid endorsement in a future blog entry.