And how to avoid it.
Having spent so many years helping people to be successful with Photo Booths, even today we still see so many enter into business and charge less that everyone else in order to get the most bookings. The reasons for doing this is mostly psychological which means it has very little to do with what everyone else is charging (a very key point which is a whole other subject). But this is a post about why ‘undercutting’, or otherwise known as ‘working for free’, just doesn’t work (of course if you only want to be in business for 12 months or less then it may work just fine).
One of the main reasons people choose to go down this road is because they look to see what everyone else is charging and come to the conclusion that they have to charge the same or less in order to get any business. They’re so afraid of not getting any sales that they would rather sacrifice their profits to get the job. So they go cheap without realising how much it really is costing them.
There are times when this might work out, say, if you were trying to buy the market which means being so cheap that you get all the business and push everyone out of it. You might see some very big companies doing this as part of a wider strategy. They make an insane amount of sales which then offsets the very low amount of money they make per sale. But here’s the difference, they have huge volume and massive resources and the people in the Photo Booth industry most likely do not.
Buying the market is effective only if you have more resources than everyone else in the industry combined.
Here’s why it doesn’t work:
A person that goes to market with this strategy has failed to value their own time. Unfortunately, the time you spend operating an inefficient photo booth, doing admin work, entering hire details, talking with customers, managing staff, attending events and so on, always comes at a cost to you.
If you look at the cost and profit of a single event like this:
In this example, you would end up working for just $12.50 per hour after accounting for admin and event time – which is well below minimum wage. And then add in other things that would make your costs skyrocket – like heavy and inefficient Photo Booths, high print costs, high transport costs, low-quality materials etc…
Would you rather have 10% of $50k or 1% of $100k?
In a 2016 study, we found that customers make decisions based on value for money, not the lowest cost which is contrary to what most people believe. We also found that they were much happier with the service when they paid more for it. So instead of burning your profits just to get the hire, start thinking about ways to increase the value. Smart pricing strategies can also help to increase the spend so that you can deliver more value at a lower cost – you end up with more profits and more time to spend on the things you love.
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