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NMOA Direct Marketing Article
The Real Cost of Free Stuff
Why doing something for free can cost you more than just your time.
By Marc Gordon


At one time or another we have all been inclined to toss a freebie into the list of products or services that a customer has agreed to purchase. It's seems so easy that sometimes we don't even think about it.
For many businesses, giving free 'stuff" is a common part of their daily business routine. Whether it's as a bargaining tool to close the sale, a goodwill gesture, or just because they can't be bothered rewriting the invoice, free stuff almost becomes a normal part of doing business.

And while every customer loves to get additional products or services thrown in at no charge, the fact is that most of the time they do not actually appreciate them. It's true. As much as your customers may thank you for the extra time you've taken to complete a job or the extra item you included in the order, because they did not actually pay for them, they place no real value on them.

Think of it this way. If you were to lose fifty dollars from your wallet, you would probably be pretty annoyed, if not upset. After all, that fifty dollars could have been a portion of a payment someone owed you. Now lets say that you find a fifty dollar bill on the street. You put it in your jacket only to discover later that it fell out through a hole in the pocket. There's a good chance that you will not be as upset as when you lost your own fifty dollars. After all, losing found money simply means you didn't gain or lose anything. The fifty you found did not have as much value as the fifty you had to work for.

The same goes for what you provide to your clients. Regardless of whether you're a painter who paints an additional room at no charge, or a caterer that includes an extra dessert tray, you are in fact inadvertently doing three things that will hurt your business in the long run.

First, you are devaluing your products and services. After all, if you can so easily include some free stuff with your order, then is all the other stuff really worth paying for? Could a lawyer really ask $300 or more per hour if they were willing to include a few extra free hours here or there?

Second, raising prices becomes a challenge. Although no one likes to raise their prices, it's sometimes a fact of life. How can a baker raise the price of a dozen bagels when last week he gave them to a customer for free?

Third, it becomes expected. This is especially true for businesses that depend on referrals. A landscaper who planted shrubs at no charge for a specific customer may be expected to do the same by others who were referred. The fact that the original customer spent three times that of the people she referred will not matter. By no choice of his own, that landscaper will become known as the guy who will plant shrubs for free.

So what can you do to ensure your products and services keep their monetary value, your customers feel like they're getting a deal, and you don't become the local freebie guy?
Simply apply these simple rules:


Discount the invoice, not the products. Start by including everything on the invoice with prices for each item. And I mean everything. Start with the originally agreed upon products or tasks, then make any additions as the customer requests. Even if the product or service has been agreed upon to be 'no charge", include it in the invoice with a real dollar value. When the entire job is done, include a line that reads 'preferred customer promotion" with a discount amount.

Create product packages. A kitchen cabinet builder may be asked by the customer to include premium knobs and handles at no charge. Instead of saying yes or no, he could say 'While I can't include them at no charge, they are included with the premium hardware package. This will give you better drawer tracks and hinges, plus your choice of any premium handle selection." Make sure your price for a package is significantly less than buying everything separately.

Offer sales, not discounts. Avoid using price as a negotiating tool. If you agree to lower your prices in order to make the sale, you will inadvertently be committing to keeping those discounted prices available for future orders. Instead offer limited time sales on a selection of products or products packages. You can also offer various other financial incentives such as rebates or deferred payments.

Remember, people never mind paying for something they feel is of value. They will also never value something they didn't have to pay for.

About the Author:
Marc Gordon is a professional speaker and marketing consultant based in Toronto, Ontario. His firm, Fourword Marketing, specializes in helping businesses create a brand identity and developing effective marketing campaigns. Marc can be reached at (416) 238-7811 or visit www.marcgordon.ca

 

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