Use What You Have…and Charge More For It – or – “Too Hot For Tots”
Estimated read time: 4-9 mins
While doing some research for a client, I ran across an article about the origin of Tater Tots. I found a couple of interesting lessons for entrepreneurs. So…you’re getting a two-for-one today (toofer’ as Southerners would say) – Use what you have…and Charge more for it!
Part 1: Use What You Already Have
“Tater Tots were created in 1953 when Ore-Ida founders F. Nephi Grigg and Golden Grigg were trying to figure out what to do with leftover slivers of cut-up potatoes. They chopped up the slivers, added flour and seasoning, then pushed the mash through holes and sliced off pieces of the extruded mixture. The product was first offered in stores in 1956.”
Most businesses are sitting on assets that could be bringing in millions. Day-to-day operations preoccupy entrepreneurs so that they can’t see assets that are hiding in plain sight. Sometimes it’s good to have a fresh set of eyes look at your situation to find out what you aren’t seeing.
This reminds me of another client who was adamant about us creating a new customer campaign. They were willing to spend as much as $4,000 per month because they were so set on getting new customers in their door.
When we initially spoke, they said sales were stagnant and they needed to reinvigorate things with an influx of new business. However, after doing an assessment, (asking questions) we identified that they were doing a horrible job at staying in touch with their past/current clients. We proposed a customer reactivation campaign. They were so focused on the idea of getting new customers, that they were missing this huge revenue opportunity right under their noses.
They really fought us on the reactivation campaign … but one of the partners convinced the others to ‘give us a shot’. Thankfully so! We ran a campaign that cost them a little over $1,000 and brought in $88,000 in revenue in less than a month.
Moral of the story:
Always look closely for the assets hidden in your business.
Part 2: Price (value) Perception Is Everything
More from the Wikipedia article:
“Originally, the product was very inexpensive. According to advertising lectures at Iowa State University, people did not buy it at first because there was no perceived value. When the price was raised, people began buying it. Today, Americans consume approximately 70 million pounds of Tater Tots per year.”
I’m not a pricing expert, but I am an expert at getting maximum dollars from client interaction by providing maximum VALUE.
Usually, one of the first pieces of advice I provide my clients is: triple your prices.
I do this somewhat for the shock value, but it’s also to get them thinking outside of the box they may have created for their business. Price elasticity is one of the most overlooked “strategies” in business. Most entrepreneurs aren’t charging nearly enough for the value they’re providing for their clients.
Anyway, back to the Tater Tots… Of course, I wasn’t there, but I’m assuming these new ‘Tater Tots’ were priced as low as they were based on the assumption that – as leftovers of another product – they had no intrinsic value. Low cost to produce means a low sales price, right?
Always remember to distinguish between value and costs as you establish prices for your goods and services…And communicate that to your clients.
Here are a few tips on pricing that you can learn from Tater Tots:
- People don’t value that which is free (or sold at a price which is perceived as “too cheap”). Price accordingly if you want to do good business. Avoid pricing products and services based solely on what it costs you.
If you knew how much it cost to produce a ‘tall latte’ … you’d probably poop your pants at the markup. That [famous West Coast coffee chain] doesn’t price their menu items based solely on the costs of the product.
- Price your goods and services based on a value proposition. People spend money on the things that are important to them. [that coffee company] prices their beverages and snacks based on the perceived value that a ‘tall latte’ offers the drinker.
- For entrepreneurs who may be struggling: Don’t set your prices based on what you assume others can afford, and especially not based on what you think you yourself can afford.
Another example: Recyclable Paper. Paper that you put in the recycle bin has no intrinsic value, right? Wrong! Producing paper towels and bathroom tissue from that discarded paper is a big business.
You’ll find that the people whom you charge little-to-nothing will cost you time and money in (lost opportunities, headache, etc.) And, on the opposite side of the coin, when you give people a solid perception of value, they will pay for it. And you’ll have a more profitable business.
Take Aways/Action Items:
Take away #1: Use what you have
Are there any underutilized assets/resources in your company that you may be overlooking?
Some ideas to consider are:
Human resources – are you getting 100% from each employee/team member? I remember a business owner who would “lend out” his receptionist when things got slow.
Space – Do you have warehouse space that is sitting idle? You could rent that space out to other companies.
Technology – is there another business owner who could utilize software that you own but aren’t using? Could you rent out use of software (i.e. estimating software, etc.) to someone who can’t afford to buy it themselves? (Check licensing agreements before doing this)
Past customers/unsold customers – Are you staying tin touch with past clients or reaching back out to clients who didn’t buy?
Take away #2: Understand price elasticity and how it applies to your business.
Never, never, EVER price based on industry norms –unless you want to be “norm(al)” – remember, [that Seattle coffee company] charges five bucks for what used to cost $.75.
Never, never, ever price based on what YOU can afford — don’t allow your financial situation to dictate the value of your services.
How can you ask for more by delivering more value?
Other packages/bundles you can create to increase purchase prices?
Are there other service offerings you can bring into your offering that delivers more value, but doesn’t cost you more money?
Antonio Thornton is an author, speaker and business strategist with Money Mouth Marketing, a results based marketing firm. Money Mouth Marketing is the only firm in Georgia who guarantees a minimum 3x ROI for it’s clients. For more information, visit www.moneymouthmarketing.com/3x