Somebody always pays- Part 1

somebody-always-paysThere’s an old story told about a government official who wanted to get to the heart of the meaning of “capitalism”. So, as bureaucrats naturally do, he formed an exploratory committee to investigate and come up with “the true definition of capitalism”.

A couple weeks passed and the committee came back with a 20 page report. The official told the committee the explanation was much too long and difficult for him to understand and requested it be shortened.

So the committee dutifully reconvened. Another two weeks passed before they reported back with a much shorter two page version of the original. Once again the official told them it was still a bit too long and confusing so back to the drawing board they went.

Finally, after an extended period of time, the committee returned to the official with a very succinct explanation. In fact, they boiled the meaning of capitalism down to just one sentence: “There’s no such thing as a free lunch!”

I’ve always enjoyed this story. In fact, I used it to develop my famous (to me anyway!) Violand’s Second Law of Business: “Somebody always pays!” That’s right, when you own a business the meter is always running and somebody has to pay the fare. Either the customer pays by compensating you for the goods or services they purchase. OR you as the business owner pay by taking the money out of your company’s profit margin or out of your own pocket. (Which frequently is one and the same).

This “Somebody always pays!” concept illustrates how vital it is to know what your costs are and what you must charge to make a profit. But you also must realize there is no such thing as a “free offer”. Either your customer or your business is actually paying for any “freebee”. And yet who among us (this author included!) hasn’t fallen into the “free” mindset with our business from time to time? For example…

How many times do we offer our customers something for “free” and actually delude ourselves into forgetting the associated costs? It’s almost as if we convince ourselves there’s some kind of business Sugar Daddy out there picking up the tab. Sorry to burst your bubble- once again, “There’s no such thing as a free lunch!”

However, an even more alarming aspect of “free offers” doesn’t have to do with the hidden costs of free. Instead, there is a “free creep” that often accompanies “free offers”. I’m sure you know what I’m referring to. Free offers usually start out innocently enough—small and seemingly harmless. But, as with many other things in life, your customers gradually build up an immunity to the word “free”. You have created a monster. Or more accurately you have “trained a monster”!

Your challenge? The original free offer no longer captures your customers’ attention. Before long you have to up the ante, increasing your free offers just to stay in the game. What may have started out innocently can grow so large it becomes downright vulgar and impossible to sustain. Worse yet, free offers can undermine the reasons your customers actually buy from you. Hopefully you have focused on what we call in our Strategies for Success seminar “Value Added Service”“Managing the experience of your client to give them a high perception of value.” Wonderful!

But once again- when you start throwing in the word ‘free” it cheapens your relationship with your customer and reduces your carefully cultivated “Perception of Value” to a commodity. And how does anyone buy a commodity? Whoever is cheapest wins the bid! And that is a business model you want NO part of! Yet, upon reflection it isn’t our customers who are the challenge- when it comes to the word “free” we as business owners are often our worst enemy! Let me meditate on this and I’ll write again!

Chuck Violand (more about Chuck)
SFS Instructor
CEO Violand Management Associates

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