Somebody always pays- Part 2

it-takes-money-to-make-moneyWhen it comes to “introductory” offers many companies use to attract new customers, doesn’t it make you wonder who’s picking up the tab? My bet is it’s all the loyal, uncomplaining customers who’ve been supporting us for years.

There can be a steep price to pay for the practice of freebies, which author Fred Reichheld addresses in his book The Ultimate Question. Fred writes “Buying growth is expensive. It tends to create a profit squeeze, which in turn usually deepens a company’s addiction to bad profits. This addiction to bad profits demotivates employees, diminishes the chances for true growth, and accelerates a destructive spiral.” I agree with Fred’s thinking!

What if loyal, long-term customers requested their bills be reduced by the amount being charged to offset the “free” offers made to new customers? How quickly things might change!

Free offers frequently start small. But innocent, complimentary offers often accelerate into awarding outrageous commissions, “finder’s fees”, travel junkets, fishing trips, or outright kick-backs to people who refer work to us. Forgetting the ethical questions involved and simply looking at this from a practical, financial perspective—who’s paying for all the “free” stuff?!?

A freebee mentality doesn’t involve only introductory offers to potential customers. It involves the people who work for our company too. Are “free” health benefits and other “perks” really free? What about the automatic pay increases expected year after year; who pays for that? Once again—the cost is actually covered either by increased productivity on the part of our workers or by customers willing to pay more for the additional value they receive. None of this is really free.

Business owners aren’t exempt from this freebie mentality either. How often is the company checkbook used as a piggy bank for the owner’s personal purchases (some of which can be pretty grand) that bring no value to either the company or its customers? Too often these “perks” are viewed as entitlements of business ownership, rationalized by all the hard work and financial risk the owner takes in building his business. Somehow the concept of “someone always pays” gets overlooked.

I’m always intrigued when someone comments about a business owner’s ability to “write off” legitimate business trips, charitable donations, or other business purchases. The underlying message is that these things are free. While we’re very fortunate to enjoy a system that in many ways is favorable to business, it’s important to keep in mind that these deductions are not free. There must be real expenses involved.

One of my favorite local newspaper journalists is Charita Goshay, a lady who brings refreshing wisdom to global, as well as local, events. I remember she once wrote that anything we think is free “teaches us once again that ‘free’ just means that someone else is paying the price.” Although initially it might be our loyal customers, ultimately it is us.

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

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