Small changes, big results (value discussion)

[Johnny boy]

(this was a reply to this post IDEA - MINDSET - RELATIVE value, not value )

In almost all things, you buy it before you experience or use it, so you are not even buying because of value or relative value until you go back to buy it twice, you are buying purely because of perceived value at first.

Perceived value also includes emotions. So you may not be offering anything better. You may not even logically SEEM to be better. You might actually just make someone FEEL that they should purchase something.

People buy things just because it's the thing in front of their face in the moment. (foot traffic, impulse purchases, ads)
People buy things because you threw something arbitrary in front of their face (raising your prices 2x then offering a 50% off sale)

The trinity is providing real value so a logical person would come back to do more business and is happy with their purchase, providing relative value so there isn't a better option, and perceived value so you do everything you can to maximize the FEELINGS that support purchasing, framing interactions to support FEELING satisfied with it, and taking advantage of all of the other reasons people buy things, even especially illogical reasons.

There are more things that fit under each of these "value" categories than you would think.

Making your signup process easy is not REALLY a tangible thing that you are selling, but it's valuable in a sense.
Customer support is the same way. As with packaging, design, marketing, copy, etc.

All of these things together explains why a company that does nothing else but scam people into a pyramid scheme can still make millions.
...
And why two companies selling identical things can have wildly different levels of success.
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And why people who win at one thing are better able to win at other things, they understand and apply the same principles that exist across all industries, markets and business models.

There is nothing like watching someone logical fail at business, and you come in and change something that is not materially affecting their actual business model in any way, such as saying a new phrase during sales interactions, wording something different, framing things different, or whatever, and it changes their business instantly. They are dumbfounded, but it makes sense if you know that people make all sorts of purchasing decisions for truly ridiculous reasons sometimes.

Example:
When we give lawn care quotes, we give them one price for 12 months. The customer divides the monthly price in two quickly in their head to come up with the price for every other week services. "$99 a month / 2 is $50 a visit...hmm, okay let's signup, the other guy said it was $45 a visit but you guys seem more professional"

But 99x12 divided by 20 visits a year is $60 a visit. That's 33% higher than someone else but they did not do the actual math. If the competitor business brings in 9k a month per crew and spends 8k, they have only an 11% profit margin, but if we charge 33% more, we bring in 12,000, which would be 33% margins.

We have tripled the value of our company and tripled profits by "being more professional" (having a good website and a nice lady answering the phones, the bar is so low), and simply giving a different pricing structure.

The numbers:
If both of those businesses were at 1m in revenue and sold for only 3x earnings, one would be worth only 342k and needs almost 20 crew members (crews of two), but the other business would be worth 1M and needs only 14 crew members. All from little changes. Now add on more things like pricing another 25% higher and having a lower closing ratio but having 5x as many leads since you manage digital advertising much better and then the difference is even greater. Then you bring in 7k per crew and would be worth 1.3M and only have 11 workers, while still only having the same 1M revenue.

Small changes that have nothing to do with real value, 3.8 times more net worth, basically half of the workforce, and better quality of life as an owner. If you had the same number of customers though.... it would bring in 746k in yearly profit and be a 2.2M company valuation instead of the puny 114k company that's valued at 342k. That's a 6.4 times higher net worth!

It doesn't mean we do a better job, they have no idea. So... it's not tangible, but it massively increases the value and income of our business with most other factors being the same? Same quality, same services, etc. It's illogical but it makes sense when applying the above interpretations of "value"; real, relative and perceived.

Here's the financials of these examples:



^This is how I do the math for my business. This is how it works in my head.

Other things we do to increase margins:

Weekly visits are not twice as valuable as bi-weekly visits since they don't provide the same increase in utility, but they cost us twice the time, so we encourage bi-weekly plans. If biweekly is 5 units of utility but weekly is 8, we want customers to choose biweekly since we can charge more relative to time costs.

Intangibles like automated billing, professionalism, etc. make up a larger percentage of decision making for a small yard than a big yard. You would pay 40% more for a professional company at a low price for a small yard compared to an unprofessional but cheap company, but not 40% more for the same company with a huge yard.

Larger company because of better systems = dense route. We drive less than other companies since we will have 8 people all on one street sometimes. We have fundamentally cheaper costs that way and can have higher revenues per crew even with the same prices from fitting more jobs into the day.

 

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[wyattnorton]

When we give lawn care quotes, we give them one price for 12 months. The customer divides the monthly price in two quickly in their head to come up with the price for every other week services. "$99 a month / 2 is $50 a visit...hmm, okay let's signup, the other guy said it was $45 a visit but you guys seem more professional"

It also appears that your company is worth the "$5 more" because of the headache you can save the customer. They don't have to chase you down. Can easily pay their bills. Understand where their money is going and towards what.

One thing I see with lawn maintenance bimbos is they don't understand the business side. Anyone can mow a lawn... but keeping track of bills, routes, employees, bi-weekly visits, clean-ups, and equipment, is a whole different ballgame that they cannot wrap their heads around.

Example with Landscape Design:

Every quote I write is broken down into costs of each portion of the project. Is it more work? Yes, and the customers like that I do it EVERY TIME. They can see how much it costs for the remove and dispose of sod, for the gravel base prep, for the plastic edging, for the paver install, for the polymeric sand, for the downspout being buried underground.

This increases perceived value of the project because it is not just a lump sump of numbers... I break it down so they FEEL better about where their money is going.

This also allows a pick and choose situation so they can "custom make" their project, but really it's me anchoring a higher price project with a lower one behind it... kind of like you're doing with the bi-weekly.

 

[Johnny boy]

Every quote I write is broken down into costs of each portion of the project.

Then I would have to hand over a confusing chapter book of every single business expense somehow converting into reflecting the proportional price that is spread out and allocated to their one house.

"insurance: 300/mo per crew / 90 customers is $3.33 of your bill each month
gas: 400/mo per crew is $4.44 of your bill
bad debt: 3% of our 14k monthly revenue per crew is $4.62 of your bill
processing fees: 3% is another $4.62 of your bill"

That's what a real breakdown is. Only moron customers want a breakdown and they think it's (job price-labor-materials=greedy capitalist profit)

We already have to slowly explain the concept of sales tax making their payments higher than the quote for the smooth brained customers. Acting like they've never been to a store before...back when I did the customer service and would get that call, I would literally say "have you...ever...been...to a store...? Oh okay I was confused because it seemed like you....haven't". Luckily I now have nice people on the phones with more patience.

I don't go ask apple for a breakdown when I buy their thousand dollar iphone. They don't tell me the cost of the microprocessor, the screen, the labor for installing the camera. There would be 900 different costs in a proper "breakdown".

And since only a stupid person expects a breakdown, their brains would run out of RAM looking at one that was real, and they would get a headache and not signup anyways. "too much numbers. brain hurt. no happy. u no get money". Cattle behavior.

The only good answer is to tell them the 30k cost of materials you bought at wholesale for 20k and your hidden 10k covers smaller expenses and some extra profit that doesn't hurt their feelings.

Or you can bring up a company wide expense that puts them in their place "did you know we spend 3 thousand dollars a month just to process credit cards?" "did you know we paid $30,000 last year just in GAS?"

If they aren't stupid, they are just doing it for negotiating leverage. "Okay I'll provide materials myself". That kind of bs. I would do it as a customer but only to chip away at prices and end up getting the job done for at cost.

As a company I would provide a broken down cost that's even higher than the normal price and present both of them. "Here Mr. customer. The broken down price is 30k, and the normal price for not asking questions is 27k, pick your favorite!"