Franklin was right. Photo by Paul Hudson

In 1789, Benjamin Franklin said in a letter that there are only two things you can be certain of death and taxes.

He was certainly right about the taxes. Especially sales tax. We are hearing from clients and accountant colleagues about the increase in sales tax audits. These are turning out not to be friendly, let’s talk audits but somewhat nasty, prove you’re innocent audits where the assumption is that your business is not paying what it should.

The real issue is not whether you’re paying but whether you’re collecting, then paying. Since that’s what you are really doing. You’re the Sheriff of Nottingham and Prince John wants his due.

We are recommending to our clients that they actually pick up the phone and talk to someone at the Texas Comptroller’s Office. Their mission, should they accept it, is to validate what products and services they offer that are taxable. And, collect and pay the taxes of course.

This is not something you do once and forget. State legislatures in tough times move the goal posts to find “lost” revenue and a smart business owner is right there, ready to go. It’s very likely that what you thought was not taxable is now or at least part of it is. Their position, quoting the Texas Comptroller is “State Sales and Use Tax is imposed on all retail sales, leases and rentals of most goods, as well as taxable services”.

The second guilt for a business is payroll taxes. You are guilty of having employees and needing to pay taxes on them unless you can prove otherwise.

Even though people and bookkeeping software refer to “Contract Labor”, there’s no such thing. There are only employees and contractors.

As I heard every time attorney Tommy Simmons from Texas Workforce Commission spoke at my Street MBA and Owners MBA programs, no one can “sign away” their rights to be classified as an employee. So, don’t think you can ask someone to sign a paper that says they’re not an employee.

Everyone is an employee unless you can prove otherwise and that’s tough. There are 20+ ways to recognize you’ve got employees that are spelled out in a grey way by the IRS and Workforce. They look to see how many of those apply. If enough do, that person is an employee.  In general terms, the IRS says what matters is if the employer has the legal right to control the details of how the work/services are performed.

There is some information on employee vs contractor at the IRS site. We refer owners to Especially for Texas Employers that has a great section on the issue by Simmons who has been a business owner himself. Pay special attention to Appendix D & E which have a test that the IRS and Workforce apply.

So, be wary and prepared.

Have a happy Sales Tax Holiday, August 19-21 when you get a break as a consumer or business from state and local sales taxes on purchases of clothing, footwear, backpacks and school supplies priced at less than $100.

Knowing where you're going is a great legacy. Image by TW Collins

There’s nothing wrong with Cost-plus or Value-based pricing when they are done right. Both are good strategies but incomplete in my opinion.

In the case of Cost-based pricing, basically you look at the costs and then add a percentage for profit on top of that number to arrive at a price.

In my experience, those who set the prices don’t know, forget, or leave out costs that they shouldn’t. Sometimes it is the cost of the salary of the principals or putting in enough for contingencies. Just as often they don’t include all the costs involved in being able to provide this product or service before and after getting customer #1. Then there are the true total costs to support and maintain this customer with this product or service.

Business owners who set or agree to the prices based on costs get overwhelmed and under-price. I have a client who is launching a new product and thought it had cost about $10,000. Once we did the numbers (we did not include lost opportunity costs but real numbers), it was closer to $55,000. It was not even launched yet.

I think Value-based pricing is a better strategy. It incorporates the costs and the value this product or service provides the customer. If all the true total costs are accounted for, then determining what the customer gets out of it, should be relatively simple. Market research, competitive analysis, and usability testing gives you a place to start.

It does depend on identifying the right value for the customer. What most people who use this technique to arrive at pricing don’t do  is spend enough time on identifying the best customer, the most loyal customer who brings the most value to the business.

However, a strategy that does more because it goes beyond both is a new concept, “Legacy Pricing”™.  It doesn’t just look at the past or the present, but really focuses on the future. The future of the company is its legacy and it’s too often forgotten or glossed over when it comes to pricing. Without a legacy, nothing goes beyond day-to-day and the value of the business is reduced even if it survives.

Legacy Pricing™ is a better choice for these times because it’s more complete. It includes cost and value. It includes profit and contingency. It deals with value identification, but it also takes pricing and relates it to a timeline in a meaningful way. The timeline for pricing should make sure the business shows it will maintain its value down the road for any subsequent transfer or expansion.

Using Legacy Pricing™ means using other best practices.

1. Price for your legacy customer, using what I call a Platinum Profile™ .
   The latest research suggests that about 15% of your customers account for 55-70% of your total sales. Price to keep loyal customers not just any customer and not just to get people calling or coming in the door. My platinum profile™ system lets you really know who to focus on and who to eliminate. It includes demographics, psychographics, risk tolerance, decision-making style, purchase behavior, and the “game” they play. Price for them and you won’t leave money on the table and you won’t exceed their “pricing flinch point”™. (The point at which you can see a physical reaction to the price you name.)
2. Price for positioning, now and in the future.
   Don’t forget where you’re going and who you want to go with you. One of the biggest dangers of discounts, coupons, etc. is that it ruins the positioning that you have established. No longer are your products and services the best, Why do customers feel like that? Because the best products provide the extra quality and value that takes time and effort. If there’s not enough time to provide this or enough quality staff, then your customers will see you as just “one of the group”. And, worse, not worth they loyalty to you. There is one universal truth: you can’t “steal” a happy customer. Loyalty and feeling special makes them feel like they belong and they will stay.
3. Make sure the right person does the pricing and determines any exceptions.
   If you have to do the pricing, have someone other than you review it. If you have partners or staff or hate dealing with pricing, have all those who work with the product or service give you input. Then do your market research based on that legacy customer and re-check your numbers. See if it will support the positioning you have and the positioning you want to maintain. Finally, it’s better to still get someone not connected with your business to review what you’ve done and ask the hard questions.

I am proud to be the inaugural speaker for the new San Antonio Business Owners Meetup sponsored by the Business Bank of Texas. I will be talking more about legacy pricing and how to make sure you have a future. The meeting will be held Thursday, July 20, at Pappadeaux Seafood Kitchen, 76 Northeast Loop 410, San Antonio, TX. For more information or to register to attend, please go to http://www.meetup.com/The-San-Antonio-Business-Group/. I hope to see you there and get your insights into the best practices you are using for pricing.

If you have questions about your pricing or comments about legacy pricing™, please comment below.

Sometimes big & small can work together. Photo by Daniel Voyager

My colleague, Dan Diener, was working with client who was re-negotiating an existing contract that was up for renewal. It ran into a snag because the contract was for a higher amount than the previous year in order to be in line with our client’s other contracts. This was crucial since our client provides personnel to others and significant benefits to his employees.

Our client, based in Austin, Texas, is a small business with a very large state client. Because of the nature of the industry and how these two organizations work together and share information, the decision was made to talk to the larger client about the situation. The result was a good rationale to stand firm on price by leveraging the larger client. Our client said no, he could not honor the same deal he had with the state client if he cut the price for this existing client. The contract was signed at the price our client proposed. Honor and ethics were well served as well.

This was an unusual situation. Frequently, a larger client wants a “discount” for the prestige of working with them. But, it can work in your favor when someone else wants the “discount”. Don’t feel you have to give in. Stand firm for your existing customers and leverage them when appropriate.

You can use this strategy also when dealing with Daily Deal coupon buyers who want more than they bought. You have negotiated a deal with an online coupon marketing company and you should stick to the deal. In a recent article Groupon Nightmares by Sarah Jacobson Purewal for Entrepreneur, she cites the case of Sound Roots, a music school in Oregon. When numerous people called to try to bend the rules and get more than the value of the LivingSocial coupon, owner Fara Heath, told her manager to say, “This is a very good deal, and take it for what it’s worth.”

Price right & reap your reward. Cartoon by Roger Stewart, Porthole Productions

Although the session has sold out, there is a waiting list. I encourage you to get on it. For more information on Austin Product Camp, go to http://productcampaustin.org. For information on my session on Pricing and the 39 other great sessions, go to http://bit.ly/e6chc0.

If  you can’t come or can’t wait, I thought I would provide some things to think about to sharpen your pricing skills. At least this will get people to reconsider their pricing strategy — hopefully they have one.

3 Wrong Ways to Price

1. Blindly following the pricing of your competitors – they may or may not be right or right for you.
2. Not knowing your “true total costs” before you price.
3. Not including profit, contingency & hassle-factor in your price structure.

3 Right Ways to Price

1. Match price to preferred positioning.
2. Choose a price that does not exceed “flinch point” of your desired Platinum Profile customer. (See my earlier post on Platinum Profile customers at http://bit.ly/arxFwB
3. Use value- based pricing rather than just cost-based pricing.

If I do the presentation, I will be talking more about best practices that I use and giving some examples of pricing problems I have addressed with clients. It is a Town Hall session so I will also be asking for attendees examples, questions and best practices. My goal is for us to learn from each other. I hope you’ll be there to share your experiences.

Do you have pricing issues, questions or examples of good or bad pricing practices?  I want to hear from you. You don’t have to wait until Saturday.

If you are going to ProductCamp, I hope you’ll vote for my session. I really want to hear what experiences others have with pricing.

That got me thinking. What can customers do to give great “business service”? This would help businesses have better sales and create more Platinum Customers™. It’s just what our economy needs: all of us to play a positive role and take responsibility.

It takes time and effort but there’s a huge payback for everyone. You can be that Platinum Customer™.  Are you up to the challenge?

1. Be open with me. I am not the enemy. I won’t use the information to jerk you around. I view sales as an offer to a friend. The offer is that I have something that might prove to be a good opportunity for you. Tell me what I need to know so I can make you the best offer I can. That means BUDGET and timeline, too.
2. Be respectful of my time. Things happen; you have changes in your life and business. Respect me enough to let me know as far in advance as you can. Let me know that you can’t come, will be late, aren’t prepared, etc.
3. Don’t expect it tomorrow. If you want it tomorrow, give me what I need to do it right long enough in advance. If you can’t, understand why it costs more or it might need “tweaking” when there is more time. But more than that, I have put you ahead of other priorities so a “thank you” would be nice.
4. Tell me first if you are dissatisfied. You are my quality control. I value that highly. If you must tweet about it or tell your friends, give me the opportunity to address the problem first. This is a relationship not a war. My job is to truly listen and hear what you say; then act.
5. If you just want a price, don’t call me. Go to the web. My value to you as an independent business owner comes from my total solution and my experience in helping others successfully achieve their goals. Please remember that my price has to cover: wages, taxes that support our community, my overhead costs, reasonable profit to get through hard times, and contingency funds in case something goes wrong or you don’t or can’t pay. It’s not just about what it costs me out of pocket.
6. Fulfill your obligations. I expect my Platinum Customer™ to put in some effort because after all it’s their money and their business. Work with me to make my solution work for you.
7. If you come to me for advice, don’t brag about how much you know about the topic or try to prove I’m wrong.
8. Don’t use your cell phone if you are talking to me or use it quickly and get back to business. My time is valuable, too.
9. Ask me first. If you need something that I might be able to provide, see if I can. You are under no obligation to buy but I’ve invested time with you, so give me an opportunity to serve you.
10. Make referrals without my asking you to but know whom to refer to me. I chose you as my client but I don’t choose everyone. What I have to offer is not right for everyone. I appreciate the referral but please don’t give your sister who is hard to work with.

What do you do to help provide great “business service”?

If you are a business owner and want to know how to identify Platinum Customers™, read my suggestions about how to create aPlatinum Customer Profile ™and see my slide presentation that I have given for several organizations.

Don't give your hard-earned pennies away to just ANY customer.

Everyone wants and needs sales to have a profitable and successful business. But, sales from the wrong customers can kill a business.  If you doubt me, read Angel Customers and Demon Customers by Larry Selden and Geoffrey Colvin.

What should you look for? Basically, there are two options:

• Low hanging fruit — the most responsive, easiest sale, shortest sales cycle
• High value  —  the most lucrative, harder sale, longer, requires more thorough sales process so longer sales cycle

How do you decide who is right and who is wrong? Focus on customers who are worth your sales staff’s time and efforts. The right customers have the following four traits. They:

1. Add more value than just the dollars they spend.
2. Contribute to the reputation of the company by their presence or referrals.
3. Are enjoyable to work with.
4. Match the culture of the business.

A penny saved attracts other benefits.

There are major benefits from concentrating on finding and keeping the right customers. If you have hired the right sales staff, they will close more new sales and better sales if they can point to and use what they learned from existing  “right” customers.  They can get upsell and get new sales from existing and even former customers when they are starting from the best.

If you are worried about reputation and the value of the company, the right customers are your best answer. With the right sales process and continued high touch attention and reinforcement, they bring in others like them. Why? Because, they can’t resist bragging or sharing their good fortune.

You will get customers who are not a good fit. If they are really a bad fit, even if money is tight, fire them. They take energy away that is not replaceable. They take time that you can’t afford to waste. They are not satisfied and they attract others like them.

A Case Study of Angel and Demon Customers is Still Relevant

New money can learn from experience. (This is the back of the new 2010 penny.)

Wall Street Journal staff reporter Gary McWilliams, in January 2005, wrote an article, The Customer Isn’t Always Right on Best Buy’s efforts to attract and keep the right customers. Its CEO Brad Anderson said he wanted to separate “angel” customers from the “devils”, the 20% that drove profits down.

To do this, its store clerks were given hours of training in how to identify desirable customers according to their shopping preferences and behavior. This was based on an examination of sales records and demographic data and sleuthing through computer databases to identify good and bad customers.

Other changes were also put in place. To lure the high-spenders, it stocked more merchandise and provided more appealing service. To deter the undesirables, it cut back on promotions and sales tactics that tend to draw them, trimmed them from marketing mailing lists, changed store policies based on the “bad behavior” of  “demon” customers that cost the stores time and money. The trickiest challenge was to deter bad customers without turning off good ones. But, the results were worth it, with sales gains running nearly double of what they were before this policy was put in place.

Older, wiser money

Certainly, the economic situation has changed. But the premise remains valid. In good times or bad, focus on the best and forget the rest. You may not be as big as Best Buy or think like a mass retailer but can you afford 20% losses from the wrong customers?

What can you add to this discussion?

See a penny, pick it up and all day long you'll have good luck.

What are you doing to protect your business from attracting the wrong prospects and keeping the wrong customers? Please share your successes so that we can all benefit from what you have learned. I would like to do a followup post based on reader input.

Photo credits: flickr.com/photos/sjsharktank,  /nrossi, /bad9brad, /opensourceway, /stevendepolo

It also includes details on the Business Success Center’s sales process that customers go through: from their decision to look for something to meet their needs and desires to the point they buy and then rejoice or experience buyer’s remorse.

Small business owners and entrepreneurs will want to follow the prioritized action items  in order will help avoid mistakes and expand sales opportunities. This is primarily of value to those already in business although it has ideas that startups can incorporate.

Using these ideas result in better sales and lower costs. Collateral is more effective and the sales cycle is shorter.

How are we doing? Since there is no legislature in session, the Governor will not give a state of the state address this January. So Ben Philpott of KUT radio (90.5FM) asked some of us who are living through it to give our perceptions.

The interview, entitled “Their State of the State”,  is worth a listen. You’ll hear what I, the Comptroller’s representative RJ Desilva, and others have to say about how well Texas business is doing.

Basically, we all independently think that things are pretty static but teetering and could go either way. We do think that things will eventually break — just when is anyone’s guess — we’re hoping the log jam breaks in 2010 which would mean a good state of the state address in 2011.

Personally, I hope people who have not lived through a downturn keep positive and don’t make a “knee-jerk”, too quick response. It is not necessary to throw the baby out with the bathwater.

After you listen, tell me what you think. Do you agree with us or not? What are you experiencing in your business and what do you hear from your customers?

I am going to be putting your comments and current stats and trends in my own state of small business post coming soon.

Thanksgiving in Canada is held on the 2nd Monday. Maybe we should, too.

I love Thanksgiving but it’s got to go. Let’s do something about it now while there is a full year to get organized.

Here’s why: there’s just not enough time between it and Christmas. If you don’t celebrate Christmas, Hanukkah or other religious holidays in December, there’s not enough time between it and the end of the year because of the time taken up by all those other people who are celebrating.

Do you find yourself  agonizing over what to do?

• Get work done for pay or get work done to keep connected to friends and family. Shopping, decorating, and card writing is work, too?

• Focus on fun, family and friends, giving donations of time or money or both to causes we support or be professional and concentrate on end of the year business stuff – closing out the books, preparing for next year, making final sales quotas, finishing projects or reports?

What are the benefits to moving Thanksgiving?

Lots — for retailers, drivers, teachers, students, the community, the US government, airlines, therapists, police, tax collectors, November birthday people, environmentalists, even turkeys. They have economic, social, educational, and environmental implications. These benefits save and create resources that a November Thanksgiving does not provide.

1. Black Friday would be earlier and retailers would have longer to make the year happier and more profitable.
2. Capitalism would increase because more customers could visit more stores more often.
3. Cities and states would get more sales tax dollars.
4. It might ease traffic and reduce accidents on the streets and in and out of parking lots because there would be more time to shop instead of everyone trying to get around town at the same time.
5. Government offices and agencies would have more staff available since everyone would not be on vacation basically from November 20th or so onward. That means they could get more done, spend more locally, and make their vendors happier.
6. We would save energy because Thanksgiving travel would be at a warmer time of the year. Less delays, nicer weather. Airlines, trains, and buses would see their cash flow even out and not need to make their profit in 4 weeks.
7. Teachers could get a break earlier to catch their breath after all the rush of getting school started.
8. Students would love getting two days off sooner.
9. People born around in November would have a birthday that was just for them and not bracketed by another event. As one of those, I am all for that.
10. People would be happier and less stressful so there should be less need for therapists at this time of year. This would free those hard working psychologists, psychiatrists and social workers to be with their friends and their family.  That way, they would be happier and less stressed, too.
11. There would be less bad behavior and violence in November since there’s no need to hurry through Thanksgiving to have enough time for Christmas or other holidays. This would free up the police or at least give them a break before holiday break-ins, shoplifting and New Year’s DWI’s.
12. Turkeys would live longer. (As a vegetarian this is not very meaningful to me but I am sure it is to them.)
13. I would get all my work done.
14. My staff would be happier because they would have more time to get things done, too.
15. My staff and I would not have to choose between our jobs and our families and friends — and neither would all those other business owners out there and their employees.

Who would like to move Thanksgiving? We all should.

Look at all the advantages. We could even bill this as the new way to improve the economy.

Moving it was not my idea but I think it is a good one. My friend Anne suggested it originally. Her comment came out of high frustration – too much to do and too little time. She says Thanksgiving is a harvest celebration. Her argument is November is not harvest time in most places. And, that’s true.

Who wouldn’t like it? Purists.

We change other dates. I know it would take a mind change and a few other things. Moving Christmas is out of the question. It would have more benefits than changing daylight savings time which is a made-up thing anyway.

How would we do this?

I suggest we follow the Canadians and put it in October. They follow plenty of American traditions. Turn around is fair play. (My friend Chris G. says they hold Thanksgiving in October because it is too cold to hold it later.)

No matter why they do it, I think it would be great. We would be ok if we held it in October – still on a Thursday following US custom, say mid-month, then we wouldn’t run into that other major holiday, Halloween.

What I say is “Go Cannucks!” October Thanksgiving here we come.

What do you say? Would you vote to move Thanksgiving?

Thanks Anne for a wonderfully inspiring idea.

Before I start a petition, find a sponsor for a Constitutional amendment or set up a PAC, I want to hear your comments and opinions. I really do.

Do you have another suggestion on how to survive during this time of year and not start the new year exhausted?

Photo courtesy of ryanjunell.

This is not unusual. When people get laid off sometimes their only option is to create a job for themselves by starting a business. And the Austin area has been extremely supportive of this. As a matter of fact, it has been used as a major way we have been able to work ourselves out of recessions – six that I know of since we started in 1982.

Starting a business can be easy and tough. Easy because the person knows how to make the product or provide the service. Tough because that isn’t all they have to do now that this is their business. When they had a job, there were others to take care of all areas of the business that were not “their job”. As an owner, now they are responsible for everything including areas they may or may not have experience with or like to do. And, it can be rough going.

In tough times, existing small businesses can also have tough times because owners are not running them right either. They just go from project to project. They look at their check book to see if they made any money and they don’t fix the problems. They are too busy “making the donuts” to stop, really look at what is happening to them, and make adjustments. Or, maybe they are afraid to look because of what they might find.

The result for both startups and existing businesses can be missteps, missed opportunities or disasters. Failure rate (defined as closing the doors owing money to others) currently is running about 10-15%. Usually the causes are inadequate or incorrect financials and the negative impact  on marketing/sales. Not knowing the true total cost of overhead, not just the products and services you provide, means you under price and over promise. Or, worse you sell the wrong things to the wrong people. The last buggy-whip makers might have cornered the market when cars first became popular but they aren’t still around unless they watched and adjusted their financials as well as added other products or services.

Startups and existing small business owners must look at what they are doing and how. They must get and keep their financial house in order. Not just focus on getting more sales. Now more than ever, this is too important to let things go and just hope everything will turn out OK.

Seattle, WA Pike Public Market began in 1907 and is one of the oldest continually operated public farmers' markets in the United States. It is a place of business for many small farmers, craftspeople and merchants.

It is also too important to the entire community no matter where that business is located. Starting, retaining, and growing small businesses is the best economic stimulus for everyone.  Most new jobs come from those of us who own a small business. Most people returning to work or first time job seekers, start by getting a job with us. This is the way to create good wages for owners and employees. This is how yet undreamed of products and services are created. By the federal Small Business Administration‘s own research, small businesses are 10 times more innovative dollar per dollar than big business – why because we have to be. So, let’s get our act together. Our future depends on it.

Share your experience. What are you doing in your business to keep an eye on your true costs? What adjustments have you made or are you planning to make? What suggestions do you have for other owners?

Take Action: Keep up with current business trends by subscribing to LCMI. It’s free because your taxes have already paid for it. To receive their data on Texas and any MSA, send an email to lmci@twc.state.tx.us. It has terrific information on all sizes of business as well as employment numbers and trends.

Flag photo by: jstephenconn

Market photo by: kodama_atpl