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Free Promotion vs. Profit


General Business Discussions

A place to talk about general business discussions.
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  #1  
Old 06-19-2006, 05:44 PM
tiedeman
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So many companies offer free services or a type of free promotion; such as free lawn mowing to service men, free aeration with a service contract, free fertilization, senior discounts, 5% off it paid in full, 3% off the bill if paid before a certain date, etc.

But, when does it start to go too far that it cuts into your profit? I mean, you can only offer free services or discounts for so long before you start to feel the pinch.

I guess what I am asking is, when do you draw the line and say enough is enough, we need to make a profit now, and not be a hand out company?
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Old 06-19-2006, 10:03 PM
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Here is my thought. What percentage does your company spend on marketing? When you are newer and don't have too many customers, you won't have too much word of mouth so you will probably be spending more. Ironically, this is a time when you least can financially afford to spend money on advertising too. It's another catch-22 of business.

One of the things you have at your disposal is you and your services. If you have more time to spend than money, why not leverage your time. Conserve your cash and offer some freebies here and there. Plan them out and calculate how much it is costing you. You can track this. How much are you spending? 10%? More? Less?

With your freebies, are you able to transform them into free advertising from others? Has your act of goodwill created a buzz? Have you gotten free press?

As you fill up your schedule, you can cut back on it and replace that with other forms of advertising.

Something to keep in mind, there are opportunity costs.
Opportunity cost is a term used in economics to mean the cost of something in terms of an opportunity forgone (and the benefits that could be received from that opportunity), or the most valuable forgone alternative. For example, if a city decides to build a hospital on vacant land that it owns, the opportunity cost is some other thing that might have been done with the land and construction funds instead. In building the hospital, the city has forgone the opportunity to build a sporting center on that land, or a parking lot, or the ability to sell the land to reduce the city's debt, and so on.
Based on this, it is costing you to not fill your schedule. For every hour you want to be out working and are not, it is costing. Maybe not as much as giving away free service but maybe it is. Maybe it's even more when you project it out over time.

I think it might even be better to not offer your services at a discount to certain groups because it could devalue the service. Freebies, I don't feel devalue your services because they appear to be offers of good will.

What are your thoughts?
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Old 06-19-2006, 10:09 PM
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TG said what I was going to. When your a new company it's easier to offer some incentive to potential customers. When you have a full schedule or almost full schedule it would be more benefitial to the company to just spend the money on advertising I think. You'd be cutting into potential work time then, where as if you have hardly any schedule or half a schedule, you have free time to beable to do discounted/free work more. Any revenue is better then no revenue when your fresh.

I didn't offer any free work or discounts this year except 5% discount for commercial accounts to prepay for the year. None of them went for that. I've never had people give me the coupons for 10-15% off mulch installs, never had a customer ask about the 2 free cuts when they signed up. Only thing I've had question about is the refferals. Coupons seem like a waste to me from past experience so I don't offer them.
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Old 06-20-2006, 08:08 AM
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Have you thought of further promotions you would like to offer this year?

If so, what have you been thinking?
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Old 06-20-2006, 03:09 PM
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I am currently done with any more type of promotions. Every thing slows down here until August/September again.

I really don't know if I am going to offer any other type of promotions for the future. I am taking the business is an amazing direction...yet it will be probably one of the hardest things to do
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Old 06-20-2006, 10:31 PM
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Quote:
Originally Posted by [b
Quote[/b] ] I am taking the business is an amazing direction...yet it will be probably one of the hardest things to do
What do you mean?
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Old 06-20-2006, 10:55 PM
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In true time, I will let you guys know about it. I am still working out the fine details, but I hope to start the direction 100% in July. I have been doing a lot of testing with it the last 2 to 3 weeks, with not only great results for the customer, but great results for me as well.
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Old 06-21-2006, 06:32 AM
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This sounds exciting! Keep us posted.
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