A few years ago, I did a string of articles talking about the importance of charging appropriately. They talked about how customer loyalty can sometimes be fleeting, how low prices can diminish perceived value and the volume of customers you get, and how low prices can attract the wrong type of customers.
In the last article, I talked about how, counterintuitively, the customers who pay you the least are often the most demanding and least appreciative. Our largest clients end up being the easiest to work with, while the tiny accounts can sometimes seem impossible to please. The article noted, in part:
“This is hardly an isolated phenomenon. The person who wants to pay $500 for a website is somehow much more demanding than the person who is paying $10,000. The guy buying a $1,000 Yugo expects, against all logic, a lot more than the guy buying the $40,000 Lexus. You name the product/service, it is a long-noted phenomenon in business that the people who pay or buy the least also tend to appreciate you the least – and expect you to cater to them the most.
Why? Because they ultimately don’t value you. And they tell you that by just how little they’re willing to pay you. The customers who value your expertise, value your time, and know your worth show it – every time they write you a check.”
And I still believe that is a big part of the equation, but not the only one. I think I’ve found another piece of the puzzle.
The other factor? How much pain paying for your product/service causes them.
To illustrate: last year, my parents had their 40th anniversary and someone gifted them a few nights in the Biltmore. Rooms start at about $300/night and go up from there. Their room was in one of the suites that are about $600/night. It’s expensive by nearly anyone’s perspective.
They were talking to one of the wait staff and asking them if guests were pretty nice or if they were super demanding – given how expensive it is. The lady looked at where they were staying and said something that was a bit surprising at first.
She said that the people who were staying in the nicer suites were generally really easy to get along with. They were much more laid back and accommodating. It was the people in the “cheap” (relatively speaking of course) rooms who were much more likely to be problematic. She even told the story of one couple who kept trying to tell her that she was “their servant”. She had to politely clarify that she was happy to serve them food or be of service, but she was not their servant. They were apparently less than pleased.
But again, this phenomenon sort of makes sense if we think about it. If someone is willing to spend $600 per night just on a room – double the rate of other very nice rooms in the same hotel – chances are they are fairly well-off. That $600 clearly isn’t hurting their wallet too badly.
But at the lower rate, it’s easy to imagine people who are splurging and really treating themselves with the purchase. It was probably well beyond what they would normally pay for a hotel (it’s more than I ever would), but they indulged a little bit for the experience.
And dadgummit – they are going to make sure they get their money’s worth!
Because paying for the hotel hurt. Spending that money caused some degree of pain. So it has to be worth it.
The guy/gal in the $600 room can have a subpar weekend and it won’t affect their life. But for the people who scraped and saved to get there, it could feel much more devastating.
It’s the same for pretty much anything else we buy. The more it hurts us to pay, the more we expect from the purchase.
I can think about when I was a teenager and was making $8/hr – so pretty much everything I bought hurt. It didn’t matter what the purchase was. It could be a $1 burrito from Taco Bell – if it was wrong I was turning around to get it fixed or getting my money back.
Not because I was angry. Not because I was trying to be difficult. But because of what it cost me to get that money. It took a lot to get it. I had to get my money’s worth.
It’s the same for our customers. How much our product or service hurts them will directly correlate to how demanding they are and how difficult (or not) they are to work with.
It’s not how much it costs, it’s how much it costs to them.
And that’s why we should be very selective as to whom we choose to offer our services or products. If we are at the upper-end (or outside of) a person’s price range there is a much higher likelihood for there to be dissatisfaction.
Even if we can make the sale to these barely qualified prospects, we may not want to. It might end up being more trouble for us than it’s worth. Sure, we’ll lose the revenue in the short-term, but as we’ve noted before: dealing with the wrong types of clients can be more expensive than anything else.
Trying to please the wrong kind of client cost us. It will cost us time, energy, and some degree of sanity. And if the clients end up being dissatisfied (even through no fault of our own), it’s unlikely that they’ll stick around long-term anyway.
Working with the right clients is tremendously important – and their actually being able to afford us is a component of that.
Any accounting, business, or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.