Some brand-building entrepreneurs start off doing everything themselves, from production and supply chain management, to sales and customer service. Often this works – for a while!
But ultimately they realize that in order to grow their brand, they must hire salespeople besides themselves. Then they realize they have to raise their prices to afford to do so. This is where the first mistake they made, undervaluing their own labor, comes home to roost. To get their business started in the first place, they felt they had to keep their prices to a minimum. So they sold direct to their limited initial clientele, worked for free, and delivered their products for free. They left no “room” for salespeople, overhead, and middlemen. Basically, they undervalued their own labor and, in many cases underpriced their products.
So now they are faced with customers who are used to the relatively low price and the excellent personalized attention they received from the owner. They will certainly object to a new face and a higher price, and may even discontinue the brand. Now the entrepreneurs who did it all themselves are trapped! How do you avoid this trap in the first place?
Many entrepreneurs think they can sell their products exclusively on line. However, when trying to sell consumer goods at the lower price points, they quickly run into competition from bricks-and-mortar retailers who can underprice them without charging for delivery. Also, many of these on-line entrepreneurs miss the opportunity for notion buys afforded by retail stores, thus missing the opportunity to get discovered. So ultimately they may want to be in the stores.
The question is, when they started did they allow for the costs to expand in their pricing? Did they allow for at least base salaries and expenses for commissioned salespeople? Did they allow for the cost of delivery? And did they price their products to allow for the cost of billing, handling, and everything else? Even if they did not, they still have to expand or eventually lose what they have built to competitors who see what they are doing and are better financed.
We have several new entrepreneur clients who have gotten themselves in this trap. We advise them to take certain deliberate steps to get out of it. They often ask, “Who should I hire first, an accountant or a salesperson?” We think they need a salesperson first, so they have the funds to afford the accountant and other key players. So for the first stage of expansion, outsource the accountant and hire on the salesperson.
Here’s one way to possibly begin to migrate your prices upward to so you can afford to expand. Offer your existing clients the same price they were paying but on larger quantities, and add on a split-case fee if they buy less than a case. This will help you achieve some efficiencies of scale, get larger orders, and may not upset your customers as much as a blanket prices raise. Then continue to service your initial clients personally, but now with an understudy who will eventually take over your territory. Then hire just one other salesperson in a new territory selling your products at higher prices. Then raise your price to your existing clientele while offering them a special loyalty discount based on their tenure with your company. Any way you cut it, it’s tricky business, but now you have a plan to expand territory by territory and get out of the solopreneur trap.