being cheap doesn't pay: please don't try to screw your small business vendors

I had a customer contact me five days prior to their domain name expiring asking if we could give them a discount on the renewal since they could get domains cheaper elsewhere. I explained that we couldn't adjust our pricing due to the cost we pay to our supplier and we pay this so we receive good service and support from an ethical company that will back us and our customers if needed. Here we are five days after the expiration date and they are just now renewing for a year and want their domain activated ASAP. I had to explain that since it expired it would take 24-72 hours after the renewal to become active again and this was the case regardless of which company they registered through.

I'll be the first to admit that my rates for domains aren't the least expensive; nor are they the most expensive. In this case, the desire to save about $9/year cost them a few days downtime for their site. Assuming the net profit from their site for a couple days business is more than $9, they didn't come out ahead.

This type of thinking is detrimental to small businesses, yet I see it constantly. Chasing short-term gains at the cost of reliability, stability, and good support doesn't typically pan out in the long run. As a small business, choosing a vendor which will offer all this at a reasonable price should be your goal. Trying to get your vendors to cut you a deal doesn't help anyone in the relationship chain.

Picture it like this: a vendor has 500 customers and charges $50 for a monthly service. This is $25,000 in gross revenue per month for the vendor. You try to get the vendor to give you a discount of $10/month. So, no big deal, right? They only lose out on $10/month but keep a customer (who's value is dubious, I'll argue in a bit) which we all know is less expensive than obtaining one.

But what if all their customers do this? Then, their gross revenue drops by $5000/month. How do they make up for this? The likely answer is they reduce overhead. In the case of a service vendor, smart money says this is a reduction in support staff–technical support, billing support, customer service, etc. For a small vendor, this is a tough decision and it will most likely have a negative impact on their customers. Small businesses get hurt by this more than big business due to economies of scale and also the tendency of most small business to price their services too low.

So, what about the dubious value of this type of customer? From my experience in small business as a service provider (not expansive by any means, but long enough to have learned a few things), I can tell you that about 80% of the customers who want to bargain with you are the same customers who will be using the majority of your resources. They require the most hand-holding, they are typically combative, and they like to play the “I'll take my business elsewhere” card. Worst of all: they aren't loyal because they are only your customer because they got a deal. Once someone else offers them a deal, they leave.

For small business owners looking for a vendor: find a vendor who will give you better support than the big companies at a reasonable price. This price may even be more than you'd pay elsewhere, but the support will outweigh any increased cost.

For small business vendors: resist the temptation to bargain unless it makes financial sense. Sell the strength of your service and support and the resulting cost will follow nicely.

Enough for now, I need to take a break and maybe I'll revisit this when I have more time to think it out.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s