Ian Whitworth: Why SMEs should put up their prices, and not follow Scott Morrison’s ‘third rate’ business advice

I’m no economist. But I can tell you things are coming back because I did six flights in seven days last week and the Mug Flyer Index is through the roof.

For the last few months it’s just been travel die-hards out there, in tumbleweed airports and half-empty planes. We exchange the knowing nods of people who know how to get on a plane, stash our bag and sit down without damaging anyone.

But on my first flight last week, sitting in my aisle seat as everyone boarded, I got thumped by six different backpacks.

And in a new escalation, I got a nasty umbrella jab from a man who should be on a no-fly list. His golf-length umbrella was wedged diagonally through his backpack, like a corporate doofus Deadpool. He poked everyone to the left of the aisle as he swung from side to side looking for his seat.

Yep, regular clueless travellers are back. All those flights were full. It feels like confidence.

That’s good news for those of us with businesses that need people to get out of their houses. And on cue, our sales enquiries are starting to heat up. In some states we’re already close to capacity for the traditional busy season.

So we’re putting our prices up a bit

So we’re putting our prices up a bit and we’re not ashamed of that. You should consider it yourself. Unless you’re a player in an oligopoly market, because you’ve already done it. Don’t do it again.

For us regular SMEs, it’s a constant battle to creep your prices up. It’s a scary prospect. In your mind, your customers might drop you right away and run off with a cheaper, dirtier competitor.

Yet you must do it. Because none of your staff or suppliers are coming to you with a request to bring salaries, rent, or sales stock costs down.

We’ve enjoyed low inflation for so long that a lot of people don’t know it any other way. Skills shortages, a potential energy crisis and lots of other nasties are coming to change all that.

Time to get on the front foot before your margins vanish.

What would tradies do?

A blog story idea that’s been floating around in the back of my mind for a while is: what if other industries adopted the same pricing, response times and attitude to deadlines as tradies?

In our industry, we have to turn up at the exact hour required by the client, which is sometimes 2am. And work until the clients says stop, which might be 16 hours later.

We do our absolute best to plan meal breaks but sometimes they don’t happen.

Our people are doing complex technical work with an expectation of a zero fail rate — while being badgered by gangs of clipboard-waving organisers, who are in turn terrorised by their CEO, who is having a pre-presentation nerve attack.

And for all that, we charge a lower hourly rate than a locksmith or electrician. Imagine asking them to work under the same conditions we do:

“I need the house finished by the weekend, you’re not leaving until it’s done.”

You probably have equivalent situations in your industry. Thinking about what other industries charge is a good way to re-calibrate your sense of reality.

And frankly, we could all use some of the swaggering confidence of tradies.

Have some self-belief

Have some belief that what you do is good.

We believe what we do is worthy, and that we provide a better service than most in our industry. That’s not arrogance; you have to feel that way or you should not be in business.

I have enormous respect for businesses in competitive markets that choose to price higher. Nobody has to use them, yet they’ve managed to persuade clients to pay more. By being a better service. Or being a badge of discerning taste. Or any one of thousands of ways to have clients pay more and feel good about it.

Don’t take my word for it, let’s hear from Warren Buffett in his 2010 testimony to Congress:

“The single most important decision in evaluating a business is pricing power. If you can raise prices without losing to a competitor, it’s a very good business. If you need a prayer session before raising prices a tenth of a cent, you’ve got a terrible business. I’ve been in both and I know the difference.”

Time for some ROI on two years of starvation

If you, like us, are in a COVID-smashed sector, there’s another reason to put your prices up.

As business owners, we’ve made basically zero for the last two years. Now there are brutal staff shortages.

For those two years, we invested a lot to keep 65-odd full-time staff employed, so when things returned we could offer clients a low-risk service in a high-stakes environment. I think it’s reasonable to ask for a return on that investment.

The price rises are modest, and we don’t think it’s greedy. We’re not some market-dominating behemoth that can just enforce price rises and people have to pay. There will always be a cheaper alternative to us, and we’re cool with whatever choice clients would like to make.

It’s interesting to now deal with buyers accustomed to desperate supplier deals. For them, like us, there is some recalibration ahead.

We’re telling those clients “we really are at maximum capacity that week, we don’t know if we can even take on the work”.

And they’re going: “No we need you do the work. Also can you do it for 35%-off because our budget is tight?”

We really want to work with those clients, but it needs open, honest discussion on both sides.

We’re avoiding sales situations where it’s a reverse auction to the bottom. That includes almost all tenders.

It’s a whole article for another time, but we are very much over ploughing months of effort into bad-faith tender processes that waste thousands of expensive hours, for people in an industry that’s been on its knees for two years.

Why you need better margins right now (and not Scott Morrison’s advice)

Obviously we would like to finally make some money because we’re keen to afford food and shelter.

But it’s also because we need the profit margin to reinvest. The winners and losers of the next decade and beyond are being decided now. In our game, if you can’t afford to buy new working assets, you’re going to slip further and further behind.

The other week the Prime Minister said we have to “ensure we sweat those assets” when talking about our ageing fleet of doomed coal power stations.

I think he thought it sounded like a tough businessman thing to say.

It’s tempting to “sweat” assets – keeping them working beyond their intended life because it’s profitable when they’re written down to zero value. But it’s the mindset of third-rate business operators. And countries.

They keep those old assets grinding away, patching them up, because “they’re still perfectly good”. In the same way white van guys drive around during council cleanups: “That’s a perfectly good microwave oven.”

Show me an asset sweater in our industry and I’ll show you a dirty old business whose staff hate their lives.

And while I detest that hackneyed line “our people are our greatest asset”, it’s a mindset you also need to apply to staff. You will need some margin left to keep your best people on board as wage pressure rises. Even if they love you, they still have bills to pay.

Review your prices now. 2022 is the ctrl/alt/delete time for how you do business. Clients get that there are skills shortages.

In states where we’ve already done price rises, we asked our sales people what sort of push back they’d experienced. The answer? None at all.

Time to push through the fear.

This article was first published on the Undisruptable website. Ian Whitworth’s book Undisruptable: Timeless Business Truths for Thriving in a World of Non-Stop Change is out now from Penguin Random House.