Pricing and Cash Flow

Pricing and Cash Flow

This from the HBR Daily Stat:

A Round-Number Price Helps You Sell Faster, but for a Lower Amount

Items listed on eBay at round-number prices such as $200 sell for 6% to 8% less than those listed at “precise” numbers such as $198, says a team led by Matt Backus of Cornell, yet round-number listings are very common on online auction sites, apparently because certain sellers are impatient to sell and are willing to forgo top offers in order to move their goods more quickly. Indeed, round-number listings receive offers 8 to 12 days sooner, on average, and the items are ultimately more likely to sell than those offered at precise-number prices, the researchers say.

Back when I was involved in a fast growing franchise system, I made a habit of calling the franchise owners that were highlighted in the internal newsletters. The franchise was great at celebrating wins and people love to share their successes so it was an easy way for me to learn.

One of my early lessons was from a franchise owner in Salt Lake City, UT. He was tearing up the revenue charts with a very expensive type of technical training. Expensive for the client and expensive for the training center. I asked him how he justified the effort and expense and he replied “cash flow.”

He was making this opportunity fit his business by looking at his most important concern which was cash flow. In order to run the classes he required up front payment. In choosing the contract instructors he required 30 day terms on a credit card. For a startup business where growth eats capital, this was a revelation. He applied this to every part of the business. Cash in the bank was that important.

For us, we were sitting on a pile of receivables from some of the largest companies in the area. They invested in the training, but were running 90 days late on payment. It was killing us. Listening to how he focused on cash flow changed our approach. Saved the business.

Seeing that HBR Stat brought it all back. A bird in the hand is worth two in the bush. Sure, you may be able to get 8% more if you wait two weeks, but you may not sell it.

Sometimes that approach fits. Use it wisely.

Good stuff.