Discount Hosting Services

My Biggest Business Mistake (Maybe You Can Avoid it)

by Dixie

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Price versus services offered impacts a whole lot more than how much money a business makes.

By January, 2009, the recession was in full force and everybody was nervous about the economy. I lost my two biggest contracts that month, dropping my annual bottom line thousands of dollars. Every single client I spoke with voiced similar concerns: the viability of their own business, colleagues they knew who were struggling or going under, and cutting costs.

I was worried for my business as well as theirs. Even after years of web consulting and hosting, this was new territory. Economic blips had never hurt my business before. Often, they actually helped, as folks accurately saw the web as a cost-effective way to get their message out. This time was different. So I looked for answers.

I wanted to help my clients out during this tough time as well as remain competitive and keep my own business healthy. I started researching. Comparing my services to the “big guys” even though I’m not, I looked for clues to their success. There were commonalities among the major players–most notable was unlimited hosting plans and super low prices.

Unlimited plans are well known to sell better although in actuality, they simply aren’t real. You’re selling an promise you can’t keep. Servers have physical limitations, so unlimited plans are only possible via overselling. Most people don’t use all their resources and the few that might approach server limitations hit the processing resources too hard long before they can max out storage or bandwidth. Every host on the planet will have a clause in their Terms of Service saying if  usage interferes with the function of the server, you’re shut down. That’s the loophole required to make unlimited plans possible.

I was loathe to use the same approach, but business is business and hosting is highly competitive. If you’re not selling what people are buying, you’re a sad web host indeed. So against my better judgment, I started selling unlimited plans, albeit with an explanation to my customers of what it really meant. Because I’d rather lose my business than lose my sense of integrity.

Super low prices were a harder target. I don’t get bulk discounts because I don’t maintain thousands of servers. I provide support personally, not outsourcing to low-cost international subcontractors. Hence, my costs are much higher per client, so I couldn’t go as low as the big guys, but I lowered my prices to somewhere in the ballpark nonetheless. I had other financial resources to subsidize the drop in revenue while I worked on growing under the new paradigm.

Focus on Service?

What I didn’t change was my business philosophy. When a client asked a question, I answered it, even if it wasn’t “my job” as their web host. I answered questions personally, not with a automated response suggesting to “Search the Knowledgebase.” When I didn’t know the answer, I’d often research and at least try to get folks pointed in the right direction. In short, I tried to serve.

In fact, I continued to provide same advice, guidance and coaching I always had, often without billing for my time. I have always believed in being generous would pay off and to that point, it had. I was proud of my long-term business relationships, believing it largely because of generosity with my expertise.

But with the lower prices, it ceased to be that simple. Instead of folks appreciating an exceptional value, I was getting asked to justify prices in a way I’d never seen before. It took me a while to understand, but eventually I could see:  the commonalities encouraged some to see what I offered as a commodity, comparable to budget hosting plans instead of a professional service provided by a valued and trusted partner.

This switch shocked me, because sometimes demands were inversely proportional to the service provided. The folks quickest to whip out competitors’ rates were the same I’d spent the most (off-the-clock) time providing help and information. The ones I had given cost breaks to were the same who said they couldn’t recommend me unless I paid affiliate fees large enough I’d make less than cost on new accounts. For the first time sine I went into business, I didn’t always feel like I was on the same side as my clients. I knew something was wrong.

It’s almost two years later, and I no longer have the same income structure in place that subsidized this approach. Unlimited plans cost more to provide. Costs have gone up while expectations seems to have risen. This business model isn’t viable.

The lesson lurking? People often judge value according to how much they pay. Counter-intuitively, those that pay the least for what they receive also seem to expect the most. I lost sight of this fact for a minute. I’ve known for a long time that folks who have price as their primary consideration are not a good fit for me. Those who value exceptional service (and are willing to pay fairly for it), are a much better match. So that’s the group I want to partner with!

I will continue to do the best I know how for the people I work with, because that’s the only kind of business I want to run. I will do my best to make sure people I work with get good value for what they spend.  But rates must remain consistent with the level of service provided. Anything less is not sustainable.

{ 2 comments… read them below or add one }

ethan September 29, 2011 at 4:29 pm

Thanks for sharing your experiences and the results of your trials. The information is very helpful, and I can see what you’re talking about clearly with the way people value something according to how much they have to pay for it. It is my experience also that the customers who are expectant of lots of free benefits are also the ones who are the first to bitch about prices of things. Clients who understand value versus price are the best ones, like you said, and the bargain hunters have nothing but energy to spend trying to fight paying and find reasons to be “entitled” to free perks and compensations. A good client knows: you get what you pay for, so don’t scrimp and haggle if you care about quality.

Thanks again for the great article!

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Ron Moody November 28, 2012 at 7:11 pm

Great article!
Ironic that value i.e the qualities that every consumer wants, demands-excellent product, excellent service, fair pricing-has become a niche market.
I attribute it to two things:

Saturation of the market with mediocre (at best), profit driven products and
Consumer apathy that allows this mediocrity to fly in the first place.

Value Rocks and always will. After fourteen successful years in a highly competitive industry with more than its share of shoddy service providers-housecleaning-we still turn heads by offering consistent value to our clients.

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