My best mistake: Missing the price point
When Jeremy Levitt started his business in 2007, he knew he had a great idea but kept hitting roadblocks when it came to pricing his product. With the business growing, this was an issue that he needed to solve quickly.
Serviceseeking.com.au is a site that allows customers to compare quotes from local businesses online to offer consumers the chance to get the best price for the services they need.
But when it came to pricing the product he was offering, CEO Jeremy Levitt made plenty of mistakes in trying to find the ideal number.
“Our pricing model was completely wrong. There were some huge flaws. For example, we were unable to properly monitor when jobs had been awarded, so we missed out on a lot of commission from businesses who ‘gamed’ the system. Also, the money we did earn was dictated by our business members (and how much they were charging) and didn’t reflect our marketing spend. We had absolutely zero control, which made it almost impossible to build on revenue and forecast for the future.”
“We were inexperienced and thought that a commission-based system (where we received 10 percent of the final price quoted) was the best revenue model for our business. We saw other similar businesses implementing the same sort of model so we thought it would also make sense for us. We didn’t know that they were also getting it wrong.”
The effect on the business was dramatic, admits Levitt, who says, “We weren’t making much money! We weren’t offering our businesses the best value we could. Our aim was to offer better value than the traditional marketing channels. We knew this was possible after we got the pricing model right, but it just wasn’t happening, which meant a lot of our businesses were unhappy with us.”
Fortunately it was only around a month after launching that Levitt realised the company needed to make some serious changes and immediately set about rethinking their pricing strategy.
“We implemented a new credits model, where businesses paid per quote. This was slightly more effective but still not the right model for us – or our business members. We persevered with this for a few years, determined we could make it work, before finally getting it right in May this year with our monthly membership structure.
“We developed a pretty complicated ‘magic’ formula that took into account the cost to acquire leads and the perceived job value, to generate a unique monthly membership rate.”
The difference after implementing this new system has been a positive step for ServiceSeeking’s success.
“Our revenue has picked up dramatically since introducing monthly memberships,” says Levitt.
Despite the lesson that Levitt has learned being so dramatic, he says that he wouldn’t change anything if he had the chance again.
“It probably couldn’t have played out any other way. So much of building our business is about trial and error until we find the one thing that works.
“We’ve certainly learnt a lot from this mistake and now believe that it’s our unique pricing model that sets us apart from our competition.”
After going through these trials, Levitt has the following tips on offer for businesses unsure about how to get past their mistake:
- Don’t ‘knee jerk’. If you know something’s not working, take the time to rethink the process properly so you don’t make another mistake.
- Implement statistical dashboards to know your numbers inside and out. That’s the only way you’ll detect whether you’ve made a mistake or not.
- Trial new things, but initially only on a small sample of customers in case you get it wrong.