After 35 years of running a marketing business, one thing still bothers me. Markup! It seems and has always seemed to be a concept of deceit: camouflaging the true price of your service in order to make a profit at the expense of your customer. And customers don’t like it one bit!
One need only glance at the daily headlines. “Obscene profits on Wall Street continue to miff the public.” “Oil company profits at record highs while the consumer is suffering at the pump.” “Big business profits outrageous during the never-ending recession.” The average person does not condone big profits in business when they are struggling to put food on the table, not to mention losing their homes to foreclosure.
So how do these businesses make such enormous profits? Price markup is one way. Charging customers more than they paid for what they are selling. Is that fair? As an accepted practice in business, it apparently is.
But in my experience with primarily small business owners, markup is a dirty word. My clients demand to know what I am paying for services I offer them. They don’t seem to mind paying me a fair rate (translation: a very low price) for services I provide from my own resources. This includes creative services like design, writing, composition, etc. of ads, websites, brochures, etc. However, if I am providing a service that involves an outside vendor for which I am being charged a price, my customers want to know what that price is and not pay a penny more for it than I do. Hence, no markup allowed!
That doesn’t give me much room to make a profit since the paltry charges for my creative services can hardly cover my overhead in this economy. But the ironic part of this is that the outside services I provide to my clients have also all been hit hard by current economic conditions, not to mention stiff competition, the changing business landscape and general hard times, forcing them to cut prices to the bone, making it virtually impossible for me to mark them up.
If I am buying printing for a customer’s brochures, my customer can get on the Internet and glance at the average prices being charged by hundreds of national printers, all of whom are bidding against each other for the limited printing business which still exists in this Internet age. So when my customer learns what price I propose to charge for his job, he can assess whether I have tried to pull the wool over his eyes and charge him some marked-up amount to make a profit on him.
Maybe he’ll let a small markup slide, but I feel like I’ve committed a crime against humanity, and suffer enormous guilt for doing so. How dare I deceive him into paying some minuscule markup just to pad my pocketbook?!! Where is the justification in that, he probably wonders, losing respect for me in the process.
Well, I can defend why we have markup. For one thing, it has taken me arduous research to find the best quality and price; hours of careful, knowledgeable effort to prepare the document to meet the parameters of the service I decide to use; a lifetime of business experience to be able to judge which printer to use and whether price should be the final determining factor in my decision; and finally, risk of job liability and client loss should the printer fail to perform his role satisfactorily. Yes, it’s my neck on the line, not my customer’s!
Time is money and everything I do for my clients takes my time, a lot of it. Isn’t that worth something? Apparently not, to most of my disgruntled clients, who are struggling on their end with the same disturbing circumstances! Almost nonexistent profits with increasing overhead. It’s not easy for anyone. So I don’t blame them for their suspicions and irritations. Yet, reality dictates that I must make a profit to stay in business.
While printing is one service that cannot bear a significant markup, there are plenty of others I offer which also are in the same boat. Mailing lists and mailing services! Domain registration and website hosting! Stock photography! Advertising!…to name just a few. These are all services which have so much competition for that coveted limited business that they in turn can only charge a pittance for what they sell. So there is virtually no room for me to charge a markup. Yet using such services requires endless investment of my time on behalf of my customers.
How? Let’s look at each one separately. My customer wants to reach a certain segment of the marketplace to present his offerings. I need to get him a traditional mailing list or perhaps an emailing list to approach that market. If the piece will be printed and mailed, I will have to strive for list quantities which will be manageable within his printing and mailing budget and offer a return on investment given expected response rates. So, with the help of a list representative, I begin the process of suggesting avenues to reach our goal by posing geographic limitations, industry sectors, commercial or residential targets, etc. This usually results in lists which are either too large to consider or too small to waste the effort on. So the process continues with parameters tweaked to try to come to a workable resolution.
In the case of stock photography, my customer and probably most of the world believes I will do nothing to deserve any justification for a marked-up price. Yet, there are hundreds of stock photo houses all with different ways to utilize their services, not to mention choosing from archives of rights-managed and royalty-free samples with strict regulations about usage and plenty of liability as the purchasing agent. And, what exactly are we looking for? Is my client an expert in assessing what kind of visual we need to present the right marketing image and communicate his message effectively? Usually not, which is why I am in the picture to begin with. Then, trying to access the available choices within a certain subject requires skill in proposing effective search terms, and concludes with having the aesthetic sensibilities and marketing savvy to wade through endless possibilities, narrow the search down to the few that can be considered the best to use…and then make that final choice, pay for it and download a huge file to work with effectively in his project. How many hours, days and years of my experience were tapped to perform this service? Countless! Yet, it is dubious I will be able to add any markup at all. And if I do, it will have to be infinitesimal!
And that doesn’t even take into account that most of my clients would rather try to take their own photos on less-than-optimal digital cameras or cell phones with poor resolution which necessitates that I perform digital enhancement services to try to correct a multitude of problems for which they expect I will not charge them anything.
Domain registration and hosting services? These are priced so competitively nowadays, companies are practically giving them away. (And in some cases… are!) Yet, the customers who need me to perform these services haven’t a clue about where to go, how much to pay, what is available, what they need, what is involved in the decision, how long it takes to perform the research, navigate the convoluted websites, set up the many aspects of each to implement them, keep them up and running all year despite problems with servers I have no control over, etc….but they are sure of one thing. Their friend or relative has told them that they are being overcharged.
Finally, traditional media like newspapers, magazines, radio and TV are eking out a living by the skin of their teeth, offering advertising rates so low they are embarrassing to divulge here. And unlike the domain businesses, they can’t even give it away. So much for the possibility of markup.
In articles I have read on markup, accountants have discussed the concept of “profit margin.” This involves applying a certain percentage to your cost in order to guarantee you will generate enough revenue to cover your overhead and net an acceptable business profit in the process. How neat.
In my reality, profit margin is a concept I’d throw out the window. I have to examine what prices the market will bear based on what my competition is charging and what my customer is willing (or able) to spend.
I have found that the best way to attract a new client into a long-term website relationship is to offer the domain registration and hosting for free for the first year because after that it is usually too mind-boggling for them to try to extract themselves from what has been set up, especially if they fear that the success of their website may be in jeopardy. But this may not work with every client and it is important to stipulate a multi-year contract so that they don’t opt out after the first free year.
I’ve also toyed with the idea of offering my creative services in conjunction with other services included as a package deal. But every client’s needs are different and they still compare whatever price I quote with a price my competition may have quoted whether we are comparing apples and oranges or not! And, as I’ve said previously, if any other services are expected, they want to know exactly what I am paying for those services.
You may ask why I let my clients push me around like that. When you are dealing one on one with a business owner who has confided in you about every aspect of his business in order to have you strategize marketing solutions for his benefit, direct questions about price sometimes become unavoidable. Since I don’t consider my clients my adversaries, I try to be as truthful as I can with them in order to build their trust in my judgment. Our collaboration and success together is the heart and soul of our business relationship. I cannot deny them the right to ask questions about cost. Even if they are my costs. They ultimately are our costs.
As for markup, I don’t like the way it makes me feel but if I can get away with it, I have to try to apply it in any situation that can handle it, as inconspicuously as possible, keeping my fingers crossed that no questions will come up. It is part of business survival that every business owner must use and therefore must understand. But to this business owner, it still seems deceitful and dishonest.