#12 - How Risk Impacts Margins

Learn to balance your customers' risk by standing behind your work. Your margins will thank you and so will your customers. When in doubt, think back to how you've seen restaurants handle mistakes.

Hey there! 👋 Welcome to Better Outcomes, a community for service business owners fed up with the status quo. This newsletter is written by Casey Winans.

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What's In This Issue 📰 📦

A brief look into what you'll be reading

  • Why balancing risk for your business and customers is critical

  • Stories about project snafus and underwhelming restaurant experiences

  • Books, articles, and tweets to help you make better business decisions

What's On My Mind 🧠 🤔

I’ve been thinking…

By default, service businesses place nearly all the risk on their customers. How? By hiding behind hourly rates. I chose ‘hiding’ because that’s what is happening. When you focus on getting paid for every last bit of effort you make, you don’t have your customer’s best interest at heart. You are only looking out for your business.

The risk is one-sided. No wonder customers don’t trust your hours. You would too if that was the only metric that a provider offered to you and there was little-to-no way to determine if your budget was sufficient.

As much as I loathe billable hours, you don’t have to give them up cold-turkey. As a first pass, you just need to help reduce the perceived risk to your customers.

This is what we’ll discuss today.


The Crux of the Issue 🥓 🤤

The insight of the week…

Stand behind your brand with a satisfaction guarantee. As any self-respecting business owner would, you’re already doing it but not getting credit for it.

Just imagine that you’re knee-deep in a customer project and deliver something that causes an unanticipated problem. Would you not do whatever it took to fix the situation? Of course, you would! So, why not shout it from the rooftop and put your customers (and future customers) at ease before things go sideways by working a guarantee into your marketing?

When you “put your money where your mouth is”, you lower the perceived risk for your customers. And it costs you nothing because you would do the right thing regardless. Yet now your customers know you have their back.

Sharing in the risk for better rewards

When I initially started advocating for this approach, it met resistance. As humans, we typically imagine worst-case scenarios, however, when returning to rational thoughts, we understand that there are many tools at our disposal to achieve great outcomes, or, at worst, minimize the downside.

Effectively, guarantees seek to reassure and build rapport prior to work beginning for an engagement. You are reducing risk for the customers - real or otherwise. You, like customers, place immense value on lowered risks, which most customers are willing to pay a premium for when negotiating future work.

Taking on risk breeds better processes

Incentives matter. When your firm takes on risk, it requires the design of more effective processes to ensure what you commit to is actually delivered. Maybe even exceeding expectations.

Lowering risks requires your firm to focus on what truly matters to produce a quality outcome that delivers on what you agree to do at the outset of the engagement. Effectiveness must be pursued as efficiency alone merely means you are doing things right. But, are they the right things?! Effectiveness breeds processes that focus on what matters (what customers value), ensure high-quality outcomes, align your team with customer outcomes, and demand accountability within your firm to deliver on your promises.

Word of mouth as a double-edged sword

Customers have massive power to build and destroy your reputation. And, history shows that negative word of mouth is many times more powerful than customer praise.

Just think about what happened to Robinhood last week! A reputation that took 7 years to build was seriously damaged in a manner of hours.

With that, how can you minimize bad feelings if and when you find yourself unable to satisfy a customer? It boils down to treating the customer with respect and doing everything in your power to demonstrate compassion for their perspective. Quite often, the gesture can be quite small yet yield extraordinary results.

Case in point, have you ever been out to dinner at a restaurant and your order was screwed up? I’m sure you have. Taking this further, you probably have memories of where the staff or manager failed to even try to make it right, leaving a bad taste in your mouth and the desire to never return and maybe even deter friends and family from choosing that restaurant in the future. But, what about the restaurants that chose to take charges off your bill or offer up a gift card for future occasions? From my own personal experience, that has typically won me over and, surprisingly, I’ve been happy to recommend them when given the opportunity.

What could your firm be doing to put customers at ease and, if you find yourself in the uncomfortable position of under-delivering, what could you offer to regain customer trust?

Have a story that would help others? Share it in the comments. 👇

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Useful Things For You 📚 📺

Books, blogs, and tweets that will help you grow…

1) Take a Stand For Your Brand [BOOK]

“Making the decision to adopt a differentiating business strategy is difficult for professional service firms. Most firms, particularly those concerned with revenue growth, desperately want to be all things to all people. But by appealing to everyone, they appeal to no one. They forget that standing for everything is just another way of standing for nothing.”

This is one of the first positioning books I read that catered to professional service firms. Tim Williams is an ad agency guy that has helped shape much of my perspective on how to build better service businesses.

2) When Policies Hard Fail: How Not to Treat Customers [BLOG]

“Sometimes you need to give employees room to use their judgment. The people who interact with your customers are your brand. Give them enough freedom to make the right decision and make you look good.”

Andrew Holliday of Special Sauce Branding is someone I respect immensely and he rarely fails to post something thought-provoking every week (if not more) on LinkedIn that makes you take a step back and wish you were that perceptive with everyday life. This week he found an example of how policies over principles will always fail.

3) April Dunford is Obviously Awesome [TWEET]

April recently wrote a guest post for Lenny’s Newsletter which is probably the best advice on positioning that I’ve personally read. I’m still digesting it and striving to develop my unique perspective. Positioning along with strategy and marketing are areas of professional services that see so little effort. I want to fix that!

1️⃣ Oh, One More Thing…

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Better Outcomes is written and curated by Casey Winans. Follow me on Twitter, Medium, and LinkedIn. Want to work with me? Send me an e-mail. Or maybe just buy me a beer?