I’m here with the COVID-19 business continuity update for Thursday 30th April.
Today I’m focusing on the commercial advantages that JobKeeper presents over the next 5 months. This is a paradigm shift for businesses and most haven’t woken up to it yet. Be first, get an understanding and you’ll have a competitive advantage. As coaches we’ve been discussing this over the last week and strategising on how our clients can best take advantage of this situation.
Commercial pricing during JobKeeper
Consider how the JobKeeper subsidy and entitlement to rent relief changes the cost equation for a business that charges for labour. Say you have a technician on a salary of $100,000 (generous, I know); what JobKeeper subsidy effectively does with the $1,500 per fortnight payment is to pay the technician’s wages for the first two days of the week. So, one way to look at it is that any income you earn on the Monday and Tuesday will be at 100% gross profit. Another way to look at it is that the technician’s hourly rate of $50 is now only costing you $30/hr. This gives you the ability to adjust your pricing.
So, if your normal charge out rate is $100 per hour and you’re currently short of work, now you have the ability to discount your usual rate and still maintain profitability. If you’ve been forced to move your team down to a 4-day or 3-day week, then the benefit is even greater.
Here’s a worked-up example:
In this example, you can maintain your profit while your costs have been reduced, thanks to the benefits of JobKeeper. Your coach will be able to take you through the modelling so you can understand how this applies in your business.
Here’s the opportunity: You can use this discounted rate in the marketplace during the coronavirus situation to access prospective clients. The priority should be on using this strategy to target those A-grade prospective clients that you haven’t been able to get in the door with before now. If you consider the value of the discounted rate, you can even strike a deal to have the client engage you on a discounted rate for the remaining 5 months of JobKeeper (slated to end on 27th September) with a follow-on contract on normal rates after JobKeeper.
If you use this strategy of discounting to fill up to 4 or 5 days a week work, there are a couple of areas we need to address to protect you:
1. Time limit on discounted rates
You must ensure that any engagement on discounted rates ends by 27/9/2020. If you’re engaging in quoted works, you’ll need to clearly specify that the project must start and end prior to 27/9/2020. If you consider it appropriate, provide a quote at normal rates as well as a quote at your discounted rates, so they can see the pricing if the project does run over the 27/9/2020 date. If you’re providing ongoing labour services, then ensure that rates revert to the normal price on 27/9/2020.
Your business coach will be working with you to develop your plan of attack on which prospective clients you should target with this strategy.
2. Competitor activity
We know that many businesses are getting JobKeeper, probably including your competitors. You should be mindful that it’s possible, if not likely, that your competitors will also use a discounted pricing strategy to come after your current clients. While I definitely wouldn’t encourage you to proactively offer discounted pricing to your current clients, it would be sensible to have it as a defensive play if/when the need arises.
Speak with your business mentor or coach about how and when to use this strategy with your current clients so that you are prepared.
Some people have asked about yesterday’s update – there was no update yesterday.
I want to be clear: my purpose for these updates is to deliver information and advice that is super relevant to your business. No noise, no fluff, just the insights that are going to matter to you as our client.
Tomorrow is May 1. How time flies!
Ashley Thomson B.Eng(Hons), Grad. Dip. Mgmt, MEI
Tenfold Business Coaching