Don’t Give Your Business Away
By Jo Ann Garay | June 27, 2012
How to Deal With the Family and Friends Freebie Dilemma
All too often, family and friends of business owners expect (and receive) free services and/or products. Over time, these giveaways could cause the owner to eventually lose the business.
Many people have the misconception that business owners have a lot of money and they can or should give their services or products away to family or friends. What most people do not realize is that everything in the business has a cost — from a salt shaker (with the salt) to paper towels, gloves, employee wages, insurance, taxes, rent, and other overhead expenses. Product costs have to be covered so the owner can break even.
In service industries, materials cost (from cleaning chemicals to gasoline, disposable elements, accounting fees, etc.). And, besides the business expenses, owners are struggling to pay themselves so they can cover their personal expenses.
Giving free food away to friends and relatives can take food away from your own table.
A client recently came in to WESST’s Las Cruces Women’s Business Center and told us that when she first opened her restaurant friends and relatives came in on a regular basis expecting free food all of the time. They assumed that because they knew her they did not have to pay.
Once the client realized that her profit margin was not increasing, she had to finally put her foot down and start saying “NO” to her family and friends. Unfortunately, rather than her family and friends understanding why she could no longer give away her food and supporting her, they decided they would no longer go to her restaurant; instead, they ate at other restaurants where they paid for their food. This was very hurtful to her.
Business owners need to realize that their business is their job and it is what is putting the bread on the table for their families. Most of the time business owners work far more hours at their businesses than they would at a regular job, so, to give away their products or services would be to work for free, cutting into the bottom line.
Another client, who owns a retail business selling purses, clothing, and household items, went through the same thing with her family and friends. She had come to the office when she could not make ends meet, noticing her profit margin was not increasing.
After looking at her financials, we found the inventory she was buying was going out, but sales were not increasing. It was at that moment that she realized that by giving away her products, she was taking food out of her family’s mouths. She was not be providing for them like she had envisioned.
Now let’s be clear. Giving away products and services is not entirely a bad thing. There are times in which the donation can be considered marketing (donating to a nonprofit for an event, making a contribution to sports teams or school projects where their name is advertised).
Before giving anything away, there are a few things the business owner should consider:
- First, the business should scrutinize opportunities (since they cannot give to everything) to see if their “target market” will be reached or there is a potential for media coverage/recognition. For example, our client, the restaurant owner, donated a portion of her catering for a networking event where, as a result, she acquired new customers and received a donation tax write-off from the nonprofit event.
- Second, the business owner should make sure they can afford to give away that product or service. For example, a high-end salon owner gives their clients a small glass of wine or other beverage while having their nails and/or hair done. The customer feels pampered by the extra little perk, plus the service fee far outweighs the cost of that drink. It is also very likely that the customer will continue coming back for other services as well as referring family and friends to the salon.
- Third, business owners need to ensure their contributions will be promoted in a positive way. There is nothing worse than to have someone misrepresent the product or service, causing misconceptions about the business by existing and potential customers.
Since costs have to be met in the business before freebies are given, owners need to do some assessing. If it is important to get family and friends to support the business, talk to them. Owners should tell them that when profits allow, they want to provide a free meal, a large discount on retail, or provide items at cost. However, until that is possible, the owner needs and wants them as customers. During a “heart to heart,” family and friends will be able to see all the costs involved in trying to make the business successful. As family or true friends, they should understand and support you.
About the Author
Jo Ann Garay