Woman Raising a Glass of ChampagneWay back when the Internet was “new” and you could still register a one-word domain name, my wife/business partner and I were leading pioneers in our industry:  Business Filings / Incorporation Services.”. The Internet was BRAND NEW!  Our industry was BRAND NEW!

Quick!  Before the Money Stops Flowing

With the growing number of people getting a PC or signing up for an internet connection growing each day, we experienced PHENOMONAL GROWTH!  We were in the business of starting businesses… so I’d speak with new business owners each day.  I remember one customer who summed up the sentiment when he said: “I can’t slow down!  I’m afraid that one day I’ll wake up and all the money will stop floating around.”

From my perspective, that is exactly what has happened.  Whether you want to call it a recession or a depression, or a Bear market, it’s hard to argue with the sentiment that the money machine of the late 90s and early 2000s has definitely stopped printing money.

I got lucky! …And, at just the perfect time.  In 2005 Intuit (the makers of Quicken and Turbo Tax) acquired that little business that my wife and I had launched from our little apartment.  We weren’t planning on “getting acquired” …but the dollar amount that Intuit threw at us was just too big to refuse.

The Old Neighborhood has Really Changed

So, we took a few years off. We spent time with the kids, we went to the gym a lot, and then we got really bored!  REALLLLLY BORED!  So, after three years of traveling, working out, and eating all of the wrong foods (i.e. after the non-compete agreement with Intuit expired), we started looking around for a new business venture. OMG!…everything was sooooooo different!  “Social Media” was now the new buzzword.  Everything had to be Web 2.0 (whatever that is!). And, what’s this “Cloud” everyone keeps talking about.  It was as if twenty years had simply zipped passed us.  In trying to learn all of this new “netlingo”, I felt like the “old guy” on the college campus.

Finally, in 2009, we launched Corpnet.com.  We were essentially the “new kid” on campus.  But the campus seemed a lot bigger and more complex than I had remembered it! Our industry was saturated with THOUSANDS of competitors (compared to “3 competitors” when we started it the first time in 1998).  A search listing within the “Google Top 10” was nearly impossible to achieve within the year.  Other competitors had deeply entrenched affiliate programs, thousands of inbound links, and all of the good domain names were GONE!  Plus, everyone was doing this new thing called “social media”  OMG!  IMHO, the lack of F2F causes some FUD (look it up at http://www.netlingo.com/top50/popular-text-terms.php if you’re lost!) We did, however, have a few distinct advantages:

  • Web developers were a lot less expensive and finicky than they were ten years ago.
  • My partner and I REALLY understood the Product (a.k.a. “Service” …explained later!)
  • My partner (who is also my wife) and I had (and continue to have) and an insatiable passion for “building something beautiful …together.”

However, although the “product” was essentially the same, the customer and the landscape had changed drastically.  So when people approached me and asked:” what are you guys selling and how is it different from the last company?”  My response was: “Same Product.  Different Box!” Same Product, Different Box!

While this statement might be a bit simplified, it is, in its essence, true.  All of the rules, requirements, and components that comprise our product hadn’t changed much.  In fact, the entire industry had become commoditized.  And with commodities, THE LOWEST PRICE WINS!

In the rush to get to market, we felt the quickest way to “attract and acquire customers” was to position our product as low price / high volume.  So we priced our “Product” at starting price of $49.  That sounds good, right?  Wrong!  We were losing money with each order we’d receive.  Our fixed costs were, in my opinion and experience, low.

So, why were we losing so much money on each order…and worse, we seemed to lose MORE MONEY as volume increased.  Acquiring market share and volume was way more difficult and more expensive) than we had anticipated.  Did you know that the Google CPC (Cost Per Click) on the Keyword phrase  “incorporate online” was $15 at the time I wrote this?  So…even if you could convert 10% of those visitors, you’re paying $150 to acquire that customer!  And some of our competitors are offering the product for prices ranging from “Free” to $9.  That’s NINE DOLLARS plus state fees to get your business incorporated!!!  How’s anyone staying in business here?

There’s a lot of “back-end” tricks many people in our industry use to make up the difference. Examples include:

  • Sell them off as Leads to third parties.  These are new business owners not yet on public record.  This is a great Lead Generation oppty where a competitor of ours could “sell” the customer’s information to various business startup related companies in industries like merchant services, banking services, payroll services, Professional CPA or legal services, etc…
  • Force them into a registered agent service and make them pay $150 year …
  • Upsell services the customer doesn’t really need
  • Require customers to join a subscription plan of some kind with automatic billing.

Customers are Demanding the Best, But They Aren’t Willing to Pay for It

Nellie and I didn’t want to engage in any of these tactics to obtain profitability.  We had a good product, priced VERY AGGRESSIVELY at $49 plus state fees.  However, we simply hadn’t reached profitability…and we couldn’t afford to endlessly fund our “righteous, noble” dream of honesty, integrity, and top-notch service… Sure…our BBB reviews were OUTSTANDING!  However, customers were NOT showing their appreciation of our efforts by paying us what we deserved.  So…is the average internet-based customer simply ungrateful?  Has our industry been so beat up in the price wars that there simply is no more room for top-notch service?  NO!  Our pricing was wrong!

Corpnet Offers “Services” that are Distinct…We’re Not Selling a Commodity to the Lowest Bidder

First, we had to change our perspective on what we were selling:  We’re not actually selling a product; we’re offering a SERVICE!  …and here’s the big difference.  We are a Business Startup SERVICE.  We are limited by certain industry
regulations.  For example, we’re not a  law firm so we cannot give out legal advice.  However, the vast majority of customers out there recognize the significance of Starting a Business.  And more importantly, they want to “Start it Right!”  Errors and delays can be very costly to an entrepreneur, both in the short run, and in the long term.

In addition, our clients need some “hand-holding”  While we cannot advise a client on which business structure may be right for them, we certainly CAN explain the general differences in the business structures, provide access to the necessary forms and reports that must be filed, provide a registered agent service in any of the 50 states, etc…  Most importantly, we can do it right…and we can do it Fast! We actually prepare and submit most documents within 24 hours…and
usually on the same day we receive the order.

So…isn’t it worth a few extra dollars to receive that quality of service?

Raising Prices Actually Increased Volume

On November 9, 2011, Corpnet.com raised its prices.  Here’s what happened:

  • We raised prices approximately 20% across the board.  Some of our service offerings had price increases of over 100%.
  • We listened to our customers and added valuable services to our various packages.
  • We added and trained a few additional front-line staff to ensure prompt, reliable customer service.

In month 1 of the price increase, Sales Volume INCREASED by 9% over the previous month!!!  In month 2 of the price increase, Sales Volume INCREASED by 22% over the original, base month!!!

I’ll say it again!  We INCREASED prices, and sales volume INCREASED dramatically!!!

Why Would Volume Increase With a Price Increase?

Why did volume increase in a response to a price increase at corpnet.com?  Simply stated, we were priced too low.  Frankly, my partner and I had too many irons in the fire…and pricing strategy was neglected.  Today’s business model requires soooo many skill sets:  Cloud migration, Social media marketing, SEO, business logic workflow and fulfillment, front end marketing design and development …I could go on forever. Under the pressure and pain of decreasing margins, however, we finally turned our attention to our pricing model.  We discovered this:

Pricing Strategy in a Growth to Mature Lifecycle

Our “product”(actually a service) is on the “growth to mature” portion of its lifecycle.  Thus, undercutting competitors in an effort to gain market share is foolish.  The best formula for success is to engage in skim to neutral pricing.  This means that we “come close” to the biggest competitors…and maybe just a little lower on some services…and maybe just a little higher on other services.

More important, however, is the strategy of differentiating our services from those of our competitors.  We can’t compete in commoditized industry…there’s just not enough money in it for “the new guy.”  In a “service” industry, however, we can easily differentiate our services and products by illustrating the value we bring to the table.

You Get What You Pay For!

Unfortunately, however, we can’t make everyone happy all of the time.  Our pricing is VERY  aggressive.  You can actually incorporate a business in any state for $49 plus state fees.  And if you order the FULL-BLOWN, dilly dally deluxe package with EXPRESS RUSH, it’s still only $349 plus state fees.  This is a SMOKING deal!

Some customers, however, point to our competitors offering a “similar” service for only $9.  Yes, that’s not a typo…NINE DOLLARS!  These customers will sometimes telephone us, kicking and screaming, demanding a price match.

To those customers, we respectfully point out that there is NOTHING “similar” about our services.  We’ll even refer them off to a competitor site that offers the service for “FREE” with the following caveat: “Be Careful. You get what you pay for!”