We'll make it up in volume

I learned an important lesson last year. Ok, three important lessons. You would think they would be obvious to a smart guy like me, but I can be stubborn sometimes.

The big one? Pricing some services below my cost.

Profit is oxygen for a business. Without it, the business suffocates and dies. Everything you sell must have profit built into the price. Your pricing needs a profit margin added on top of the cost -- selling at cost is not good enough. Why? Because profit is what you need to be able to deliver excellence. It's what allows you to throw in freebies, delight your customers, go above and beyond and do the job right.

Everyone knows this, right? "I'll sell at a loss but make it up in volume!" goes the old joke. But ask nearly any merchant who has done a Groupon about whether they came out ahead. If you're not careful, you might find yourself selling a lot but with nothing to show for it but wear and tear and exhaustion

In our case, when we figured out what it actually cost to deliver an hour of service, calculating wages, hosting and network charges, rent, health insurance and taxes, it turned out our biggest monthly plan cost us substantially more than we charged for it -- and our other plans barely broke even.

The result? We sold a lot of work that was not profitable, and gradually our ability to deliver an excellent result declined. We were too busy, too tired, too overloaded to pay enough attention to many of our most loyal customers.

So last summer we took action, and drastically changed our pricing. We decided to get out of the ditch, stop doing unprofitable work, and not get so overloaded all the time. It hasn't been easy -- we've lost a lot of customers who have been with us for years. But we've picked up some great new customers with much bigger vision who see the value of the work we do. With some actual profit coming in, we're able to start planning ahead, create quality assurance systems to improve our results, identify key things we do better than anyone, and find customers who actually need those things.

The other key lessons? They will have to wait until next time...