Overzealous Service Providers Are Doing More Harm to the Economy than Good

economy

It is no hiding that we are now in a service economy. The majority of our GDP is now comprised of service sector jobs. Health, Transportation, Advertising, Information, Professional Services, Education and Hospital are among the top tier of service providers. We are finding more service providers maximizing their talents and need for their services to maximize their bottom line. Sadly many anxious service providers focus on their own bottom line, even when they are not only doing business with consumers, but also doing business with customers.

There’s a distinct difference between a customer and a consumer. The key dynamic of a consumer is they use the service for personal reasons and do not resell it in any form or fashion. A business can be the customer of another business but that doesn’t make them a consumer. The consumer is the end user of a product or service. This can be a little confusing in some cases. For example, many would view a cab driver as a consumer of the gas he/she burns while driving their cab. But in actuality, the passengers of the cab are the consumers. They are charged a fee by the driver which includes the gas, tolls, insurance, maintenance, monthly payments (if any), etc on the vehicle. This concept is the same for truck drivers, who burn diesel to deliver goods, DJs at clubs or wedding receptions who are paid to entertain guests, and more.

There are countless examples where the consumer may not be directly consuming the product, but those costs the service provider incurs while delivering their service is passed to the consumer, or end user as we can also call them.

After looking at these examples, it is easy for us to see how many businesses can fail simply because of tunneled-vision service providers. They come by way of advertising mediums, insurance providers, designers, information technologists, merchant processors and more. Their focus lingers heavily on their own bottom line, while ignoring the fact that their bottom line is also tied to the bottom line of their clients. This concept is nil when it comes to businesses providing services to ‘actual’ consumers. In this case, the consumers’ bottom line is their disposable income, which is not tied to the employment of others, macro-economy or the solvency of a business. There’s a difference.

Service providers often operate with a dog-eat-dog mentality. They know their clients often need them, but they fail to realize that this is really a case of the dog eating itself syndrome; in reference to humans, known as “cannibalism.” If a service provider fails to have a clear understanding that they are not the only cost of a business, and therefore gouge who does business with them, they will not yield top profits, they will lose clients. The purpose in business is to give your customer more value than they pay for. They will come back every time. Every customer has, what is called, a willingness-to-pay threshold. Once the costs exceed the benefits, the service provider will also incur a loss; by way of losing the client and future clients in the lost client’s network.

Sure, there is a lot of blame to go around regarding the poor economy. However, at the end of the day we rarely blame ourselves and rarely have patience to build our businesses. There is a lot of money to be made by reducing your profit margin. I know. It sounds scary. But look at it this way. It is better to get 20% of the money from 100,000 satisfied and loyal people than get 80% of the money from 20,000 dissatisfied, ready-to-jump-ship disloyal clients. Look at how McDonald’s, Wal-Mart, Family Dollar, Southwest Airlines and other low-cost providers continue to lead the way. Be a service provider with a vested interest in the return on investment of your client and you too may also find yourself servicing a billion dollar company.

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Devin Robinson
Devin Robinson is also a business and economics professor, entrepreneur, author of 8 self-help books and media commentator. He is the founder of Beauty Supply Institute, an organization that assists individuals in beauty supply ownership and the founder of Urban Business Institute, a research and training organization that runs Small Business Academy across 14 U.S. cities and 1 international country.