Some businesses sell well and the money still does not reach the account. According to the source, money in a business has a route, with points where it can get stuck. One more place where value gets lost is the price chosen because it looked the most reasonable.
Money in a business has a route
The source describes money as something that moves in a defined direction. Follow a particle of money through the organization and you see that it gets in, gets exchanged for a service, and then goes out or into reserves. There is a definite routing for money.
That picture helps because it makes money something that moves, instead of something you either have or lack. Every stage is a place where it can stop: it may never come in, it may come in and never be exchanged for a service, or it may go out without anybody deciding it should.
Suppose an owner who tracked what came in and what went out, and never asked how much had been exchanged for delivered service. When he checked, a third of the balance was deposits.
Lost income
The source gives the first break point a name. If the business never collects for a service it delivered, no exchange takes place and the result is lost income.
The name is precise. It is income that existed and vanished, and nobody feels it go. The work got done, the customer is happy, and nothing visible broke.
According to the booklet, this ties back to the two failures of exchange: delivering without collecting is one of the two ways exchange breaks.
Suppose an owner with four unsent invoices from a previous quarter, for work delivered in full.
Or an installer who collects cash at the end of a job. Three times a year the customer was not home and he left it for later. After he began taking a deposit up front, all three situations disappeared, and nobody objected.
The other side: collected and did not deliver
The source names the reverse as well, as the first reason for the gap between what is sold and what comes in: nondelivery, meaning the service that was bought was simply never delivered.
Delivering without collecting opens a gap, and collecting without delivering opens another. In both cases the money on your books differs from the money you will end up with.
Suppose an owner holding two deposits a year old, for jobs that never began. The money is in the bank, and the debt is real.
Or an owner who sold a yearly subscription and delivered only four of the twelve months. It was not renewed, and price had nothing to do with that.
The price that looks reasonable
At the end, the booklet returns to the question it opened with: how did you set your price? It says the source material holds one genuine pricing experiment: one kind of event offered across ten years at four different prices.
At a price of £1, 200 people attended. At ten shillings, half that price, 400 attended. Ten years earlier, more than 200 attended at £12.10 a seat, over twelve times the price tested that year. At £5, more than 200 attended.
The source concludes that there is a wrong middle price, that price may need to be very high or very low, and that it must not be a compromise.
According to the booklet, a price chosen because it seems reasonable is often the worst choice. Whoever wants something cheap finds it too expensive, and whoever wants something serious finds it too cheap. The extremes sell, and the middle falls between the chairs.
The source adds a conclusion that runs against intuition. If the event was more financially successful at £1, it might have drawn more people at an even higher price.
Suppose a consultant with three packages, where the middle one seemed sensible. Of her customers, 80% chose the cheap package or the expensive one.
And the other way: the same consultant, once she dropped the middle package and kept the other two. Her customer count held and her revenue rose.
The booklet also changes the measure. The source words it for a shoe store as the percentage of citizens in the area shod by the store profitably, and the key word is the last one.
What the booklet adds
This chapter of the booklet includes two exercises: a lost-income exercise and an extremes exercise. It is the last chapter, and after it come a practice section, a glossary and a summary of ten lines.
A price is tested twice. It is tested once when the money actually comes in, after the work is delivered, and again when the customer decides whether to return.
The booklet is general knowledge, not financial advice for your business.