Dear Dan,
I own a small pet-sitting business and pay my employees a living wage—one that accounts for the real cost of food and shelter, which the minimum wage does not. Consequently, our prices are a little higher than those of our competitors, and I’m worried about finding and keeping clients. Do I need to rethink my business model?
—Leslie
People are willing to pay higher prices when vendors are transparent about their operating costs. In your case, this means letting your clients know about your commitment to paying a living wage. I suspect that many will respond positively, and some of them will be willing to pay more for your services when they understand that they are supporting this business model. I recommend that you highlight your commitment in your marketing materials and social media, as well as on your invoices.
The benefit of cost transparency has been documented through studies. An online retailer conducted an inadvertent experiment when it posted an infographic on its website showing the cost of producing wallets. By accident, the retailer only showed the infographic for some wallet colors. The result was that sales of wallets with the infographic increased by 22% compared to those of wallets without.
In a more deliberate study, researchers posted different signs near the chicken noodle soup at a university dining hall—one listing the soup ingredients, the other breaking down the costs of making the soup. Customers were 21.1% more likely to buy the soup next to the second sign.
Voluntary transparency about costs fills customers in about what they’re paying and also signals trustworthiness on the part of the vendor.
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