Fixed Wireless Business

Pricing to Survive — continued

Break even or bust
If reaching cash flow break even will take an untenably long time, then the WISP needs to get out the shovel and dig for why. In most cases it is probably not because customer growth curves are estimated too low—they are usually estimated too high.

WISPs can save costs in numerous ways. Barter arrangements for rooftops carry costs but do reduce cash expenditures. Leasing radios also significantly stretches cash reserves. It should be noted that leasing does cost more in the long run. However, cash flow shortfalls are far more deadly to survival than longer term overall costs.

One firm that tracks expenses tightly and leverages leasing extensively is Prescott, Ariz.-based CommSpeed, which boasts some 6,000 broadband wireless subscribers.

"Equipment financing is a key to success," explains Mark Davis, CommSpeed vice president and general manager.

Davis adds that CommSpeed can take its projections down to a per customer cost for each function.

"We analyze our cash flow and profitability on a tower by tower basis," says Davis. "We add in cost factors for growth in support load, backhaul cost and other operating expenses."

Cost savings help. However, most companies need more tools to reach break even before cash is exhausted.

The two big guns left in the WISP arsenal revolve around increasing ARPU and adding lucrative services. In most cases the average revenue needed (after cost savings are factored in) is higher than expected. The limiting factor of market pricing may mean that this number is higher than the market price—which is common.

So how do you build a product that customers feel is worth buying over cheaper offerings?

Finding the "sweet spot"
Once projections reveal the revenue figure per customer the next step is to find the "sweet spot." Most WISPs will have an entry level price designed to draw price sensitive customers relative to the competition's advertised deals. However, the "sweet spot" is where your firm's price and value becomes most compelling to customers if it is configured properly. Ideally, this should be as close as possible to the ARPU needed to reach the planned break even point.

"Not buckling to competitive pricing is hard but essential," says Davis. "In our market Qwest runs specials in the $26.00 range for residential service versus our price point around $39.95."

Davis notes that his firm's ARPU nears $42.00.

So how do you motivate most customers to buy the "Sweet Spot" deal versus a loss leaders or lower competitive pricing?

Bundling and differentiation
It is important to remember that customers buy benefits and solutions not features and products. They need help solving problems. So the secret is to create value, which is what customers really want. The simplest way is to add services to the raw access with bundling. The caveat is that these have to be services customers will value—that make a bundled package more compelling—and that are inexpensive to deliver.

One old technique for business class customers is to bundle larger e-mail and webhosting packages within an offering to justify higher price points. Offering 15 e-mail accounts and 50 Megabytes of webhosting is not as expensive as it sounds. Most small business customers will never use beyond 5 e-mails and 5 MB of webhosting space—so the actual incremental cost is very modest. However, customers seem to like having the service.

This is just one strategy. Other low cost services can really add margin and revenue. Static IP addresses, content, and Anti-Virus and Anti-Spam filtering are often very valuable to customers. Even some major providers don't do these. Spyware and Adware filtering can cement the notion that yours is a premium service that deserves its higher price. There is a long list of relatively inexpensive value services that can substantially improve a "sweet spot" deal. One note: It is important to allow customers to add to service levels, so make sure pricing systems are simple by adding new additional services to each tier and not substituting.

What if bundling in itself does not deliver all the dollars necessary to reach necessary revenue levels?