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The Barbell Effect and Small Business

By Garrett Spence   |    April 11, 2017   |    9:47 AM

 

Making the Barbell Effect Work for Your Business

The barbell effect is a macro-economic metaphor that explains and helps visualize how and why certain businesses thrive… while others fail. Keep reading to learn all about the barbell effect and how your small business can benefit from this principal.

What is the barbell effect for business?

But what exactly does this metaphor mean? Think about how you might pick up a barbell at the gym — from the middle. You grip it tight and then do your repetitions.

A similar concept is at work in the business world. When we’re using this metaphor, the assumption is that businesses on either extreme will dominate within their respective markets. These companies are typically on both ends of the cost spectrum: low cost and high cost for the goods and services they provide.

What happens to the middle of the bar? The companies in the middle all too often get “squeezed” out of business.

How to stay at the ends of the business barbell

To protect your business and it’s finances you have to do something that, in all likelihood, you already know you should be doing:

You absolutely must differentiate yourself from your competition.

This can be done in any number of ways, but you need to communicate these unique selling points to your customers. If they don’t understand what makes you better, they’re more likely to buy from a competitor who can clearly communicate what makes their business better.

Standing out from the competition as a small business owner

How will you differentiate your business and determine your own unique selling proposition? In many ways, it’s all about getting into the minds of your customers and creating emotional connections via your brand.

You can learn more about exactly how to do that in this post about making your business stand out in a crowded market.

Pricing for profit

Once you understand and can verbalize what makes your business unique, it’s time to focus on pricing to get the most out of the barbell effect. Whether you’re a low-cost provider or a high-cost provider, your goal is to price for profit.

How much can you charge?

First, figure out what you might be able to charge your customers. Here’s a helpful article on how to determine price points that will help you get started. Even if you already have seemingly solid pricing in place it can be worthwhile to review and tweak how you price your goods or services, especially if you’re currently in the middle of the barbell.

Once you have your price it’s time to do some brainstorming. Are you at the high end or the low end in terms of pricing for businesses similar to yours?

Here’s your “homework” assignment for the day: If you charge more than the competition make a list of everything that allows you to command those higher prices. If you’re on the lower end of the pricing spectrum, make a list detailing everything you can do to cut your costs even more (without sacrificing quality).