The Thorny Issue of PricingNov 17, 2022
There are FIVE main 'Profit Levers' that you can 'pull' in your business to generate & control the profit you make (as distinct from turnover or revenue, which isn't what you're actually in business to make, as odd as this may sound).
Ultimately, cash(flow) is king. You can't buy a meal with profit. But profit is where your eyes should firmly be fixed in your business.
And THE most effective lever you can pull as a service provider of any persuasion is the Price level.
In simple terms, charge more for what you offer.
If there's time and demand for this, I'll pick up the psychology of pricing and the standard issues we all face when pricing our services well.
But let's pick up on one particular issue you're probably up against right now (and for the short-to-medium-term).
The impact of the cost of living crisis.
If you're feeling under pressure to discount your services to 'enable' people because you think that they may be struggling to afford you right now… for pity's sake, resist the urge.
Here's the thing…
Avoid the Guilt Trap
Every single time there's a wobble or downturn in the economy, whether it was the major meltdown of 2008, the 2020/21 pandemic, or the looming recession in 2023 (which may last for a decade, by the way), or whether it's any of the plethoras of incidents in between, most business owners and practitioners' reactions are the same…
- Slash prices.
- Do more for less. Often much less.
What happens is that, more often than not, you create a guilt trip for yourself to step into without the prospective or current client communicating an issue with your pricing.
You create a 'guilt trap' of your own making, which then permits all and sundry to share with you how tough times are, how they'd like to pay less for your services… how they can't afford you, even though they 'really' want to work with you.
So, let's get this out of the way from the off. Never discount, compete on price or work for free, no matter how many guilt trips are laid on you or guilt traps you set for yourself.
There ARE ways to work pro bono, charge less and offer more value, but you need to be judicious and strategic with this so that your reductions or over-delivering don't harm the options and room for higher margins and pricing down the road.
While price cutting when things seem (or are) tough can lead to short-term hikes in revenue, it will inevitably devastate your future pricing.
Right now, I'm seeing this play out in the 'kitchen table entrepreneur' space, that segment of the work-from-home/small office market predominantly populated by excellent coaches, consultants, therapists and service providers who can (largely) operate remotely.
Let's take Jayne, a brilliant Mindset Coach (name changed, but an actual client of mine). Jayne feels severely pressured as her energy bills and mortgage are heading for the stratosphere. As she's always struggled to find clients and earn much above a 'baseline' income - that monthly sum that keeps the lights on, a roof over your head and food on the table - she's never truly managed to build up the capacity to truly focus on directing her business and being more strategic with what she does.
Everything, including her pricing, is a reaction to her real and perceived environment.
Jayne was already all but giving her services away
Then, she panicked about the cost of living crisis, seeing and feeling the impact on her situation, and 'thought' that people would find it harder to afford what she does - which is an even more vital service in times of pressure, turmoil & crisis.
But, Jayne reacted to a thought and the 'evidence' of just a couple of people who were a poor fit for her, who said she was 'expensive' (Jayne's pricing was less than 1/10th of mine, by the way).
Sure enough, Jayne dropped her prices, placing her in genuine danger of being so far beneath her profit margin that she was essentially giving her clients the money she needed to run her business. Paying her clients to work for them, in effect.
Jayne had never worked out or learned to read her P&L (Profit & Loss or Income Statement). She didn't know what I meant by her 'margins', and she didn't know how costs impact turnover (revenue). So we got to work on a couple of things - her business & fiscal understanding, her psychology around pricing, and her fear of loss. But, most of all, we got to work on positioning and what I refer to as 'posture' - how she presented and held herself in her market.
In short, how she developed her reputation.
The Death of Your Brand
Discounting or hacking down your prices, especially discounting, can ruin your reputation. Most small businesses and freelancers work for years to build posture, presence and an excellent reputation. The confidence your market has in your value creates lifelong customers and raving fans, champions who will eagerly refer people to you, which is free marketing - this requires no effort, money or time from you.
Anyone who notices you dropping prices, especially if they've paid more for the same service, will start to doubt the value you bring if nothing else has changed.
Price is a perception of value. It's not a science. Remind yourself and your clients what is unique about your business, and they'll remember why they started buying from you in the first place.
Discount or give it away, and it could sound the death knell for your brand.
Savvy clients understand that continuing to buy the best in uncertain or pressured times - focusing on quality, care, reliability, and dependability - means their own business is much more likely to survive, so investing in good services and products becomes even more important for them
People don't like uncertainty.
You Don't Get Paid for 'Value'
There's a common misconception in Small Business, and it's that we get paid for the value we bring. But that's a conflation of a couple of things.
Perception of value can set the price, but it often doesn't translate into what you get paid. The size of the problem you solve and the cost of the pain to your client that your brilliance can take away may be worth a considerable amount, but that's rarely what ends up in your bank account.
The plain truth is, you don't get paid the value you bring (necessarily), you aren't paid what's 'fair', and you don't get compensated for the pain you take away or help them avoid.
You get paid what you negotiate.
People who want low prices will find them no matter what you do.
These are not your ideal clients. Keep your good customers happy and retain the level of value and service they expect, and you'll continue to thrive long after this recession has ended.
Legions of small business owners agonised over whether they should discount their services or even work for free during the COVID-19 crisis; I had many such conversations. Some were pressured into doing free work by unscrupulous people who were trying to take advantage of the situation or because they thought as their competitors were doing it, so they should too.
Beware the Urge to be a 'Saviour'
"I want to help" is a familiar feeling. Most people who start their own businesses have an urge to help. We've spotted a need and figured out a solution. For some people, getting paid to do something they love feels like a bonus, and even in 'normal' times, many fall prey to the urge to accommodate people who need their services but can't afford them.
When many people are hurting, an unhealthy dose of the Rescuer complex can emerge. This is one of 3 'characters' from Karpman's Drama Triangle and is well worth researching if you haven't come across the concept before.
In this use of the concept, the 'Rescuer' - which I call the 'Saviour' in my vernacular - is the hero of the hour, helping as many unfortunates (the 'Victims') as they can. But the 'Victims' will always be thus, and the Saviour is simply sucked into their vortex, draining their time, money, energy and, worst of all, their self-belief and sense of worth.
And it's understandable.
We want to be part of the solution, help, and be heroes. This sense of wanting to help can come from a place of also wanting to feel worthy or wishing to be of service. It can also feel rewarding to help others and not have to deal with, frankly, more pressing & troublesome matters at 'home', like going through the pain of figuring out a pricing and sales strategy that gets you closer to the things that actually matter most to you.
It's also worth mentioning that rejection can challenge our sense of purpose, but your good intentions can lead to very bad outcomes. Leaping in with offers of help or submitting to pressure often results in resentment – from both parties.
If you aren't paid what you're worth, even if you, yourself, agreed to the deal, you'll rarely get through that work without realising that the other party simply doesn't value you, and that's a slippery slope to a bad place.
True Value Flows from a Shared Perspective
The ideal client/supplier relationship is when we treat each other as valued partners. When the power balance shifts, we change that relationship, which is rarely successful.
If you're going to be a hero, be your own hero first.
Just as we're all familiar with the advice, "put your own oxygen mask on first (before attempting to help others)", we need to be even more aware of this in times of stress. Discounting can jeopardise the very existence of your business, and then not only will you be unable to help others, but you'll also need help yourself.
Again, I've sadly seen this play out far too many times. So, here's a suggestion for you if you're struggling with your pricing (and we'll get into this in more depth in my next article (if there's a demand for it)...
Value is in the mind of the beholder.
You don't deliver 'value' - you deliver things that are 'useful'. You then educate or, ideally, find the clients who share the same lenses & yardsticks that you use to see and measure value.
Once value is established & agreed upon by both of you, you get paid what you settle on (negotiate).
A good rule of thumb is that your client should be prepared to pay double what you charge for what you deliver, and your price still makes you twitchy asking for it.
You're not charging enough if an ideal client accepts your price without batting an eyelash. And if they push back on your price, they want to work with you (so renegotiate), but you've probably found the edge of what the service is worth (for the current market).
Remember, the right clients and your ideal clients will tell you they want to work with you first, then ask how they can do that, and then ask how much it is. If price is the first thing they ask, they will rarely be your people.
A Better Way
At Success Engineers, our sole focus is to help you Build a Better Business. We do this together by showing you how to Grow Better, Build Better and BE Better and supporting you through that growth as a business owner.
ALL change for the better starts with behavioural and personal transformation, and no one does that successfully on their own, not if they're in business for the long game.
Something that I hope you've already figured out if you're a member of The Female CEO FB group and/or have been reading this magazine for any length of time is this… You, alone, are responsible for your success.
But you should never BE alone on your journey.
Choose your guides and companions carefully.
The clues will ALWAYS be in the quality of the information that is shared with you, the vibe & how it resonates and in how much of a hurry the business, coach or individual is to have you take up an offer or fall in line with their way of doing or thinking about things.
You must follow the fundamentals, but your path is unique to you.
To your inevitable success.
Dino Tartaglia is a former Electronics Engineer, now a businessman, mentor, coach and troubleshooter working to help you, if you’re a coach, consultant, creative or service provider, to Build a Joyful, Dependable Business around Being Brilliant at What You Do.
In his own coaching, and together with world-class coach Simon Hartley, the other half of Success Engineers (their joint business), he helps you to improve your thinking to ask better questions, so that you solve the right problems in your business at the right time, develop your own personal performance as a business owner and get closer to What Matters Most.
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