Episode 012 – Pricing for Profit
Have you just started your business and have no idea how to price yourself to make a profit or been in the business for a little while now but are not seeing the returns that you had hoped ? For me pricing is the foundation that dictates so much of your workload including what you market and how you market your products or services. Pricing is where I start business planning with all my clients, we all need to make money, we are not a charity, understanding your numbers is paramount!
Women are notorious for under charging, scared to step out and charge what they are worth. Not seeing the value in your work is a cancer and you need to get past the point now! If you are looking to break your money issues then check out my resources for this episode, but seriously check out Denise Duffield Thomas and Becky Keen, two girls who are breaking money blocks for their clients!
The nuts and bolts
The factors that you need to consider when setting your pricing is not just looking at competitors and thinking ok, well that’s what they are charging so I better charge around the same. No, no, no! You have no idea what there costs are and how much it takes to open their doors everyday. Many business owners neglect understanding their operational costs because its too scary to look at! Time to put your big girl pants on and get those numbers down, sticking your head in the sand is not going to create a profitable business! Your pricing should cover the cost of everything in your business including a wage for you and superannuation or your 401K. Pricing is part of your business strategy, this is where you are determining your ultimate profitability, please take the time to really understand your numbers, show them some love and watch the money come rolling in!
How high or low you set your price sends a very strong message about how you are positioned in the market, are you cheap or are you more exclusive? Is there perceived extra value in your offering than the standard run of the mill? Who would have thought that by popping a few numbers on a product or service that you would be marketing also?? But you are, so are you starting to see the importance of getting this right, not just for profit sakes!
$$$ equals qauntity
Pricing also determines how many sales you will make; low prices often attract higher volumes of sales where big ticket items are usually more of a small quantity. Finding your happy medium is important, a point I like to remind you of is that you are not a charity and working 90 hours a week to make ends meet is not smart or successful. You never left the chains of employment to be greeted with more hours and stress, its just ridiculous to even consider. A great little exercise to do so you can see the difference between charging a lower rate and a higher rate is to work backwards or reverse engineer what you want to make as a salary each year. Then divide that by how many services or products you need to sell to make that money, remember to take your costs out and calculate it correctly. This is very rough, but I have been very privileged to speak nationally on this topic to many people. I have created a whole course dedicated to this topic because I believe in it so much. For me pricing is everything…. Big call I know but I stand by that statement! I have watched giants fall from their lofty heights because they got this wrong, small business owners rocking in their premises because they don’t know why there sales are not covering the rent.
Folllowing on from before, lets say you want to make $50k in your business, and you sell a course for $500. We have to add to that 50k all your expenses, from wages, IT Costs, marketing, VA services, Electricity, Mobile phone costs, superannuation you get the picture here that there is not just the $50k that you want to make, all of a sudden instead of selling 100 programs you realise that you need to sell 160 courses in the year to cover off all the costs, wages, superannuation and still have money left over or profit to keep your business growing for another year.
Knowing now that you need to sell 160 courses all of a sudden, your marketing looks very different. Put a range of products or services in the mix and it starts to be a little more interesting! See how you need to understand what you are going to charge and why before you even consider marketing. How on earth do you know what to market and how many if you don’t understand how many items you need to sell. This gives you options to consider how your intakes will work. Will you spread them out across the year or have 4 intakes of 40 people. All of a sudden that ominous number of 160 courses to sell just went down to 40 people a more mentally manageable number for most people to achieve each quarter, or 80 people twice a year. I cover this and so much more in the Pricing for Profit course, check out the information in the show notes!
Your scarcest commodity – Time
Time is our scarcest commodity on the planet, and for small business owners trying to juggle the many hats that they are required to wear means time is even more limited. Another consideration is how much time do you have to service your customers. How much time and energy do I need to exert to get to my income goal. Is it even feasible to spend that much time to earn that money? Again look at the amount of hours you are working for the dollar amount that you are receiving. If you are not making the money then you need to up your prices or refine your process through systemising.
Businesses can use a combination of pricing strategies, of low and high prices to build credibility and trust. But I stress that if you have a low-ticket item then you need to make sure the profit margin or money you are making out of it covers the costs. Large department stores will run promotions called loss leaders to get customers in the door, with a careful strategy this is effective. There is something called a trip wire that many marketers use, I can guarantee you have all seen them, it’s the $7 product or download that you have the option to upgrade to when you download your freebie. The costs vary but for this example it works well, pricing needs to be thought out ensuring that you have your audience spending their hard-earned dollars with you!
Get your prices out to market asap, you can spend hours trying to work out the best pricing strategy! Your audience will be very quick to tell you with their actions if the price is to low or too high. You will gain tonnes of data from this, its all about testing and measuring the success or shortcomings then adjusting as necessary.
Test and Measure
This is not a set and forget element of your business, this requires constant monitoring and tweaking until you hit the sweet spot. There will always be fluctuations due to world events and politics therefore its best to understand the data and allow for these peaks and troughs that happen in every business. Knowing your lower sale months also means that you can focus more marketing efforts at that time of the year. The peaks and troughs create a feast or famine cycle that can send anyone to the loony bin! Special planning needs to happen to ensure that you can pay the bills and generate sales to level out the playing field.
I have created a free and easy to follow exercise to get you thinking about your pricing more strategically. This worksheet is designed to give you a basic understanding of how to price your product more effectively ensuring that all your time and expenses are being taken into consideration. This is where so many business owners fall down.
Download and additional help.
Please head on over and download my free worksheet which covers costing for the service industry and product costing. Please as always share your ideas in the group or ask for help! If you are not part of Plan to Profit community then please check out the link below and join our brand-new community!
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Meet Your Host
From a young age I have been surrounded by business success. Having formally studied a Double Degree of Bachelor of Commerce and a Bachelor of Management, this led to many successful opportunities.
I have been an employee for large accounting firms and international companies. I have run two highly successful businesses, becoming sought after in my industry internationally.
I have spoken nationally on the topic of money management and loved having the quiet coffee making radical changes for my clients. I am not a limelight chaser, just a quiet achiever looking to make a difference in the world.
Thankyou for joining me on the podcast, my dream is to inspire you to take action that will create a difference in your life! Dream no more and live the life that you have always wanted.