Is the price right could be a question you know you need to ask, or something you haven’t thought about. Yet if I ask you if you’re making the money you’d expect to in your business, would you say yes? This episode talks about a number of pricing considerations which we go into in a lot more detail in our training sessions.
This is an episode in thought leadership and is intended to challenge you to think.
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Season 2 Episode 15 FAQ Business Podcast transcription | Is the price right?
How do you know if the price is right?
The old game show ‘The Price Is Right’ is all about people guessing prices of items and putting them in the right order. When in business we play a similar game where we set our prices for our customers and make sure they are in line with our competitors for comparable levels of quality and scope. But how do you know if your price is right?
00:26 Welcome to the FAQ Business Podcast hosted by Jane Tweedy
Welcome to the FAQ Business Podcast for business owners, covering four pillars actionable, education, inspiring leaders, businesses like you, and thought leadership where we challenge your thinking. Hosted by myself, Jane Tweedy. I’m founder and lead trainer of FAQ Business Training, where we want to avoid you getting ripped off or ripping yourself off. We’ll feature an amazing diversity of guests with lots to educate and inspire you. Let’s jump into today’s episode of the FAQ Business Podcast.
I’m Jane Tweedy from FAQ Business Training and the host of the FAQ Business Podcast. Unfortunately, I am still sick so again, another one of these kind of episodes until I can get things back on track. But anyway, today’s episode is something that is very important and one of my passion areas when it comes to training in regards to small business. And it’s making sure that people don’t rip themselves off by underpricing their products and services.
01:32 You don’t want to be working hard for no return
And I want you to really understand that you don’t want to be working hard for no return. And unfortunately, I see that far too often. Today’s episode of the podcast, we’re going to look at whether your price is right to ensure that your business will be sustainable and you’re not working really hard for no return.
01:50 Look out for courses through our online school
You can look out for courses that we run through our online school, including some on discounting, which we believe is one of our best yet and on quoting and also through our live events.
02:02 Running a program for Women in Business in May 2022
In fact, in May 2022, we are running a program for women in business specifically as it is funded by the City of Parramatta Council as part of their Women in Business program. Preference is given to Parramatta, New South Wales, Australia attendees and also our Business Growth members. But otherwise you can apply and if there is room, we will let you in. Find out more details: https://faqbusinesstraining.com/p/practical-profitable-pricing-series and apply to join using the Google Form on the page.
02:26 What do we need to consider when pricing?
So what considerations do you need to look at when you’re looking at your pricing? Do you know how much it costs you to provide your products and services? If you don’t, you really need to focus some time sorting out these fundamentals.
Understanding how much each product or service costs incrementally per actual sale, as well as all the overheads that need to be applied is super important. And with overheads, I don’t just mean cost to pay for insurance and accountants and things like that. I also mean your time overheads and too many people forget these. And these are what can cause you to be working extremely hard for very little return.
03:10 Often we forget about the time it takes to onboard the customer
If you’re a service provider have you ever calculated a price and thought I can do that in 4 hours, but I don’t think the client is going to wear that. So I’m only going to quote them three. The trouble is there you’re already starting an hour in the hole. But in addition to that, there’s plenty of time that you’ve used to get that deal over the line.
The trouble is we tend to focus on the face to face or the actual client time we deliver and we forget about the time taken to prepare that customer. The time taken to onboard them, to deal with them, to answer their queries, to handle their phone calls, to handle their emails.
03:52 You have to charge them to quote
So we’ve got all that work with that client. But you know what? We don’t just do that once. We repeat that for multiple clients to get a client on board potentially, particularly if our conversion rate isn’t so good. And I hear people tell me that, but I can’t quote a quoting rate to my customer. I can’t charge them to quote. The reality is you have to charge them to quote.
04:17 Not necessarily a fee upfront but build into your quoting
And it’s just that you don’t necessarily charge them a fee upfront, but you need to build in that quoting fee into your prices because you’ve done a lot to get the client on board. You’ve chatted to them or exchanged emails. You have potentially gone on-site and done a quote. You’ve prepared some quote in your office and obviously it’s a physical quote. You’ve got travel time and things as well.
04:41 Might be less if selling online
But most people do have some kind of interaction before they deal with a service provider. Less maybe on the case of a product they may just go and buy it online. So it may be a little bit less of an impact when they buy online.
So you need to ensure that you are including all of your inputs into your pricing and I find most small businesses aren’t particularly on that non-client facing time. Saying that I can’t charge for quoting is just not going to cut it. You absolutely have to.
05:15 When you purchase from a department store like Myer everything is built into the price
When I go to a large department store like Myer and I go to buy a cushion, what do you think I’m paying for? Am I just paying for the cushion itself? Because that’s all I’m buying? Of course not. I’m paying for everything. I’m paying for shareholders to get money.
I’m paying for the big wigs sitting in their ivory tower, I’m paying for the ivory tower, I’m paying for everything. Paying for the racks that the cushions sit on, I’m paying for the cleaning products, I’m paying for the cleaner. I pay for everything.
05:47 Small businesses think they can’t charge for it
And in small business we just for some reason think that we can’t. But the reality is we do for everything else we buy. So why can’t we charge for it?
Small businesses are really their own worst enemies. And they don’t charge for it and they have these misconceptions about what is chargeable and what is not. You’ve got to start to think about this more sensibly, because otherwise you’re going to be running a business which is completely unsustainable.
06:16 When you go to hire help where is the fee going to come from if you’re not charging for it?
And you’ll only start realising that when, for instance, you go to hire an admin person. If you’ve been doing the admin prior and you now hire an admin person, where do you think the fee for the admin person is going to come from?
Hello? It’s going to come from you, it’s going to come from your money. It’s going to come out of what you have been earning. So if you’re not charging enough because you’re not actually relaying that cost to the customer, you’re going to be hurting a lot.
06:43 Discounting is not bad it just has to be planned for
What about discounting? Discounting can be essential in some businesses because their competitors are all about discounting and sometimes this can cause us problems. The thing is, discounting in itself is not evil. It’s not a bad thing. However, you must have planned for the strategy in advance. You can’t just suddenly decide I’m going to cut 20% off all my prices because you haven’t built that into your overall model.
07:12 The Kathmandu example of discounting and sales
There’s a brand that started in New Zealand called Kathmandu, and Kathmandu is notorious in New Zealand and Australia as an outdoor care provider to offer sales regularly.
So, for instance, it will have a jacket that’s $400 full price. But they know they’re almost never going to sell it at full price because we as customers know, we just literally have to wait two weeks and there’ll be another sale on and the sale isn’t a few percent off. We’re talking 40%.
07:42 Their model works because they plan for it
The thing is, their model works. It’s called a high low strategy and the model works because they price it in. They know upfront from day one when they buy their products that they’re going to be reselling them not at $400 but more like the $280 or the $200 mark. And as long as they factor in everything else around their model selling at those prices, their model works.
08:10 See our Tea Time Tip 5 Should you discount? for some helpful worksheets
And that’s why it’s really important to understand if you want to discount, you have to prepare for it upfront. I do have a really good session on discounting, which if you get through our Tea Time Tips on our training school, you will find that you get the spreadsheets and things that go with it. So I do suggest grabbing that it’s only five Australian dollars, very affordable.
08:32 What about your competitors?
So quoting, discounting, and understanding all your inputs is super important. But that’s not enough. There’s more to it than that. What about your competitors?
You need to make sure that you’re pricing yourself in the acceptable price range. If you price yourself away from everybody else, you’re going to find you don’t get any business. Now sometimes, unfortunately, the market can be doing all the wrong things.
Like, for instance, in the cleaning space, you quite often see posts about people saying, oh yeah, I paid $25 for my cleaner. And the reality is that is less than minimum wage. So if you’re hiring people to do the cleaning, you actually can’t hire them for that.
09:15 Sometimes we might have to give up certain markets
So the thing is, sometimes we just have to kind of give up certain markets because they really won’t work for us and other times we have to stay within the acceptable range.
But we certainly don’t need to go down to what somebody else is charging because they’re not doing things right. We want to be charging correctly on a level playing field.
09:36 Understand your competitors’ strengths and weaknesses
When we’re looking at competitors, we want to understand what their strengths and weaknesses are. Where we are placed versus them. What quality do they offer? What’s the scope of their offer? And these are the things that can have some adjustment. So if their quality, they’re offering pine and you offer hardwood, well then their prices are going to be less than yours. Understandably so and easy to justify to somebody.
So you do need to understand where they sit in things like quality, scope and time. And those components are what adjust the cost triangle. So if we want to reduce the cost, we can reduce, say, the quality, or the scope of the job.
10:17 Which of your product are making money and which are losing?
What about determining which of your products and services are actually generating money and which ones are actually operating at a loss? You’ve probably heard the term loss leader.
10:28 Supermarkets use loss leading products
And in for instance, a supermarket, they will often have loss leading products. They will entice you in with a great deal because they know if you come into a grocery store the chance of you just buying that item is very low. You’re also going to buy other items.
So when we’re looking at the pricing of our products and services do bear in mind if you have anything in that kind of attract people in, like lead magnets, make sure the cost of generating those lead magnets and taking people through the funnel to buy the item is included in that item’s cost. Because if you’re giving away freebies, then you need to account for that somewhere.
11:08 Consider the lifetime value of the customer
You also want to consider the lifetime value of the customer [LVC]. Because if the customer can return regularly, can upsell their items, then there is always an opportunity to recoup any discounting and things we do upfront, or any ongoing discount we offer, against other things like marketing costs.
If we have a customer that comes to us all the time over and over, we don’t have to pay to attract that new client, because that customer is coming to us. So we can pass on effectively some of that marketing cost discount that we’re not incurring.
11:44 Is the customer also referring us?
What about that customer? Are they also getting us other business? Are they referring us? In which case we might want to give them some sort of refer a friend type program. Do bear in mind that there may be some laws in your state or territory or country regarding this.
12:01 Make sure you know the rules for these referral programs
So for instance, in New South Wales, Australia, back in 2020, there was a new rule put into place, or a new law put into place, which many people probably haven’t even picked up on. And that new law said that you must disclose if there are affiliate fees, referral fees, finders fees, any of that sort of thing.
You don’t have to say what the amount is but you do have to say that that fee is in existence. So if you have a partner referring to you they should be telling the person as should you be making sure it was clear that there is a fee involved. If you don’t you will be breaking the law.
12:37 How do we put our prices up?
What about the timing and how you go about putting prices up? So say, for instance, you look at all these inputs and things and you go ohh my prices are too low. How do you go about putting them up? Honestly, most people are more concerned about this than their clients are. The clients honestly often don’t care. If they love what you do or they love your products, they want to keep buying from you.
And if you’ve ever had a customer say to you ‘is that all?’ you know for sure you are undercharging. Because people blurt that out when it’s so unexpected, when it’s so far below what they expect to pay. If it’s a little bit below what they expect to pay, they might think that’s a good deal, but they don’t blurt it out in the open. If they’re blurting it out, you know for sure you need to put your prices up.
13:28 Sometimes we need to attract a new client base
Now sometimes when we put our prices up, in that case the customers are more than likely going to accept it, because they recognise they’re getting a ridiculous bargain as it is. However, sometimes we have to put our prices up and we have to actually attract a completely new client base.
So this is where we’ve got to be really mindful and careful if we are transitioning to new clients. Because if we suddenly put the price up for our existing customer base, say if we had to double the prices, we might completely lose our existing customer base. And that might be completely untenable. You’ve suddenly gone from customers not paying enough to nobody, that’s not going to work.
14:07 If you are going to discount prices make sure you disclose it constantly
So usually what we do when we put up prices, is we may have some foundation pricing, we may have some staggered pricing up to the new level. I will give you a little tip here though, if you are going to give a customer a discount off the new normal prices, make sure that you disclose that constantly.
So on their invoices, say to them, regular price $500, loyalty discount $100, total price $400. So that way they know, every single time they pay, that they are getting that discount. Because otherwise they’ll forget. And when you go to them later and say hey, we’re putting your prices up, they’ll feel ripped off. Whereas if they know they’ve been getting a discount for quite some time, they’re more likely to accept it and to sort of bring that on board. So that managing of that price increase is important.
14:59 During a quiet period could be a good time to increase pricing
What about the timing of the price increase? If, for instance, you have a quiet period, it can be a really good idea to warn people ahead of time that after the quiet period we’re going to put our prices up. Now, obviously you don’t say it’s a quiet period as such.
But for instance, a pest control business, July and August in Australia, they are dead. The bugs are at the quietest if you like, and therefore people don’t tend to book pest control. But there are still bugs around. There’s still treatment that can be done, preventative treatment that can be done during that time.
15:34 Clients can get a bargain and you get some business
So what you can do is say to a customer, say for instance at the start of July, say we’re going to put our prices up from 1 September. If you’d like to take advantage of the current pricing, please book in and complete your service before the 31st of August.
What that does is a twofold effect. The customer gets to have an extra treatment at the lower price so they’re happy. But you also get to have more customers at a time that it was otherwise quiet. So that’s really cool and it allows you to adapt that pricing. It allows you to warn customers about the price increase and give them a chance to adapt to it.
16:14 Think about the wording when you announce a price increase
The wording around price increases can be really important too. If customers aren’t that keen on price increases (unlike the example I gave earlier where they kind of expect it because they know they’re undercharged). If they don’t expect it, or they really couldn’t see the reason for the increase. What’s your wording? So talk about your wording.
So when we’re talking about price increases, things like, we haven’t put our prices up for three years. Making it clear to people, you know, prices have gone up over that time. You’d say things like, as you are aware, government charges have gone up quite markedly. Inflation is running at 5.1% at the moment. We can’t keep absorbing these costs in our business and still stay around. We want to be able to provide you a great service and to be able to do that, we have to put our prices up.
17:03 Remember it’s in your interests and your customer’s interests to stay in business
Remember, if you go out of business, your customers probably are going to face a price increase, because you as an option will no longer be in the market. So you’re reducing the amount of supply in the market, which means that there’s going to be more demand for the existing supply or the same amount of demand for lesser supply. And that’s likely to push the prices up. So it’s in your interest, and it’s in your customers’ interest for you to stay in business.
17:29 Here’s an example of when I was doing resume writing
An example for me was when I was doing resume writing. I initially started resume writing purely as a test of marketing activities and just to help people out. I genuinely just wanted to help people. What I did with that was initially I was charging a ridiculously low amount to do the cover letter and the resume, and over time I slowly kept upping and upping and upping it. And I just kept naturally organically increasing it.
17:56 Initially I just wanted to help people so they couldn’t pay a lot
But my initial target customer base was for people that really did need help and so they were not able to pay a lot. Then I kind of switched to people that were actively looking on Facebook job groups and position vacant groups. Then I actively switched to a search engine optimisation [SEO] strategy.
18:16 Then I switched to SEO and people were finding me online
So having people find me online, particularly for resume writing in Penrith, they would find me online. They’d think I was pretty much the only provider in the area because my SEO was so good I was literally all over the front page. And so they would come to me, and they would not go what’s your prices? Because I’d have indications on my website. But they would ask me, when are you able to start?
18:41 Then I was able to increase my prices
And I found that I was able to increase my prices six hundred percent, 600%, from the initial prices I was charging to what I was charging at the end of providing that. And it was absorbed easily. I wasn’t having to fight with people or anything like that, and it was simply because I moved where my market was, and I was charging what I needed to charge to stay in business if I wanted to.
19:09 This strategy took less time – just had to maintain the SEO
The other benefit from doing that strategy, is that sort of move from an active Facebook group strategy to SEO, was that I really didn’t have to do a lot to maintain the SEO. And it was far less than certainly commenting in groups and taking up opportunities to respond to queries in groups.
19:29 You could try to reduce your cost base
So another factor instead of putting up your prices, another thing you can do is actively reduce your cost base. So improve your processes or go for a lower cost program or something like that. So reduce your costs or reduce your time, so therefore you don’t need to charge as much for each product or service.
19:52 Improving your sales conversions to save time
Even things like for instance, improving your sales conversions by having a much stronger sales messaging will save you spending as much time doing quotes. So instead of maybe doing five quotes to win one job, maybe you’re only doing two quotes to win one job. So that is much more cost-effective. And therefore, you don’t have to up your prices as much because you’ve improved your processes. You’ve improved your conversions, which has a massive impact. If you look at our quoting workshop, you will see that that is a massive, massive thing.
If you are effectively incurring a $200 cost per quote. $200 times five is $1,000. So you have to add $1,000 to the cost of your service to get back that quote money, to get back that quote time. So imagine if you can drop that $1,000 down to $400. That’s a big difference. So please make sure you’re looking at your quoting and at your sales, and your sales messaging to make sure that you are doing everything you can to improve your automations, improve your processes, reduce your costs and increase your conversions.
21:09 Improve your costs by packaging things together
And one other way to remove cost is by packaging your products and services together. Now if you’re a service provider, one on one service provision is incredibly costly. So can you offer small groups that will reduce the cost involved? What about offering one to many or none to many? You can go buy a course on my online school while I’m fast asleep. That is perfect.
So look at things that you can do like that and you could package those up with some live sessions, as well as some group sessions, as well as some pre-recorded. You can mix all that together. So one idea I really like is the idea of packaging.
Now if you do products, you might package products together. So you create a hamper for instance. And the thing is it’s much cheaper to supply a hamper than it is to supply an individual product times ten to ten different people. Because you’ve got to go through the processing, the packaging, everything together. You’ve got to go through all that separately instead of doing it all in one go.
22:20 You could offer three tier pricing for services
If you do services, then you can look at offering three-tier pricing where you basically start at the bronze level with the minimal amount of your one on one time, plus ideally things that save you time. What do I mean by that?
22:36 Sell them the knowledge instead of helping them every time
Have you ever had those just a quick question type things or those pesky common things. Say for instance you write blogs and every time you give the person the blog, because they’re meant to take care of it to put on their website, they go to you: ‘I can’t remember how to load it to my WordPress site again. Can you remind me?’ Well imagine instead of telling them the same thing for the 16th time over that you give them a little knowledge base which includes how to upload a blog to their WordPress site. Well the thing is they can then do it at 11 o’clock at night if they so wish.
So that’s great. They can do it at any time that suits them, which is convenient. So it’s actually great for customer service. But it also means you don’t have to answer that annoying question. Because let’s face it, it is kind of annoying because you’re really not getting paid for it. You were paid to write blogs, not paid to answer a query about how to get it on their website.
23:31 Try the bronze packaging where you add on extras
So I really like this idea of bronze packaging where we have the bronze service plus some little add-ins, that save you time and make you more money because you’re charging more than what you would charge from the individual service. Because also, it means that the person doesn’t go right 2 hours of your time equals this, because now it’s 2 hours of your time, plus these three other things. So now each of those things has some value. So that means the person is not doing a straight hourly calculation.
24:04 The silver package would have another bonus add on
The other one that they can do then is the silver package. And what you will find in these three-tier package structures is most people go for the silver, because they have this real fear of missing out [FOMO]. And the type of things we chuck into that are things like real genuine value add things.
So for instance, it might be a little mini-course or an ebook on how to come up with content ideas for blogs. Now that is something that would be really useful to that person that is having those blogs written, because where do they start with the content?
Where they start with the ideas for the content? And you’re going to literally give them something that’s going to help them. So they’ll be really keen on that. So again, in this case, we create this thing once and then we can sell it many times over. Which again is a really good use of our time, and we can make more money off it.
24:56 Then finally gold where you can offer them more of your time
And then finally the gold, that’s the one where you offer them more time, more to-ing and fro-ing, more email, more phone calls or more consultation time. But only at the gold level. The problem with most small businesses is that they charge the bronze level price and deliver the gold level service. So really think about how you could do that much more effectively.
25:22 Bundles could also be multiple sessions
The other thing about selling multiple products and services together in a bundle, and this could include things like gym sessions, selling a ten pack instead of selling one, is that we don’t have to do the rapport building. We don’t have to invoice the client. We don’t have to go through all those additional steps to get the sale over the line. Because we’ve done it once and then we’re just fitting in these extra products and services.
25:48 Example of beautician could add something extra while customer is already there
So for instance, if you’re a beautician, maybe you do a facial, but while you’re doing a facial and there’s some products sitting on their skin, they’ve already paid for your time and things. A bit of a foot rub or something might be something that you could offer. And you could offer that at a discounted price. Because if they’re coming in to buy that foot rub, whatever separately, then they’re paying separately for your time and your billing and your rapport building and everything else. But this one, they’re not paying extra for those extras, they’re just paying for effectively part of that service. So that can be a really good way of making more money by upselling.
26:31 Productises services – services we can turn into products
So really think about whether you can combine products or services together or what we call productised services. Services that we turn into products because we can then sell them over and over again.
So I really hope today’s session has triggered you to think more about your pricing. If you want to learn more, please keep an eye out for all of our pricing workshops and sessions.
We have a few on our online school already, including about discounting and quoting. More will be coming soon. So please take advantage of these type of sessions because they really are enlightening. My school is available at faqbusinesstraining.com. I look forward to seeing some of you learn something about your pricing structures. Catch you later. I’m Jane Tweedy and I’m from FAQ Business Training.
27:32 Thank you for listening and please subscribe
Thank you for listening to today’s episode of the FAQ Business Podcast available on all good podcast services. You can subscribe today via FAQBusinessPodcast.com.au or directly on Apple iTunes, iHeartRadio or Spotify. Subscribe. Follow. Share and where able review our podcast or leave us a comment on either YouTube or our blog.
Thanks for helping us to help you, the small to medium businesses who are growing and want to make a difference. Look forward to connecting with you again on the next episode of the FAQ Business Podcast.
Today’s podcast episode featured our host Jane Tweedy. Her details are as follows:
Jane is a Professional Certified Coach with International Coaching Federation (PCC with ICF), business advisor and trainer. She loves working with growing small to medium business owners who are doing the right thing, to help them do it right! Currently, Jane offers at least 50 live sessions a year to train small business owners.
Jane offers a variety of services to clients and her online school and membership site went live late 2021. Jane’s focus for 2022 is building the membership and online school out further, and offering implementable small group training – something she finds is often the missing link.
If you are interested in training, speaking, or anything else Jane has to offer, please connect via firstname.lastname@example.org or via the contact forms on our websites.
faqbusinesstraining.com.au – our main site with a great blog
faqbusinesstraining.com – our new online school
faqbusinesspodcast.com.au – our podcast site
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