The problem with pricing and ultimately profit
Time versus Money. What is more important to you? What is the most valuable to you? Which one do you lack?
Time, money and energy come into a lot of conversations either directly or indirectly. I can’t afford that (money). I don’t have time for that (time). I’m too tired (energy). All too often we use these excuses instead of saying the real reason – what we care about and what we value.
Value is something I covered in Successful Business Minds but for the purposes of this blog, I will briefly recap. In chapter 11 (The challenges to pricing and ultimately profit), I put forward the story of someone valuing a fashionable jacket over someone valuing a wind & rainproof jacket (good for hill-walking or if you live in Scotland). The latter won’t pay a high price for the fashionable jacket (unless they have an endless supply of money or have a very important event to attend) and the former will not pay a high price for a wind & rainproof jacket (unless they’re fed up getting wet). The point is, the price of the jacket is not really what they are basing their purchase on. It’s certainly the excuse they use (‘I can’t afford that’) but that’s not why they aren’t buying it.
When we are short of money, we will make judgements based on price. When we are short of time, we will make judgements based on time. When we are tired we will make judgements based on what energises or exhausts us. And yet because buying and doing something is also about value, if we really liked the outdoors and didn’t like getting wet, we would somehow find the money from somewhere to buy the wind & rainproof jacket (I’ve heard of guys eating baked beans & toast for a month so they could afford something they really wanted!).
Our choices also tell others where we are in our business too. When someone first starts out in business, they are usually short of money and will do everything themselves. They will learn SEO and marketing, they will do their own finances, they will do all their own work. Once they have some savings and a regular stream of clients they soon start to experience a lack of time. It’s not long before they see the benefits of outsourcing some tasks to skilled contractors who can do aspects of the job in less time and possibly do it better than them too.
I saw this in action last week when a fellow business owner sussed a few of us out for the price of a new service. Whilst the new business owners were feeling £150 was borderline ‘too much’, myself and others were happy to pay up to £500 for it. I knew that this person could do the service much better than me and in less time. Equally, I knew first hand just how much time was involved in it and therefore at a point in my life, where time is important to me, I’m happy for someone else to do. I don’t exactly have multiple £500s lying around to be dished out recklessly but I could see the value in paying for the service. It’s important to note, that if I didn’t value the service I wouldn’t have paid any more than £10/20.
When business owners are pricing their services, they very often go with what others think, but that is not the advised thing to do. For a start, you need a price that will financially support you & your family. Then once you have that you need to go find the people who will value your service and pay that price or adjust your offering accordingly.
Within some realms of traditional marketing, it is advised to gentle lead customers to you by giving away things for free and then offer them your services, making them a customer. But this can stop people giving away something for free, just to be helpful – “What if they see my free thing and then want to work with me. I don’t have time for them!” It can also create doubt in the person receiving the free thing, thinking – ‘If I get this, what will they try and sell me? ‘
However, the way I approach marketing is being helpful to all by offering different things for different people – those who have no money, those who don’t see the full value of what we offer (but still need it!) and those who do have money and just need to know where to find us. You can choose to help all of these people, or only the latter until your business is supporting you. Know that if you chase after those who don’t have the money when you don’t either, quite frankly you’re on to a lost cause. It does feel good to help others (and I highly recommend it) but not at the expense of your own financial stability and supporting your family.
I’ve been in business several years now and my availability is maxed in terms of who I can help directly. I could see this coming and it was why I wrote Successful Business Minds and 12 Steps to Improve Your Cashflow.
In order to give my current clients the best service I can offer, I have to limit my time given to others. I’m now in the process of designing various helpful & very simple tools for free (and a full interactive workbook for a reasonable price). I am going to start releasing some of the tools over the coming months and I would be grateful for feedback as they are still being tweaked. You can download my first very basic toolkit on pricing: How to Price Effectively – for services if you are interested. Please also share this blog if you think others could benefit too.
Take care until next week. Value your time, respect your money and choose activities that energise you.
© HM Coaching Ltd