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I think a business’s pricing strategy is such an important topic. Not only is it the first touch point of money in a business, but it feels like it is greatly misunderstood.
In a more modern context a business’s pricing strategy has been used as part of a marketing strategy, considerations usually include:
– at what price will you get the most sales?
– if it ends in a 7 or 9 number, it will sell more (apparently research shows this!)
– what’s the most someone is willing to pay for this?
– what are other people in my industry charging?
If I were a marketer, I would say a pricing strategy should be focussed on encouraging a potential customer to purchase based on many underlying psychological factors.
Too often this customer-centric focus does not work in a small business or for someone who is self-employed. It can leave the business owner making decisions that compromise the things that are important, because the price is not serving them, it’s set to influence the customer. And this ultimately leads to overwhelm and burnout for the business owner.
A customer-centric pricing strategy can lead to pricing your product too cheaply, unsustainably driving up your sales volume, which can result in a misallocation of your resources. Those resources are your time, money and energy. When cash flow decreases due to customer-centric pricing, you use up more of your other resources, your time and energy, to get what needs doing, done.
Relying on discounts to drive up sales volume can lower your profit margin, and in some cases cause particular products or services to be sold at an unintended loss.
Using your price as the main mechanism in your customer’s purchasing decision-making process leaves you vulnerable. If product or service inputs increase or expenses inflate, you may be forced to increase your price, and this will impact upon sales.
From an accountant’s point of view, one that particularly cares about a business owner’s health, relationships or lifestyle, a business’s pricing strategy focus needs to do a u-turn and return to the direction of the business owner.
So how can you use your pricing strategy to prevent or help heal you from burnout?
When your pricing strategy is business owner-focused, this means you price your product or service to provide for a sustainable and profitable business.
This requires us as business owners to ensure that realistic and intentional goals are set that preserve rather than hinder our lives inside and outside our business.
What would that be for you and your business?
What do you need more of (or less of) to run your business more sustainably?
Write a list and put a $ figure next to each item.
For example, what if you really needed a VA which costs $300 per month. And scheduling software at $25 per month. Along with a bookkeeper for $200 per month.
How could you account for these added expenses that help rebalance your resources? (Remember: that’s your time, energy and money.)
Would that give you more free time?
Would you gain back some energy or vitality?
Then how do you financially cover this?
One simple way is to increase your prices. I know I said simple, but for most business owners it’s not EASY. (There’s a difference.) Resistance to raising prices is another topic all together!
But to raise your prices across a month to cover an extra $525 could possibly mean…
… on 80 billable hours of work a month, increasing it by $6.60 each hour.
… on 10 clients a week (or 40 clients a month), an increase of $13.20 is required.
… on 100 products sold per month, increasing your price $5.25 will cover it.
*tax has not been taken into consideration, because it varies greatly from business to business.
You get the idea!
Have you ever thought about using your pricing strategy like this?
How can you change your marketing to make sure the price is not the deciding factor in the purchase? To ensure the value and benefits of what you provide are abundantly clear?
These changes will allow you, as a business owner, to price for a sustainable and profitable business.
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As business owners we don’t have a lot of time for scrolling social media.
Therefore, I share how you can master your financial decision making to stay in line with your values and goals, nail your business design to be profitable and make money enjoyable and manageable via emails direct to your inbox.
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