March 8, 2024 • 50 mins
What are pricing strategies that set your small business up for long term success?
In this episode, host Lily Richmond delves into the critical topic of pricing strategies to consider when you are just starting out in business. She shares insights on how to set pricing in order to win more business and make a profit. Joining her is special guest Alana Swain, co-founder of Your Success Team, who provides valuable advice on pricing from a financial, operational, and mindset standpoint.
You will learn about the five main areas that influence pricing, including what consumers are willing to pay, competitor pricing, positioning in the marketplace, costs, and profit margins. This episode is part four of a seven-part series on where to start with your marketing when first starting up a business.
Grab the downloadable workbook to brainstorm and capture all the factors that can influence your pricing. https://marketingondemand.co/startup4
Get the show notes, transcript and the other workbooks mentioned at https://marketingondemand.co/podcast
Check out Alana Swain’s business Your Success Team and get access to her comprehensive pricing calculator. https://bit.ly/YST-Pricing-Calculator
Got a topic you want me to cover? Share your ideas here: https://marketingondemand.co/contact
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Introduction (00:05):
Welcome to the Small Business Marketing Huddle.
Our show is all about takingaction.
We equip you with the marketingknowledge and confidence you
need to make real progress.
So let's huddle up and listenin to the latest episode with
your host, Lily Richmond.
Lily Richmond (00:30):
Hey, this is Lily .
Thank you for being here today.
If you're already subscribed tothe show, thank you so much.
I really appreciate you and Iam really delighted that you're
taking some proactive steps totake control of your marketing.
And if this is your first timehere, don't forget to hit the
follow or subscribe button inyour favorite podcast player,
(00:54):
because today, like in everyepisode, I'm going to cover a
marketing topic I think you'vereally got to learn if you want
to master your marketing.
And, as always, make sure youlisten until the end, because
I'm going to give you the lowdown and a handy worksheet on
how to set pricing so you canwin more business and make a
profit.
(01:14):
So let's get straight into theepisode, because today is going
to be a cracker.
It is part four of seven in myseries on where to start when
you are first starting up inbusiness.
And, just to recap, in part one, I gave you some practical
steps on how to make yourproduct or service totally
irresistible to your targetmarket.
(01:34):
Then we delved into uncoveringwho your target market and ideal
customer actually are, and then, in part three, we came up with
a single minded statement onhow you make your customers life
better.
Now, today is actually a reallyspecial episode for a couple of
reasons.
Number one we're going tofirstly demystify how to set
(01:59):
pricing so that you definitelywin business, that you
definitely make profits.
It's critical because businessis all about the dollars and
cents, and all of your hard workand your risk taking to set up
a business has to be rewarded,so it's critical that we cover
pricing at some point.
And the second reason is thattoday I've got a special guest
(02:21):
joining me who's going to giveyou some pretty darn important
insight into pricing and what towatch out for.
Alana Swain is a corporateescapee and entrepreneur and
she's the co-founder of acompany called your Success Team
, and it's a business that givessmall business owners the
business smarts that they needto feel supported, clear and
(02:44):
confident and in control again,because business can be
overwhelming.
Being in business for yourselfis amazing, but it is a roller
coaster, and your success teamhas a range of different support
plans and coaching services tohelp you thrive in business.
Now I'm going to drop a link toher business in the show notes
if you want to find out more.
(03:05):
So I was really excited whenAlana agreed to step up today
and chat about how to setpricing for your small business,
because she has seen thepitfalls and she knows
absolutely what you need towatch out for.
So I'm hoping that this isgoing to be a really insightful
episode for you.
But firstly, this is how theepisode is going to run.
(03:26):
I'm going to chat about pricingstrategies, looking at it from
a marketing and a positioningperspective, and then Alana is
going to join me and we'll chatabout pricing more from a
financial, operational and amindset standpoint, because they
are just as important.
That way, you're going to getall of the smarts that you need
(03:46):
and you're going to be able tothink about your pricing from a
number of angles, and that'sjust one of the key things that
I want you to take away fromtoday.
Pricing is multifaceted.
It has so many differentperspectives and angles and
things to consider, so I'm goingto hopefully share some of that
with you today and you can getthat insight that you need.
(04:07):
So let's get straight into theepisode.
So what is pricing strategy Atits simplest level?
It is just the method by whichyou determine what prices you're
going to charge, and there area number of factors that are
going to influence how you setthem.
The five main areas that aregoing to have an influence over
(04:28):
your pricing are number one,what your consumers are willing
to pay.
Number two, what yourcompetitors charge.
Number three, how you want tobe positioned in the marketplace
.
For example, are you going tobe a premium brand or will you
price match your competitors?
Number four, the costs ofcreating the product or service,
(04:51):
running your business and themarketing of your business as
well.
And then number five is whatprofit margin you want to make.
Now, alana and I are going totalk more about understanding
your costs and profit marginsand mindset later, so I'm going
to tackle the part aboutconsumers, competitors and
positioning first.
So, first up, you need tounderstand your customers'
(05:14):
expectations and theirwillingness to pay, and I want
to get something out on thetable right away.
Customers don't always want topay the lowest price possible.
Why is it?
For example, even withinproduct categories that you
might consider as commodities,there are variations in pricing.
Take a humble bottle of cow'smilk.
(05:35):
You might think that everybodywants to pay the lowest price,
but that's not necessarily true.
Check it out in the supermarketaisle next time you're there
and it might surprise you.
There are premium brands, thereare budget brands, there's
generic milk, there's organicmilk, there's milk fortified
with extra vitamins, there's theA2 protein milk.
(05:57):
The list goes on.
So consumers are willing to paya price that they perceive as
giving them value for money, andthat's a key point that I
really want you to take awayhere.
They will pay for the featuresand benefits that are important
to them, and value for moneydoes not necessarily mean it's
(06:18):
the cheapest.
How would something like a LouisVuitton handbag be value for
money, for example?
If you ask someone who owns one, they might say it's handmade,
it essentially has a serialnumber, it uses the finest
materials, it's iconic andrecognisable around the world as
(06:39):
a symbol of luxury, it makes mefeel better about myself and it
infers a level of status insociety, so for that person, it
definitely has value for money.
So when you consider this foryour business, think about what
is important to your consumerand what your value story is,
(07:01):
and this tightly ties into partsone and two of the series,
where you need to understandwhat it is you're offering and
who your audience is.
And when we think about thelast episode, where we talked
about how you make yourcustomers life better, that also
feeds into pricing as well.
So the second area is thecompetitive landscape.
(07:23):
To set robust pricing for yournew business, it is important
that you understand what yourcompetitors are charging, and my
tip here is to use this toinform and sense check what
you're going to charge, but notdefine it.
You have to make a decision.
Are you going to match yourcompetitors, and that's called,
(07:43):
in the industry, parity pricing,or are you going to undercut
your competitors, and that'scalled penetration pricing?
Or are you going to charge morethan your competitors, and
that's called premium pricing?
And why might you opt for oneof these pricing programs over
the other?
Let's talk about matching first.
Here you're going to want toprice match if your consumer is
(08:06):
sensitive to the price or has areally set expectation of the
price, or the market for whatyou're selling is a really
competitive place.
If you sell identical productsand services to another
organization, you might have toprice match.
If you have to price match,then you've really got to focus
on managing your costs, becausethe profits you make will be
(08:29):
dictated more by your costs thanthe price you charge.
Remember that the profit marginif you aren't aware of what
this term is is the differencebetween the price and what your
costs are.
I mean, that's at a really,really simplified level.
Now, even if you are selling anidentical product, you don't
have to match what yourcompetitors charge, right,
(08:50):
because maybe your offering isdifferent, maybe you give more
value via things like bettercustomer service or free
delivery and returns, or yourbrand and the experience that
you give your customers is goingto be totally different to what
your competitors do.
That's why I say let yourcompetition inform your pricing,
(09:11):
not determine your pricing.
You have to look within andunderstand those key things that
are going to make your businessstand out.
Be a bit different, offer morevalue, and that's how you can
overcome the situations whereyou have to look at parity
pricing.
Now, what about penetrationpricing, which is where you
(09:33):
essentially undercut yourcompetitors when you might want
to do this when you first launch, for example, to get people to
try your business out.
Now, as a small business, I dowant you to be careful here.
If you're considering thestrategy, if you're competing
against big corporations,comparing yourself to a large
big box retailer in your country, whether that's Walmart, kmart,
(09:55):
carrefour in Europe, they'vegot really deep pockets and they
can outcompete you on manyfronts, and primarily.
One of those is scale.
They can just produce a wholeload more product much more
cheaply and sell it in muchgreater volumes than you can if
you're a small business oryou're just starting out.
(10:16):
So you've really got to thinkabout if you're going to use
penetration pricing, which iswhere you undercut your
competitors.
You really have to think aboutis how long you could sustain
there for Now.
Another way that you can lookat penetration pricing is
actually to treat it like anintroductory offer, so it gives
people an opportunity to tryyour business out and it can
(10:38):
encourage them to take theplunge and it creates a bit of
urgency.
However, I am going to say Idon't think that being a loss
leader is a good strategy for asmall business.
Over the long term, we wantyour pricing to be sustainable
and for your business to besuccessful, so undercutting from
day one is not a great place tostart.
(10:58):
Finally, the third pricingprogram is premium pricing, and
this is my favorite.
This is where you are going tocharge more than the majority of
your competitors because youare going to offer some form of
value that makes you better and,as a small business, this is
where you can play reallyeffectively.
Just remember you have tounlock what value your consumers
(11:20):
are looking for.
So make sure you do yourresearch on that first.
What do they value?
And if you can offer that,premium pricing is definitely
the way to go.
And this then neatly leads me onto the third factor of pricing,
which is positioning.
And what's positioning?
Well, it's how you influenceyour consumers' perception of
(11:42):
your business, brand or productoffering versus your competitors
.
If you want to be a budgetconscious business that offers a
no-frills service, then you'regoing to price yourself at the
lower end of your competitiveset.
But if you want to be seen as apremium offering with high
quality products, then you willwant to be charging more.
And this is something that I dosee quite a bit with small
(12:04):
businesses.
They want to be a premium brandor a premium business, but
they're price matching orundercutting their competitors,
or their brand experience isn'tpremium enough.
They're using really cheappackaging or their branding just
does not appear premium.
So there's a mismatch andconsumers pick that up.
(12:25):
And pricing in particular is areally big signal to the
consumer.
So make sure that you've gotyour positioning and your
pricing lined up.
Okay.
So we are on to factors fourand five, which are
understanding your costs andprofit margins.
And it's at this point that I'mgoing to bring Elana into the
conversation and we're going tohave a pretty free flowing but
(12:48):
kind of a question and answersession around profit margins,
around costs, what to watch outfor, and she's going to give
some great insights on somemindset pieces and what to
consider.
Okay, well, I would now like tointroduce you to Elana Swain,
(13:10):
who is joining me today on theSmall Business Marketing Huddle,
and Elana is going to sharesome really great insights and
ideas and tips around pricingand some things to look out for,
and we're going to talk allabout the differences between
pricing and profitability,understanding your financial
(13:32):
dynamics, charging what you'reworth, all of those good things.
So, without further ado, I amgoing to welcome Elana to the
podcast.
Welcome hi, elana.
How are you today?
Alana Swain (13:43):
Oh, I'm so good.
Thank you so much for having mehere, lillian.
I'm really excited to talkabout this stuff because it's
one of the things that we don'tshare enough.
You know the money side ofbusiness, which then makes all
that hard work that you've donewith marketing and getting
people to know about you.
It makes the business busyTotally and actually profitable,
which is the difference.
I always like to joke betweenhaving a subsidized hobby for an
(14:05):
expensive hobby and a business.
Lily Richmond (14:07):
Yeah, yeah, and I guess this is and that's so
spot on, given that we'retalking about the idea of when
you're just starting out inbusiness.
So you know, getting people setup with those good foundational
principles and concepts earlyon is so key, because if you
start really well, then you'vegot a greater chance of your
business succeeding over thelong term.
So, yeah, absolutely Perfect,perfect.
(14:29):
So, before we delve into thetopics of understanding your
costs and the financial dynamicsand how they influence your
pricing, I'd really love to hearfrom you about some of the most
common challenges or mistakesthat people make when it comes
to setting pricing for theirproducts or their services.
And feel free to tackleproducts separately to services,
(14:52):
because there are somedifferent dynamics there or
together.
So yeah, what are yourperspectives on that?
So I think yeah you're quiteright.
Alana Swain (15:00):
I think pricing, products and services are quite
different because obviously ifyou're running a product-based
business, your overhead and yourbusiness model is just totally
different than a service model.
Typically, and I think one ofthe biggest traps that I see
people fall into for both, if Istart with the general is not
pricing for growth, so just asyou just said, when you're
(15:21):
starting out you're thinkinghere and now.
but some of the biggestchallenges come when you need to
do those step changes inbusiness and if you've not got
your pricing with enough fat inthe tank, you can stimmy your
own ability to grow and you getthose wobbles because you've
sort of priced a business thatdoesn't have, say, for example,
(15:41):
the appetite to pay someone tohelp you with your marketing.
Or let's say, all of a suddenyou need to level up and get new
premises.
If you haven't built some roomfor growth into your pricing, it
can become really hard to thenincrease your pricing without
re-looking at your entireproposition.
Who are my customers?
Are they still willing to payif I need to increase my prices
(16:03):
by 20% because I need to meetthese new costs of delivering
with this growth?
You know you sort of that'swhere we see a lot of speed
wobbles.
So that's one of the universalthings that I see.
And then I think the otherthing is people not necessarily
understanding the cost ofrunning their business and
pricing with that awareness, ifthat makes sense.
(16:23):
So let's say for example Ithink this is quite common
follow your passion, we hear.
Follow your passion.
And so someone really lovesphotography, say, and they're
like, I'm going to bephotographer and they're working
a job and they say getting paid$30 an hour currently.
So they're like well, I knowthat I can take I don't know 15
photos and get that to someonein the half hour window and I'm
(16:44):
going to charge $75 for that.
And look, I've increased, I'vemore than doubled, my hourly
rate.
Yay, I've more than money.
I'm going to be up in the grandbusiness owner before I know it
.
And they haven't realized thatactually, that doing the work
part of their business is justone component of running a
business, and they haven'tpriced for the fact that they
may need to be spending fivehours a week doing some of the
(17:06):
administrative tasks, or acertain number of hours a month
attending networking meetings orworking on website updates or
planning their marketing effortsto get that person in front of
their camera to do that work.
And so they're going for thisreally direct transfer of salary
or hourly rates to charge rates, without understanding their
other stuff.
And I think that's aparticularly service based
(17:30):
example, but it's true forproduct as well.
Lily Richmond (17:33):
Yeah, yeah, and I think you've just raised such a
really valuable point aboutpricing with the future in mind,
regardless of whether it isservice or a product, because,
yes, when you first start out,your overheads are really low,
potentially, if you like, yousay you're a solopreneur, you're
(17:54):
a one person band, but thatmoment that you need to scale
that business in any shape orform, there are expenses that
are going to come out of nowherethat you hadn't planned for and
, yes, your cost dynamics andyour pricing completely changes.
And I think that's really thatis such a valuable insight to
give people that, yes, you'vegot to think about what it might
(18:14):
look like in two, three yearstime if you've doubled or
tripled it in size, and whatwould the operation look like
and the costs that areassociated with that.
So, are there any on top ofthose points?
Is there anything that businessowners that are just starting
out should watch out for?
Alana Swain (18:32):
I think both keep this in mind and it'll come over
the fence and bite you is.
Everyone's got an opinion aboutpricing and we sent out a sort
of a bit of an email tip lastyear talking about, example, of
a white shirt, becauseeveryone's got an opinion about
pricing, right.
So we use the example of whiteshirt.
So whether or not you buy a $5shirt from some mainstream
(18:56):
household brandish retailer oryou're off to buy a $500
completely tailored, heavilylabelled item, someone's going
to have an opinion about whereyour shop is on the end of the
spectrum, right there, or fancypants or a cheapskate, right?
So you have to acknowledge thatyour price is not going to be
for everybody.
That you know, regardless ofwhere you choose to place
(19:20):
yourself on that spectrum.
So we can't all.
We sort of have a joke if youcan't compete with the likes of,
like, a Walmart business modelor a Kmart business model
because you're just notdelivering at million scale
items.
So try the heaven's sake tostay out of that chase to the
bottom the mindset that sitsbehind that, to have faith that
(19:42):
you've done your homework,you've thought through your
pricing process, you know yourbusiness goals and we do want to
set to know that your pricingis right for you.
Lily Richmond (19:53):
Yeah, and I think that is so valuable when I
think back to earlier part oftoday's episode where I talk
about positioning.
So, like you said, with thatwhite shirt example, you could
be at the cheaper end of themarket or you could be at the
premium end of the market andfor you and your business, you
(20:13):
have to work out what's yoursweet spot, isn't it?
It's that Goldilocks formulabetween your cost base, what
profit margin you want to make,which will come on to, and also
where you want to be positionedin the marketplace.
So you've raised some reallyinteresting concepts there as
well around value.
So it's you can charge whateveryou want for whatever you offer
(20:36):
.
It's just whether you have gota market that is willing to pay
that price because they see thevalue in what it is that you're
offering.
So, yeah, and I think that'swhere that's where small
business owners get a little bitcaught up as well.
So that's where it's all about.
Well, I have to charge what mycompetitors are charging,
because no one's going to payanything else.
Well, with your white shirtexample, look at the spectrum of
(20:58):
prices out there in your ownmarketplace.
The variation is huge and thereis enough room in many, many
markets for people to be able tocompete Absolutely.
Alana Swain (21:08):
Yeah, and it does become really hard, and this is
why I think one of the hardestadjustments to being a business
owner is to understand.
It's not linear, that there'sone decision to make.
You have to go oh so how doesthat sit against this?
And then come back.
So you might have thought youknow where you wanted to
position yourself.
Then you do your numbers and gooh crumbs, I can't make profit
(21:30):
on that.
So then you have to come backand reevaluate, or what does
that mean for where I thoughtthat customer, that client, that
group of people I've beentalking to, did they still sit
there at that price?
Lily Richmond (21:42):
point.
Totally, totally agree.
Oh no, that's super, supervaluable and I think it would be
really great if you could talkabout that relationship that
exists between your pricing andprofitability.
Can you talk a little bit moreabout that?
Alana Swain (22:00):
Yeah, absolutely, pricing sort of sits at the
visible end of business, right,and so what you get is you get a
lot of people talking aboutyour top end number, so like six
bigger, this and 10 came outthere and seven figures.
But none of that matters if youdon't have a profitable bottom
line, and so pricing is abovethe line thing that everyone can
see.
(22:21):
If you sort of use an icebergexample, your pricing is the bit
that everyone can see at thetop.
How you run your business isall of the bottom things, and
then at the bottom of that is,and so therefore, have you got
profit once you account for allof those things?
And so typically I would sayyou need to have an
(22:41):
understanding of whether it'sproduct or service.
How much does it cost you tojust deliver that widget?
So, for example, you're goingto start selling whiteboards.
How much does it cost you tobuy the whiteboard?
How much does it cost you topackage the whiteboard?
How much does it cost you todispatch that?
Right, that's your above theline cost that you can see.
And so that is directly linkedto how many of those things
(23:03):
you're going to sell on a month,right, so that's your gross
profitability.
That amount can shift dependingon how many you're selling.
Then you've got your open.
The business costs and I thinksometimes people forget about
those costs and those are theones that can trip you up as you
go and grow, because it costsyou more to open your business
(23:23):
the bigger you are, and sothat's why when you're starting
out, just you and your computerand your app home and you know,
and then a little overheadcreeps in because you need a
subscription for that, oh, andthen you might need that, and
all of a sudden you needliability insurance here and you
need this, and then, oh, nowI'm going to choose to spend
some money on, say, google orall of those things stack up.
(23:45):
Those are your overhead.
They typically don't change asmuch depending on how many units
.
That's just how much it costsyou to open your business, and I
think it's there that can getreally murky and people don't
necessarily like to share that.
They just wait for theirfinancials at the end of the
year from the accountant to godid I make a profit or not?
Lily Richmond (24:03):
Right, totally with you there.
And what are some of those?
For someone who's not reallythat familiar with the concept
of the overheads, can you runthrough a little bit of a list
of what would those big ticketitems be that people need to
make sure that they aredefinitely budgeting for, and
those overheads with theirstartup?
Alana Swain (24:23):
costs.
Yeah, so I think it's quiteeasy to capture.
What does it cost me to providemy product or service?
Right, but then below that I'dsay so you've gone to at some
point want me accountant To helpyou.
Probably you may have insuranceneeds, whether that's liability
or premises.
You may want to have a premisesin the future.
(24:46):
You have costs in terms of yourongoing subscriptions to the
things like Zoom, andeverything's priced at enough of
an amount that you probablydon't.
Oh, that's right, that's $30.
I don't need to worry about it.
All of a sudden you've got 10of them.
That's $300 a month.
That could significantly impactyou when you're starting out in
terms of profitability.
(25:06):
And then I think, as youperhaps tip toe out of startup
and into that, I want to runmore stuff through the business
mode.
That's where overheads set yourhome office expenses, your
vehicle expenses, those sorts ofthings, and so on the one hand,
you may have an inclination towant to put as much through the
(25:29):
business as possible, becausethat's old school business
advice Run it all through thebusiness.
You might just say, hey, it'llbe great for you, tax deductible
and all of that.
But same thing, that impacts onyour profitability.
Lily Richmond (25:43):
Yeah, and ultimately if you're running as
a consultant or that type of aservice-based business, then
from a profitability standpointyou can only pay yourself out of
your profits.
Really, If you're going to takeit in New Zealand anyway, if
you're going to take a shareholdsalary as opposed to paying
yourself wages, so that profitnumber then becomes really
(26:04):
important.
Alana Swain (26:04):
if you're going to be a one-man-man consultant, for
example, absolutely, and Ithink and this is where pricing
is really important to thinkwhat's my long term?
So if you're a consultant,typically you don't have a
business to on sale.
Therefore, you need to make asmuch profit as possible for the
lifespan of your desire to runthat business.
(26:27):
If you have a differentbusiness model, for example, a
product business or a businesswhere you have a team, you may
want to sell that business.
Therefore, it's important to beprofitable.
So someone wants to buy yourbusiness, yeah, and so that's
why profitability is soimportant, regardless of whether
(26:47):
that's product or service.
It's really important tounderstand what is this business
a vehicle for?
Lily Richmond (26:52):
and profit is important and, from a financial
perspective, what would you saya business owner needs to
consider when actually coming upwith their price?
What are the things that theyneed to consider and keeping the
back of their mind or watch outfor what are the key dynamics?
Alana Swain (27:06):
So I think we've still spoken about that room to
grow.
I think you need to have anunderstanding of your supply
chain costs, like, are you in apart of the market?
You saw a lot of people getreally hurt, particularly in the
New Zealand market, if theywere at the mercy of a supply
chain when the Sways Canal sortof crisis hit which came off the
(27:26):
back of lockdown.
So we sort of got this perfectstorm for some people in that
they had these incredible likequadruple shipping cost changes
but they couldn't quadrupletheir charge to the end consumer
because the market demand justwasn't there.
If you didn't have room andyou're large in for that, you've
not got profit, and we saw alot of businesses sort of going
(27:49):
to negative profitability.
So that's why I think one ofthe things businesses in linear,
but I do think it's reallyimportant when you're sense
testing, before you go live, doa little bit of a SWAT analysis,
which is what are those threatsout there in the marketplace
that you do need to be aware forand just put some of that
(28:10):
thinking into your pricing.
And you know that is wherequite often it's really helpful
to work with someone with yourpricing, and obviously I'm
totally biased there becauseI've got a business that helps
people do that.
But sometimes you can't seewhat you can't see because
you're so invested in your ideabecoming a business that you
don't want to validate that andhave someone shoot you down yeah
.
Lily Richmond (28:30):
Yeah, yeah.
And sometimes it's also thatperspective of when you run the
numbers, of thinking, well, howam I ever going to make any
money doing this and actually ismy idea viable?
And you know, that's prettydisheartening for somebody when
they follow the enthusiasmthey've got these great ideas
and then they think how am Igoing to make a living out of
(28:52):
this?
But it's so important to getthat sorted right from the
outset.
Like you say, and working withsomeone like you or another
consultant that does that typeof work, the reality is that
having that person to sensecheck with you might need to
give you a reality check or sayit might come out that, okay,
the way that you're planning todo it isn't going to work.
(29:13):
It might work a different way.
You might have to change thebusiness model or the product or
the way you're going to run thebusiness slightly so that you
can Turn it into a going concern.
So, and that's that insightthat I think, like you say,
people don't.
People don't have a sense ofthat.
Alana Swain (29:29):
Do that yeah because, I mean, none of us know
what we don't know, and that'sthe part, part of the part, and
that's why it is like I thinkit's.
I do think it's particularlyNew Zealand trait to not want to
ask for help and that isdamaging to our success as a
nation of small business owners.
If we ask for help sooner, wemay not have these growing pains
(29:51):
or growth wobbles and we mightfind more success.
Because if someone was able tojust point out a couple of
things, you don't know it yetbecause how it is for you meant
to know it, you can't know untilyou've been through it.
That's not you being stupid,that's just you not having had
the bruises yeah, someone else'sbruises.
Be the lesson you know oh,totally, totally.
Lily Richmond (30:14):
And I think you know you're absolutely right
about New Zealand businesses.
Yeah, we're afraid to ask forhelp.
We don't want to.
You know, maybe there's a bitof pride there as well.
We don't want to admit that.
Maybe we don't know what we'redoing.
There's so many shortcuts thatyou could take by actually
saying, well, yeah, I can, if Icould Invest, not think about
(30:35):
paying, but if I could invest insome proper advice, then it
would save me thousands andthousands of dollars and hours
of and heartache as well.
Can you talk a little bit aboutprofit margin in relation to
your pricing and your?
(30:55):
You know your cost of deliveryof that product or service and
why it's important for smallbusiness owners to actually
Understand what profit marginactually is and how you set what
your, you know your margin oryour markup is going to be and
all of those sorts of things.
Can you give us some insightinto that?
Alana Swain (31:12):
You know, look, I could, we might need to record
like.
So I think one of the things is, if you want to take yourself
seriously as it is and slightly,you need to take profit
Seriously.
I think typically you need to,depending on what your so, let's
say, for the likes of ourConsultants starting out.
If I sort of was to use that,you want your gross profit.
(31:33):
So that is your gross profit.
Actually, if you're aconsultant could be as high as
80 to 90%, because your costs ofdelivering are really low,
versus if you say, for example,the whiteboard example.
If you're selling whiteboards,there's lots more.
Yeah, but I think, regardless ofyour business, you want to be
(31:54):
sitting with your grossprofitability at 40%, because
that is going to give you thatroom for growth, right as you so
60% or above, and then, asyou're sort of running your
overheads, your net profit.
So that's when you take out allthe other costs of opening the
door, what's your net profit?
You want that to sit between 20to 60%, depending on your
(32:18):
business.
Now, some businesses that isreally hard.
Hospitality has to run so muchtighter than that.
But if you're trying to start aproduct-based business, if you
want room to grow, you need thatbigger buffer Because you yes
the likes of, like a Walmart orKmart or one of those big box
retailers.
They can run on a tiny, tinyprofit margin, but that is
(32:39):
because they are pumping suchvolume through that it doesn't
matter if they're running at 4%net profit.
No one's going to buy abusiness for 4% net profit.
Lily Richmond (32:49):
Yeah, and their game is a numbers game, and
that's where it's reallydangerous to compare yourself,
isn't it?
So it's the thing youimmediately want to do and I
talked about hey, you need to goout and look at what your
competitors are doing.
Yes, look at what they're doing, but you know your immediate
competitors.
Are you really competing withWalmart?
Are you truly?
Because you're not in that samespace.
(33:10):
So someone who's maybe Goingonline looking for something
that's slightly different it'snot that mass produced product
than they're not a, thenWalmart's not a direct
competitor for that anyway, andso it can be really dangerous,
can't it?
The the curse of comparison?
Alana Swain (33:27):
ultimately, comparison is the thief of joy
in life, but so true in businessit's the.
I think Comparison is the thiefof confidence in business.
Lily Richmond (33:36):
Yeah, yeah.
What are some of theimplications if you, if either
you don't see your marginproperly Well, not properly, but
at the right level for you oryou don't capture some of those
expenses and costs of doingbusiness, what are the real
ramifications if you don't, ifyou don't do that from the
outset?
Alana Swain (33:53):
So I think one that immediately springs to mind is
you just can't play the longgame.
You just can't.
You'll just for a variety ofreasons, but you'll pretty
quickly hit negativeprofitability.
But if you come back to thatconsults example, you find that
you have to work all the hoursunder the sun to come anywhere
close to.
If I use a corporate escapeexample, because you and I both
(34:15):
coming off corporate escapeebandwagon there was at least a
parameter there for a salariedlife Expectations to match that.
If you haven't priced it right,you will quickly find that you
just bought yourself a job whenactually you do need to work 60
hours a week in order to be ableto bank the same amount you
were banking as a salariedemployee and that's kind of
(34:36):
probably what drove you to startyour business.
So you need to price it rightnow and for all the time and all
the other things you're gonnaneed, so that what hits you
because what hits your bankaccount is the reason you're
running that business.
Yeah, yeah.
Lily Richmond (34:52):
Yeah, yeah, you're spot on there and I think
that's where service,service-based businesses, where
people are selling Ultimatelythemselves or time there can be
a real psychological aspect topricing there and some, I guess,
some issues around self-worthand doubt and things like that.
(35:12):
So could you maybe this isgoing a little bit off topic for
talking about pricing generally, but I think it's quite an
important one if there arepeople out there listening who
are thinking about starting aservice-based business when they
selling themselves ultimately.
Alana Swain (35:29):
Yeah, it's so interesting because it's a
little bit off topic, but it'salso part of it.
So I I kind of go charge theimpact but also charges a
business owner and just becommercially astute with that,
because if you can stopapologizing to the mean Person
in your brain picking holes andit, yeah, you'll go out and go.
Lily Richmond (35:48):
This is the price perfect, okay, so there's gonna
be some more general Sort ofideas that I'd love to to pick
your brains on now before wewrap up.
But what's your number?
One piece of advice on how toset prices.
Alana Swain (36:06):
I would say, put on the spot.
Lily Richmond (36:09):
My number one piece of advice would be to, to
as much as possible, divorceyour emotions From the price and
think commercially, and thatwill help set you up for success
so much as you said before,yeah, we do all struggle with it
, and I think because when youstart a small business or any
(36:29):
kind of business, really it'susually come out of some kind of
idea or passion, something thatyou're really invested in
personally, and so it can bereally hard to divorce that and
yourself from the commercialaspect of running a business,
and that, yeah, you actuallyhave to be a little bit
(36:50):
hard-nosed and say, well, I'm inbusiness, yes, this is this
might be my passion, this mightbe something that I just love to
pieces and I'm totally investedin, but ultimately it's a
business.
Ok, alana, and I guess my finalquestion for you is as for a
business owner who is strugglingto set their prices high enough
(37:13):
, what advice would you givethem?
Alana Swain (37:16):
I think, the biggest thing.
For me.
It comes back to you have to.
It sounds like really likewoken buzzwordy but you have to
be really committed to yourvision, your passion, your why,
whichever word sort of lightsyou up, go with that word and
then try and keep that light infront of you.
(37:37):
If you have to have it writtenon the screen in front of you,
but just keep bringing it backto why are you doing this
business thing in the firstplace?
Because it has challenges.
And so if you keep bringing itback to your why, then hopefully
that will help you get overyour nursing yourself, your
doubt, your worries, all ofthose sorts of things.
(37:59):
And to hopefully also, if thereason that you're struggling
with your pricing being highenough is that you're scared to
look at your numbers, thenhopefully that commitment to
your why would drive you throughthat.
Lily Richmond (38:11):
Yeah, oh no, that's a perfect piece of advice
.
Yeah, no, that's really reallygreat, thank you.
Thank you so much, alana.
We're going to have to leave itthere.
I could talk pricing andbusiness profitability with you
all day and, yeah, such a greattopic that you're clearly
passionate about, and even forme, as a marketer, you've got to
(38:33):
know your numbers and you'vegot to make sure that you can be
in business to make a profit.
So it's not all advertising andfancy social media.
So, yes, this has been a reallymeaty topic and I really do
appreciate you joining me todayand giving me your time and
sharing your wisdom and yourinsights with the audience.
So, thank you so much andhopefully we'll be able to get
(38:55):
you back on the podcast anothertime to talk about a different
topic.
Alana Swain (38:59):
So yeah, yeah, I'd be delighted.
It's truly been a pleasure andI just think if it could, if it
helps one or several or manypeople, then that is absolutely
time I'll spend in the work thatyou're doing here with the
podcast.
It's incredible.
Hopefully people can takesomething from here, go away and
do something with it, and itmakes an impact for many
businesses Wonderful.
Lily Richmond (39:21):
Okay, thanks, alana, you're welcome.
Take care.
Well, I hope you found thatinterview with Alana helpful in
understanding your costs andprofit margins when it comes to
setting prices.
So let's recap what we'vecovered.
There are five differentperspectives to consider when
you set your pricing.
There's the customercompetition positioning, your
(39:47):
costs and your profit margins,and after the break, I'm going
to take you through each ofthose five perspectives and
share some actions that you cantake to make sure that you've
incorporated these into yourpricing strategy.
(40:07):
Alrighty, let's get into thenitty gritty of things that you
can do to set yourself up forsuccess with your pricing.
So I've, as usual, created ashort guide that can help you
get some of your ideas down onpaper, really when it comes to
pricing and the considerationsthat you need to make.
So I've included a link in theshow notes or you can grab it at
(40:32):
https://marketingondemand.
co/startup4 , and I just findthese workbooks tend to be
helpful for you to get yourideas down on paper, and I
appreciate that when you'relistening to the podcast, you
might be doing something whereyou can't really take the time
(40:53):
to think things through, and sothat's why I recommend download
the little guide and you canwork through and refollow the
episode as well.
Ok, so remember there's thefive different perspectives when
thinking about your pricingstrategy.
Let's tackle number one, thecustomer.
And actually that you can takehere is to do some desk research
, and I want you to note downwhat the range of prices are for
(41:17):
the product or service that youoffer.
What's out there in terms ofpricing?
What do you think consumers arewilling to pay?
The second piece that you canconsider here is actually
listing out the value that youoffer your customer that could
help you command a higher price,a premium price.
What's that extra value addthat you are going to bring to
(41:40):
the table that is going toencourage that customer to be
willing to pay a higher pricefor it?
Remember, consumers will paywhen they get value for money.
Everything has a value equationand you've just got to work out
what that is for yourindividual product or service.
The second area to consider isyour competition, and again I
(42:03):
want you to go away and do alittle bit of desk research here
.
Who are your main competitorsand what is it that they're
charging?
Now, if you have been followingalong in this series, in
episode one there was a workbookthat came along with that, and
actually you will have includedthree competitors there.
So that's a really great placeto start.
Go back, check out thosecompetitors and look at what
(42:25):
their prices are.
And the second part of lookingat your competitors is not just
their prices.
I want you to look at whatvalue they offer as well.
Right, so this could be thingslike free returns, after sales
care, maybe it's a free websiteaudit if they're a web designer.
(42:45):
These are all the sorts ofthings that businesses do to
offer value for money.
Do they offer any promotionalpricing?
Note that down as well.
They might offer someintroductory offers, but their
underlying price might be higher.
And remember my word of advicefrom earlier in the episode Use
(43:07):
your competitors pricing as aguide, not as the justification
for exactly what you shouldcharge.
You've got to believe in whatit is that you are selling and
the value that it brings.
Number three positioning.
So, based on the three pricingprograms that we talked about
earlier, are you going to parityor match price?
(43:31):
Are you going to go forpenetration pricing that's where
you undercut your competitorsin the marketplace or are you
going to premium price?
That's where you price abovethe bulk of your competition?
What makes sense, where do youwant to be positioned in the
market?
Do you want to be the budgetoption?
Do you want to be the premiumoption, or do you kind of want
(43:53):
to be middle of the road?
It's really important for youto think about that, because
that's actually going to linkinto the next episode where we
talk about branding.
Number four understanding yourcost base.
Now I've got to make a bigcaveat here.
I'm making an assumption thatyou've already completed a basic
business plan with financialprojections to work out the
(44:16):
revenue and the cost dynamicsfor your new business.
The goal here in this episode,by understanding your costs, is
not to do a full financialanalysis this isn't an
accounting podcast but it is agood idea to sense, check and
make sure that you haven'tmissed anything in your cost
(44:37):
base.
So here are some actions thatyou can take around that.
So, following on from theinterview with Alana, she talked
a lot about making sure thatyou account for all of the costs
of making your product orservice and your overheads.
So this is what I'd like you todo Get out that pen and paper
(44:59):
and list out all the costsassociated with making your
product or service, and then Iwant you to list out all of your
overheads.
Now, like I said, you mighthave already done a lot of this
analysis, so maybe pull that out, pull out your business plan
and your financial projectionsand have another hard look at
those overheads.
(45:19):
And remember that overheads areyour costs of opening your
business up every day.
They're things like rent forpremises, insurance, marketing
costs, employee costs.
You might have training anddevelopment costs.
You might have licensing costs.
You might have to belong to aprofessional association, for
(45:41):
example.
You might have freight costs.
These are all of the overheadsthat form part of your day to
day running of your business.
And there was a really powerfulthing that Alana talked about,
which I really do recommend youdo so.
This is the third action foryou under understanding your
cost base, think about where youwant to be in two years' time.
(46:05):
Do you need to start accountingfor now those higher or new
costs that you will have in twoyears time, when your business
has grown significantly, but youdon't have them today?
You need to be able to factorthose things in from day one so
that you're not having to havean awkward conversation about
(46:25):
putting prices up and we're onthe home straight now.
Number five.
Let's talk profit margins.
Now.
Make sure that when you setyour price, that you've taken
into account your costs to runyour business and what level of
profit you want to make.
This has got to be factoredinto setting your price.
(46:48):
So the question is what is thetarget profit margin that you
want to make per sale?
Write that down.
And, as a final side note, ifyou've got a price at a similar
level to your competition, thenyou're going to need to play
around with the percentageprofit margin and your costs to
(47:09):
make those dynamics work.
These are the only two thingsthat you're really going to be
able to influence if you have toprice match in your industry.
I always think the simplest wayto think about profit is that if
you minus all of your expensesfrom the price of your product
or service, what is left over isyour profit.
(47:30):
So there's three things thatultimately, you can play around
with influence to get that mixright.
You can play around with yourprice.
You can influence your costs toproduce your product or your
service.
So how do you keep those costsdown?
How do you manage youroverheads?
So how do you keep those costsof running your business down
(47:51):
and your profit margin.
Those are essentially thethings that you can change and
that you can pull the levers ofto make sure that you get that
right mix to get the profit thatyou want to achieve.
Now, if the thought of costs,margins, profits, overheads is
making your palms sweat and yourhead spin and you're pretty
(48:15):
overwhelmed, then I stronglyrecommend that you do seek some
professional advice to help youwork through your financials so
you can set great pricing foryour business.
It will be money really wellspent in the long run.
Now, finally, elana has a greatpricing calculator tool in
(48:36):
Excel that you can access if youjoin up to her business club.
I will share the link to thatin the show notes too.
It is another great resource tohelp you set your pricing so
you can have a sustainablebusiness that will last over the
long run.
But, of course, it's not theonly pricing calculator tool out
there.
There are loads of them acrossthe internet and there's plenty
of free options out there.
(48:58):
Wow.
Well, that is the end of, Imust say, a bit of a monster
episode the longest one so far,and interviews are going to be a
bit like that.
So I really hope you enjoyedthe huddle today and I really
hope you got some great valueout of it and enjoyed it.
Now don't forget to hitsubscribe, because next time, in
(49:18):
part five on the series ofwhere to start with your
marketing when you're juststarting out in business, we're
going to cover branding and areally simple yet super
effective exercise that is goingto help you come up with your
brand essence so that you cancreate a consistent and engaging
(49:39):
brand experience for yourcustomers.
And, as a quick reminder, visitthe episode description to get
access to today's show notes andworkbook and any other links
that I've talked about.
When you can download theworkbook directly on my website,
you can grab it athttps://marketingondemand.
co/ start up4 .
(50:00):
Thank you so much for listeningand I will catch you at the
next episode of the smallbusiness marketing huddle.
Now for the legal jargon.
This podcast is for informationand education purposes only.
(50:20):
We make no business performanceclaims or guarantees in the
information shared.
The podcast content is generalin nature and does not
constitute advice for yourunique business situation.
Welcome to the Small Business Marketing Huddle.
Our show is all about takingaction.
We equip you with the marketingknowledge and confidence you
need to make real progress.
So let's huddle up and listenin to the latest episode with
your host, Lily Richmond.
Lily Richmond (00:30):
Hey, this is Lily .
Thank you for being here today.
If you're already subscribed tothe show, thank you so much.
I really appreciate you and Iam really delighted that you're
taking some proactive steps totake control of your marketing.
And if this is your first timehere, don't forget to hit the
follow or subscribe button inyour favorite podcast player,
(00:54):
because today, like in everyepisode, I'm going to cover a
marketing topic I think you'vereally got to learn if you want
to master your marketing.
And, as always, make sure youlisten until the end, because
I'm going to give you the lowdown and a handy worksheet on
how to set pricing so you canwin more business and make a
profit.
(01:14):
So let's get straight into theepisode, because today is going
to be a cracker.
It is part four of seven in myseries on where to start when
you are first starting up inbusiness.
And, just to recap, in part one, I gave you some practical
steps on how to make yourproduct or service totally
irresistible to your targetmarket.
(01:34):
Then we delved into uncoveringwho your target market and ideal
customer actually are, and then, in part three, we came up with
a single minded statement onhow you make your customers life
better.
Now, today is actually a reallyspecial episode for a couple of
reasons.
Number one we're going tofirstly demystify how to set
(01:59):
pricing so that you definitelywin business, that you
definitely make profits.
It's critical because businessis all about the dollars and
cents, and all of your hard workand your risk taking to set up
a business has to be rewarded,so it's critical that we cover
pricing at some point.
And the second reason is thattoday I've got a special guest
(02:21):
joining me who's going to giveyou some pretty darn important
insight into pricing and what towatch out for.
Alana Swain is a corporateescapee and entrepreneur and
she's the co-founder of acompany called your Success Team
, and it's a business that givessmall business owners the
business smarts that they needto feel supported, clear and
(02:44):
confident and in control again,because business can be
overwhelming.
Being in business for yourselfis amazing, but it is a roller
coaster, and your success teamhas a range of different support
plans and coaching services tohelp you thrive in business.
Now I'm going to drop a link toher business in the show notes
if you want to find out more.
(03:05):
So I was really excited whenAlana agreed to step up today
and chat about how to setpricing for your small business,
because she has seen thepitfalls and she knows
absolutely what you need towatch out for.
So I'm hoping that this isgoing to be a really insightful
episode for you.
But firstly, this is how theepisode is going to run.
(03:26):
I'm going to chat about pricingstrategies, looking at it from
a marketing and a positioningperspective, and then Alana is
going to join me and we'll chatabout pricing more from a
financial, operational and amindset standpoint, because they
are just as important.
That way, you're going to getall of the smarts that you need
(03:46):
and you're going to be able tothink about your pricing from a
number of angles, and that'sjust one of the key things that
I want you to take away fromtoday.
Pricing is multifaceted.
It has so many differentperspectives and angles and
things to consider, so I'm goingto hopefully share some of that
with you today and you can getthat insight that you need.
(04:07):
So let's get straight into theepisode.
So what is pricing strategy Atits simplest level?
It is just the method by whichyou determine what prices you're
going to charge, and there area number of factors that are
going to influence how you setthem.
The five main areas that aregoing to have an influence over
(04:28):
your pricing are number one,what your consumers are willing
to pay.
Number two, what yourcompetitors charge.
Number three, how you want tobe positioned in the marketplace
.
For example, are you going tobe a premium brand or will you
price match your competitors?
Number four, the costs ofcreating the product or service,
(04:51):
running your business and themarketing of your business as
well.
And then number five is whatprofit margin you want to make.
Now, alana and I are going totalk more about understanding
your costs and profit marginsand mindset later, so I'm going
to tackle the part aboutconsumers, competitors and
positioning first.
So, first up, you need tounderstand your customers'
(05:14):
expectations and theirwillingness to pay, and I want
to get something out on thetable right away.
Customers don't always want topay the lowest price possible.
Why is it?
For example, even withinproduct categories that you
might consider as commodities,there are variations in pricing.
Take a humble bottle of cow'smilk.
(05:35):
You might think that everybodywants to pay the lowest price,
but that's not necessarily true.
Check it out in the supermarketaisle next time you're there
and it might surprise you.
There are premium brands, thereare budget brands, there's
generic milk, there's organicmilk, there's milk fortified
with extra vitamins, there's theA2 protein milk.
(05:57):
The list goes on.
So consumers are willing to paya price that they perceive as
giving them value for money, andthat's a key point that I
really want you to take awayhere.
They will pay for the featuresand benefits that are important
to them, and value for moneydoes not necessarily mean it's
(06:18):
the cheapest.
How would something like a LouisVuitton handbag be value for
money, for example?
If you ask someone who owns one, they might say it's handmade,
it essentially has a serialnumber, it uses the finest
materials, it's iconic andrecognisable around the world as
(06:39):
a symbol of luxury, it makes mefeel better about myself and it
infers a level of status insociety, so for that person, it
definitely has value for money.
So when you consider this foryour business, think about what
is important to your consumerand what your value story is,
(07:01):
and this tightly ties into partsone and two of the series,
where you need to understandwhat it is you're offering and
who your audience is.
And when we think about thelast episode, where we talked
about how you make yourcustomers life better, that also
feeds into pricing as well.
So the second area is thecompetitive landscape.
(07:23):
To set robust pricing for yournew business, it is important
that you understand what yourcompetitors are charging, and my
tip here is to use this toinform and sense check what
you're going to charge, but notdefine it.
You have to make a decision.
Are you going to match yourcompetitors, and that's called,
(07:43):
in the industry, parity pricing,or are you going to undercut
your competitors, and that'scalled penetration pricing?
Or are you going to charge morethan your competitors, and
that's called premium pricing?
And why might you opt for oneof these pricing programs over
the other?
Let's talk about matching first.
Here you're going to want toprice match if your consumer is
(08:06):
sensitive to the price or has areally set expectation of the
price, or the market for whatyou're selling is a really
competitive place.
If you sell identical productsand services to another
organization, you might have toprice match.
If you have to price match,then you've really got to focus
on managing your costs, becausethe profits you make will be
(08:29):
dictated more by your costs thanthe price you charge.
Remember that the profit marginif you aren't aware of what
this term is is the differencebetween the price and what your
costs are.
I mean, that's at a really,really simplified level.
Now, even if you are selling anidentical product, you don't
have to match what yourcompetitors charge, right,
(08:50):
because maybe your offering isdifferent, maybe you give more
value via things like bettercustomer service or free
delivery and returns, or yourbrand and the experience that
you give your customers is goingto be totally different to what
your competitors do.
That's why I say let yourcompetition inform your pricing,
(09:11):
not determine your pricing.
You have to look within andunderstand those key things that
are going to make your businessstand out.
Be a bit different, offer morevalue, and that's how you can
overcome the situations whereyou have to look at parity
pricing.
Now, what about penetrationpricing, which is where you
(09:33):
essentially undercut yourcompetitors when you might want
to do this when you first launch, for example, to get people to
try your business out.
Now, as a small business, I dowant you to be careful here.
If you're considering thestrategy, if you're competing
against big corporations,comparing yourself to a large
big box retailer in your country, whether that's Walmart, kmart,
(09:55):
carrefour in Europe, they'vegot really deep pockets and they
can outcompete you on manyfronts, and primarily.
One of those is scale.
They can just produce a wholeload more product much more
cheaply and sell it in muchgreater volumes than you can if
you're a small business oryou're just starting out.
(10:16):
So you've really got to thinkabout if you're going to use
penetration pricing, which iswhere you undercut your
competitors.
You really have to think aboutis how long you could sustain
there for Now.
Another way that you can lookat penetration pricing is
actually to treat it like anintroductory offer, so it gives
people an opportunity to tryyour business out and it can
(10:38):
encourage them to take theplunge and it creates a bit of
urgency.
However, I am going to say Idon't think that being a loss
leader is a good strategy for asmall business.
Over the long term, we wantyour pricing to be sustainable
and for your business to besuccessful, so undercutting from
day one is not a great place tostart.
(10:58):
Finally, the third pricingprogram is premium pricing, and
this is my favorite.
This is where you are going tocharge more than the majority of
your competitors because youare going to offer some form of
value that makes you better and,as a small business, this is
where you can play reallyeffectively.
Just remember you have tounlock what value your consumers
(11:20):
are looking for.
So make sure you do yourresearch on that first.
What do they value?
And if you can offer that,premium pricing is definitely
the way to go.
And this then neatly leads me onto the third factor of pricing,
which is positioning.
And what's positioning?
Well, it's how you influenceyour consumers' perception of
(11:42):
your business, brand or productoffering versus your competitors
.
If you want to be a budgetconscious business that offers a
no-frills service, then you'regoing to price yourself at the
lower end of your competitiveset.
But if you want to be seen as apremium offering with high
quality products, then you willwant to be charging more.
And this is something that I dosee quite a bit with small
(12:04):
businesses.
They want to be a premium brandor a premium business, but
they're price matching orundercutting their competitors,
or their brand experience isn'tpremium enough.
They're using really cheappackaging or their branding just
does not appear premium.
So there's a mismatch andconsumers pick that up.
(12:25):
And pricing in particular is areally big signal to the
consumer.
So make sure that you've gotyour positioning and your
pricing lined up.
Okay.
So we are on to factors fourand five, which are
understanding your costs andprofit margins.
And it's at this point that I'mgoing to bring Elana into the
conversation and we're going tohave a pretty free flowing but
(12:48):
kind of a question and answersession around profit margins,
around costs, what to watch outfor, and she's going to give
some great insights on somemindset pieces and what to
consider.
Okay, well, I would now like tointroduce you to Elana Swain,
(13:10):
who is joining me today on theSmall Business Marketing Huddle,
and Elana is going to sharesome really great insights and
ideas and tips around pricingand some things to look out for,
and we're going to talk allabout the differences between
pricing and profitability,understanding your financial
(13:32):
dynamics, charging what you'reworth, all of those good things.
So, without further ado, I amgoing to welcome Elana to the
podcast.
Welcome hi, elana.
How are you today?
Alana Swain (13:43):
Oh, I'm so good.
Thank you so much for having mehere, lillian.
I'm really excited to talkabout this stuff because it's
one of the things that we don'tshare enough.
You know the money side ofbusiness, which then makes all
that hard work that you've donewith marketing and getting
people to know about you.
It makes the business busyTotally and actually profitable,
which is the difference.
I always like to joke betweenhaving a subsidized hobby for an
(14:05):
expensive hobby and a business.
Lily Richmond (14:07):
Yeah, yeah, and I guess this is and that's so
spot on, given that we'retalking about the idea of when
you're just starting out inbusiness.
So you know, getting people setup with those good foundational
principles and concepts earlyon is so key, because if you
start really well, then you'vegot a greater chance of your
business succeeding over thelong term.
So, yeah, absolutely Perfect,perfect.
(14:29):
So, before we delve into thetopics of understanding your
costs and the financial dynamicsand how they influence your
pricing, I'd really love to hearfrom you about some of the most
common challenges or mistakesthat people make when it comes
to setting pricing for theirproducts or their services.
And feel free to tackleproducts separately to services,
(14:52):
because there are somedifferent dynamics there or
together.
So yeah, what are yourperspectives on that?
So I think yeah you're quiteright.
Alana Swain (15:00):
I think pricing, products and services are quite
different because obviously ifyou're running a product-based
business, your overhead and yourbusiness model is just totally
different than a service model.
Typically, and I think one ofthe biggest traps that I see
people fall into for both, if Istart with the general is not
pricing for growth, so just asyou just said, when you're
(15:21):
starting out you're thinkinghere and now.
but some of the biggestchallenges come when you need to
do those step changes inbusiness and if you've not got
your pricing with enough fat inthe tank, you can stimmy your
own ability to grow and you getthose wobbles because you've
sort of priced a business thatdoesn't have, say, for example,
(15:41):
the appetite to pay someone tohelp you with your marketing.
Or let's say, all of a suddenyou need to level up and get new
premises.
If you haven't built some roomfor growth into your pricing, it
can become really hard to thenincrease your pricing without
re-looking at your entireproposition.
Who are my customers?
Are they still willing to payif I need to increase my prices
(16:03):
by 20% because I need to meetthese new costs of delivering
with this growth?
You know you sort of that'swhere we see a lot of speed
wobbles.
So that's one of the universalthings that I see.
And then I think the otherthing is people not necessarily
understanding the cost ofrunning their business and
pricing with that awareness, ifthat makes sense.
(16:23):
So let's say for example Ithink this is quite common
follow your passion, we hear.
Follow your passion.
And so someone really lovesphotography, say, and they're
like, I'm going to bephotographer and they're working
a job and they say getting paid$30 an hour currently.
So they're like well, I knowthat I can take I don't know 15
photos and get that to someonein the half hour window and I'm
(16:44):
going to charge $75 for that.
And look, I've increased, I'vemore than doubled, my hourly
rate.
Yay, I've more than money.
I'm going to be up in the grandbusiness owner before I know it
.
And they haven't realized thatactually, that doing the work
part of their business is justone component of running a
business, and they haven'tpriced for the fact that they
may need to be spending fivehours a week doing some of the
(17:06):
administrative tasks, or acertain number of hours a month
attending networking meetings orworking on website updates or
planning their marketing effortsto get that person in front of
their camera to do that work.
And so they're going for thisreally direct transfer of salary
or hourly rates to charge rates, without understanding their
other stuff.
And I think that's aparticularly service based
(17:30):
example, but it's true forproduct as well.
Lily Richmond (17:33):
Yeah, yeah, and I think you've just raised such a
really valuable point aboutpricing with the future in mind,
regardless of whether it isservice or a product, because,
yes, when you first start out,your overheads are really low,
potentially, if you like, yousay you're a solopreneur, you're
(17:54):
a one person band, but thatmoment that you need to scale
that business in any shape orform, there are expenses that
are going to come out of nowherethat you hadn't planned for and
, yes, your cost dynamics andyour pricing completely changes.
And I think that's really thatis such a valuable insight to
give people that, yes, you'vegot to think about what it might
(18:14):
look like in two, three yearstime if you've doubled or
tripled it in size, and whatwould the operation look like
and the costs that areassociated with that.
So, are there any on top ofthose points?
Is there anything that businessowners that are just starting
out should watch out for?
Alana Swain (18:32):
I think both keep this in mind and it'll come over
the fence and bite you is.
Everyone's got an opinion aboutpricing and we sent out a sort
of a bit of an email tip lastyear talking about, example, of
a white shirt, becauseeveryone's got an opinion about
pricing, right.
So we use the example of whiteshirt.
So whether or not you buy a $5shirt from some mainstream
(18:56):
household brandish retailer oryou're off to buy a $500
completely tailored, heavilylabelled item, someone's going
to have an opinion about whereyour shop is on the end of the
spectrum, right there, or fancypants or a cheapskate, right?
So you have to acknowledge thatyour price is not going to be
for everybody.
That you know, regardless ofwhere you choose to place
(19:20):
yourself on that spectrum.
So we can't all.
We sort of have a joke if youcan't compete with the likes of,
like, a Walmart business modelor a Kmart business model
because you're just notdelivering at million scale
items.
So try the heaven's sake tostay out of that chase to the
bottom the mindset that sitsbehind that, to have faith that
(19:42):
you've done your homework,you've thought through your
pricing process, you know yourbusiness goals and we do want to
set to know that your pricingis right for you.
Lily Richmond (19:53):
Yeah, and I think that is so valuable when I
think back to earlier part oftoday's episode where I talk
about positioning.
So, like you said, with thatwhite shirt example, you could
be at the cheaper end of themarket or you could be at the
premium end of the market andfor you and your business, you
(20:13):
have to work out what's yoursweet spot, isn't it?
It's that Goldilocks formulabetween your cost base, what
profit margin you want to make,which will come on to, and also
where you want to be positionedin the marketplace.
So you've raised some reallyinteresting concepts there as
well around value.
So it's you can charge whateveryou want for whatever you offer
(20:36):
.
It's just whether you have gota market that is willing to pay
that price because they see thevalue in what it is that you're
offering.
So, yeah, and I think that'swhere that's where small
business owners get a little bitcaught up as well.
So that's where it's all about.
Well, I have to charge what mycompetitors are charging,
because no one's going to payanything else.
Well, with your white shirtexample, look at the spectrum of
(20:58):
prices out there in your ownmarketplace.
The variation is huge and thereis enough room in many, many
markets for people to be able tocompete Absolutely.
Alana Swain (21:08):
Yeah, and it does become really hard, and this is
why I think one of the hardestadjustments to being a business
owner is to understand.
It's not linear, that there'sone decision to make.
You have to go oh so how doesthat sit against this?
And then come back.
So you might have thought youknow where you wanted to
position yourself.
Then you do your numbers and gooh crumbs, I can't make profit
(21:30):
on that.
So then you have to come backand reevaluate, or what does
that mean for where I thoughtthat customer, that client, that
group of people I've beentalking to, did they still sit
there at that price?
Lily Richmond (21:42):
point.
Totally, totally agree.
Oh no, that's super, supervaluable and I think it would be
really great if you could talkabout that relationship that
exists between your pricing andprofitability.
Can you talk a little bit moreabout that?
Alana Swain (22:00):
Yeah, absolutely, pricing sort of sits at the
visible end of business, right,and so what you get is you get a
lot of people talking aboutyour top end number, so like six
bigger, this and 10 came outthere and seven figures.
But none of that matters if youdon't have a profitable bottom
line, and so pricing is abovethe line thing that everyone can
see.
(22:21):
If you sort of use an icebergexample, your pricing is the bit
that everyone can see at thetop.
How you run your business isall of the bottom things, and
then at the bottom of that is,and so therefore, have you got
profit once you account for allof those things?
And so typically I would sayyou need to have an
(22:41):
understanding of whether it'sproduct or service.
How much does it cost you tojust deliver that widget?
So, for example, you're goingto start selling whiteboards.
How much does it cost you tobuy the whiteboard?
How much does it cost you topackage the whiteboard?
How much does it cost you todispatch that?
Right, that's your above theline cost that you can see.
And so that is directly linkedto how many of those things
(23:03):
you're going to sell on a month,right, so that's your gross
profitability.
That amount can shift dependingon how many you're selling.
Then you've got your open.
The business costs and I thinksometimes people forget about
those costs and those are theones that can trip you up as you
go and grow, because it costsyou more to open your business
(23:23):
the bigger you are, and sothat's why when you're starting
out, just you and your computerand your app home and you know,
and then a little overheadcreeps in because you need a
subscription for that, oh, andthen you might need that, and
all of a sudden you needliability insurance here and you
need this, and then, oh, nowI'm going to choose to spend
some money on, say, google orall of those things stack up.
(23:45):
Those are your overhead.
They typically don't change asmuch depending on how many units
.
That's just how much it costsyou to open your business, and I
think it's there that can getreally murky and people don't
necessarily like to share that.
They just wait for theirfinancials at the end of the
year from the accountant to godid I make a profit or not?
Lily Richmond (24:03):
Right, totally with you there.
And what are some of those?
For someone who's not reallythat familiar with the concept
of the overheads, can you runthrough a little bit of a list
of what would those big ticketitems be that people need to
make sure that they aredefinitely budgeting for, and
those overheads with theirstartup?
Alana Swain (24:23):
costs.
Yeah, so I think it's quiteeasy to capture.
What does it cost me to providemy product or service?
Right, but then below that I'dsay so you've gone to at some
point want me accountant To helpyou.
Probably you may have insuranceneeds, whether that's liability
or premises.
You may want to have a premisesin the future.
(24:46):
You have costs in terms of yourongoing subscriptions to the
things like Zoom, andeverything's priced at enough of
an amount that you probablydon't.
Oh, that's right, that's $30.
I don't need to worry about it.
All of a sudden you've got 10of them.
That's $300 a month.
That could significantly impactyou when you're starting out in
terms of profitability.
(25:06):
And then I think, as youperhaps tip toe out of startup
and into that, I want to runmore stuff through the business
mode.
That's where overheads set yourhome office expenses, your
vehicle expenses, those sorts ofthings, and so on the one hand,
you may have an inclination towant to put as much through the
(25:29):
business as possible, becausethat's old school business
advice Run it all through thebusiness.
You might just say, hey, it'llbe great for you, tax deductible
and all of that.
But same thing, that impacts onyour profitability.
Lily Richmond (25:43):
Yeah, and ultimately if you're running as
a consultant or that type of aservice-based business, then
from a profitability standpointyou can only pay yourself out of
your profits.
Really, If you're going to takeit in New Zealand anyway, if
you're going to take a shareholdsalary as opposed to paying
yourself wages, so that profitnumber then becomes really
(26:04):
important.
Alana Swain (26:04):
if you're going to be a one-man-man consultant, for
example, absolutely, and Ithink and this is where pricing
is really important to thinkwhat's my long term?
So if you're a consultant,typically you don't have a
business to on sale.
Therefore, you need to make asmuch profit as possible for the
lifespan of your desire to runthat business.
(26:27):
If you have a differentbusiness model, for example, a
product business or a businesswhere you have a team, you may
want to sell that business.
Therefore, it's important to beprofitable.
So someone wants to buy yourbusiness, yeah, and so that's
why profitability is soimportant, regardless of whether
(26:47):
that's product or service.
It's really important tounderstand what is this business
a vehicle for?
Lily Richmond (26:52):
and profit is important and, from a financial
perspective, what would you saya business owner needs to
consider when actually coming upwith their price?
What are the things that theyneed to consider and keeping the
back of their mind or watch outfor what are the key dynamics?
Alana Swain (27:06):
So I think we've still spoken about that room to
grow.
I think you need to have anunderstanding of your supply
chain costs, like, are you in apart of the market?
You saw a lot of people getreally hurt, particularly in the
New Zealand market, if theywere at the mercy of a supply
chain when the Sways Canal sortof crisis hit which came off the
(27:26):
back of lockdown.
So we sort of got this perfectstorm for some people in that
they had these incredible likequadruple shipping cost changes
but they couldn't quadrupletheir charge to the end consumer
because the market demand justwasn't there.
If you didn't have room andyou're large in for that, you've
not got profit, and we saw alot of businesses sort of going
(27:49):
to negative profitability.
So that's why I think one ofthe things businesses in linear,
but I do think it's reallyimportant when you're sense
testing, before you go live, doa little bit of a SWAT analysis,
which is what are those threatsout there in the marketplace
that you do need to be aware forand just put some of that
(28:10):
thinking into your pricing.
And you know that is wherequite often it's really helpful
to work with someone with yourpricing, and obviously I'm
totally biased there becauseI've got a business that helps
people do that.
But sometimes you can't seewhat you can't see because
you're so invested in your ideabecoming a business that you
don't want to validate that andhave someone shoot you down yeah
.
Lily Richmond (28:30):
Yeah, yeah.
And sometimes it's also thatperspective of when you run the
numbers, of thinking, well, howam I ever going to make any
money doing this and actually ismy idea viable?
And you know, that's prettydisheartening for somebody when
they follow the enthusiasmthey've got these great ideas
and then they think how am Igoing to make a living out of
(28:52):
this?
But it's so important to getthat sorted right from the
outset.
Like you say, and working withsomeone like you or another
consultant that does that typeof work, the reality is that
having that person to sensecheck with you might need to
give you a reality check or sayit might come out that, okay,
the way that you're planning todo it isn't going to work.
(29:13):
It might work a different way.
You might have to change thebusiness model or the product or
the way you're going to run thebusiness slightly so that you
can Turn it into a going concern.
So, and that's that insightthat I think, like you say,
people don't.
People don't have a sense ofthat.
Alana Swain (29:29):
Do that yeah because, I mean, none of us know
what we don't know, and that'sthe part, part of the part, and
that's why it is like I thinkit's.
I do think it's particularlyNew Zealand trait to not want to
ask for help and that isdamaging to our success as a
nation of small business owners.
If we ask for help sooner, wemay not have these growing pains
(29:51):
or growth wobbles and we mightfind more success.
Because if someone was able tojust point out a couple of
things, you don't know it yetbecause how it is for you meant
to know it, you can't know untilyou've been through it.
That's not you being stupid,that's just you not having had
the bruises yeah, someone else'sbruises.
Be the lesson you know oh,totally, totally.
Lily Richmond (30:14):
And I think you know you're absolutely right
about New Zealand businesses.
Yeah, we're afraid to ask forhelp.
We don't want to.
You know, maybe there's a bitof pride there as well.
We don't want to admit that.
Maybe we don't know what we'redoing.
There's so many shortcuts thatyou could take by actually
saying, well, yeah, I can, if Icould Invest, not think about
(30:35):
paying, but if I could invest insome proper advice, then it
would save me thousands andthousands of dollars and hours
of and heartache as well.
Can you talk a little bit aboutprofit margin in relation to
your pricing and your?
(30:55):
You know your cost of deliveryof that product or service and
why it's important for smallbusiness owners to actually
Understand what profit marginactually is and how you set what
your, you know your margin oryour markup is going to be and
all of those sorts of things.
Can you give us some insightinto that?
Alana Swain (31:12):
You know, look, I could, we might need to record
like.
So I think one of the things is, if you want to take yourself
seriously as it is and slightly,you need to take profit
Seriously.
I think typically you need to,depending on what your so, let's
say, for the likes of ourConsultants starting out.
If I sort of was to use that,you want your gross profit.
(31:33):
So that is your gross profit.
Actually, if you're aconsultant could be as high as
80 to 90%, because your costs ofdelivering are really low,
versus if you say, for example,the whiteboard example.
If you're selling whiteboards,there's lots more.
Yeah, but I think, regardless ofyour business, you want to be
(31:54):
sitting with your grossprofitability at 40%, because
that is going to give you thatroom for growth, right as you so
60% or above, and then, asyou're sort of running your
overheads, your net profit.
So that's when you take out allthe other costs of opening the
door, what's your net profit?
You want that to sit between 20to 60%, depending on your
(32:18):
business.
Now, some businesses that isreally hard.
Hospitality has to run so muchtighter than that.
But if you're trying to start aproduct-based business, if you
want room to grow, you need thatbigger buffer Because you yes
the likes of, like a Walmart orKmart or one of those big box
retailers.
They can run on a tiny, tinyprofit margin, but that is
(32:39):
because they are pumping suchvolume through that it doesn't
matter if they're running at 4%net profit.
No one's going to buy abusiness for 4% net profit.
Lily Richmond (32:49):
Yeah, and their game is a numbers game, and
that's where it's reallydangerous to compare yourself,
isn't it?
So it's the thing youimmediately want to do and I
talked about hey, you need to goout and look at what your
competitors are doing.
Yes, look at what they're doing, but you know your immediate
competitors.
Are you really competing withWalmart?
Are you truly?
Because you're not in that samespace.
(33:10):
So someone who's maybe Goingonline looking for something
that's slightly different it'snot that mass produced product
than they're not a, thenWalmart's not a direct
competitor for that anyway, andso it can be really dangerous,
can't it?
The the curse of comparison?
Alana Swain (33:27):
ultimately, comparison is the thief of joy
in life, but so true in businessit's the.
I think Comparison is the thiefof confidence in business.
Lily Richmond (33:36):
Yeah, yeah.
What are some of theimplications if you, if either
you don't see your marginproperly Well, not properly, but
at the right level for you oryou don't capture some of those
expenses and costs of doingbusiness, what are the real
ramifications if you don't, ifyou don't do that from the
outset?
Alana Swain (33:53):
So I think one that immediately springs to mind is
you just can't play the longgame.
You just can't.
You'll just for a variety ofreasons, but you'll pretty
quickly hit negativeprofitability.
But if you come back to thatconsults example, you find that
you have to work all the hoursunder the sun to come anywhere
close to.
If I use a corporate escapeexample, because you and I both
(34:15):
coming off corporate escapeebandwagon there was at least a
parameter there for a salariedlife Expectations to match that.
If you haven't priced it right,you will quickly find that you
just bought yourself a job whenactually you do need to work 60
hours a week in order to be ableto bank the same amount you
were banking as a salariedemployee and that's kind of
(34:36):
probably what drove you to startyour business.
So you need to price it rightnow and for all the time and all
the other things you're gonnaneed, so that what hits you
because what hits your bankaccount is the reason you're
running that business.
Yeah, yeah.
Lily Richmond (34:52):
Yeah, yeah, you're spot on there and I think
that's where service,service-based businesses, where
people are selling Ultimatelythemselves or time there can be
a real psychological aspect topricing there and some, I guess,
some issues around self-worthand doubt and things like that.
(35:12):
So could you maybe this isgoing a little bit off topic for
talking about pricing generally, but I think it's quite an
important one if there arepeople out there listening who
are thinking about starting aservice-based business when they
selling themselves ultimately.
Alana Swain (35:29):
Yeah, it's so interesting because it's a
little bit off topic, but it'salso part of it.
So I I kind of go charge theimpact but also charges a
business owner and just becommercially astute with that,
because if you can stopapologizing to the mean Person
in your brain picking holes andit, yeah, you'll go out and go.
Lily Richmond (35:48):
This is the price perfect, okay, so there's gonna
be some more general Sort ofideas that I'd love to to pick
your brains on now before wewrap up.
But what's your number?
One piece of advice on how toset prices.
Alana Swain (36:06):
I would say, put on the spot.
Lily Richmond (36:09):
My number one piece of advice would be to, to
as much as possible, divorceyour emotions From the price and
think commercially, and thatwill help set you up for success
so much as you said before,yeah, we do all struggle with it
, and I think because when youstart a small business or any
(36:29):
kind of business, really it'susually come out of some kind of
idea or passion, something thatyou're really invested in
personally, and so it can bereally hard to divorce that and
yourself from the commercialaspect of running a business,
and that, yeah, you actuallyhave to be a little bit
(36:50):
hard-nosed and say, well, I'm inbusiness, yes, this is this
might be my passion, this mightbe something that I just love to
pieces and I'm totally investedin, but ultimately it's a
business.
Ok, alana, and I guess my finalquestion for you is as for a
business owner who is strugglingto set their prices high enough
(37:13):
, what advice would you givethem?
Alana Swain (37:16):
I think, the biggest thing.
For me.
It comes back to you have to.
It sounds like really likewoken buzzwordy but you have to
be really committed to yourvision, your passion, your why,
whichever word sort of lightsyou up, go with that word and
then try and keep that light infront of you.
(37:37):
If you have to have it writtenon the screen in front of you,
but just keep bringing it backto why are you doing this
business thing in the firstplace?
Because it has challenges.
And so if you keep bringing itback to your why, then hopefully
that will help you get overyour nursing yourself, your
doubt, your worries, all ofthose sorts of things.
(37:59):
And to hopefully also, if thereason that you're struggling
with your pricing being highenough is that you're scared to
look at your numbers, thenhopefully that commitment to
your why would drive you throughthat.
Lily Richmond (38:11):
Yeah, oh no, that's a perfect piece of advice
.
Yeah, no, that's really reallygreat, thank you.
Thank you so much, alana.
We're going to have to leave itthere.
I could talk pricing andbusiness profitability with you
all day and, yeah, such a greattopic that you're clearly
passionate about, and even forme, as a marketer, you've got to
(38:33):
know your numbers and you'vegot to make sure that you can be
in business to make a profit.
So it's not all advertising andfancy social media.
So, yes, this has been a reallymeaty topic and I really do
appreciate you joining me todayand giving me your time and
sharing your wisdom and yourinsights with the audience.
So, thank you so much andhopefully we'll be able to get
(38:55):
you back on the podcast anothertime to talk about a different
topic.
Alana Swain (38:59):
So yeah, yeah, I'd be delighted.
It's truly been a pleasure andI just think if it could, if it
helps one or several or manypeople, then that is absolutely
time I'll spend in the work thatyou're doing here with the
podcast.
It's incredible.
Hopefully people can takesomething from here, go away and
do something with it, and itmakes an impact for many
businesses Wonderful.
Lily Richmond (39:21):
Okay, thanks, alana, you're welcome.
Take care.
Well, I hope you found thatinterview with Alana helpful in
understanding your costs andprofit margins when it comes to
setting prices.
So let's recap what we'vecovered.
There are five differentperspectives to consider when
you set your pricing.
There's the customercompetition positioning, your
(39:47):
costs and your profit margins,and after the break, I'm going
to take you through each ofthose five perspectives and
share some actions that you cantake to make sure that you've
incorporated these into yourpricing strategy.
(40:07):
Alrighty, let's get into thenitty gritty of things that you
can do to set yourself up forsuccess with your pricing.
So I've, as usual, created ashort guide that can help you
get some of your ideas down onpaper, really when it comes to
pricing and the considerationsthat you need to make.
So I've included a link in theshow notes or you can grab it at
(40:32):
https://marketingondemand.
co/startup4 , and I just findthese workbooks tend to be
helpful for you to get yourideas down on paper, and I
appreciate that when you'relistening to the podcast, you
might be doing something whereyou can't really take the time
(40:53):
to think things through, and sothat's why I recommend download
the little guide and you canwork through and refollow the
episode as well.
Ok, so remember there's thefive different perspectives when
thinking about your pricingstrategy.
Let's tackle number one, thecustomer.
And actually that you can takehere is to do some desk research
, and I want you to note downwhat the range of prices are for
(41:17):
the product or service that youoffer.
What's out there in terms ofpricing?
What do you think consumers arewilling to pay?
The second piece that you canconsider here is actually
listing out the value that youoffer your customer that could
help you command a higher price,a premium price.
What's that extra value addthat you are going to bring to
(41:40):
the table that is going toencourage that customer to be
willing to pay a higher pricefor it?
Remember, consumers will paywhen they get value for money.
Everything has a value equationand you've just got to work out
what that is for yourindividual product or service.
The second area to consider isyour competition, and again I
(42:03):
want you to go away and do alittle bit of desk research here
.
Who are your main competitorsand what is it that they're
charging?
Now, if you have been followingalong in this series, in
episode one there was a workbookthat came along with that, and
actually you will have includedthree competitors there.
So that's a really great placeto start.
Go back, check out thosecompetitors and look at what
(42:25):
their prices are.
And the second part of lookingat your competitors is not just
their prices.
I want you to look at whatvalue they offer as well.
Right, so this could be thingslike free returns, after sales
care, maybe it's a free websiteaudit if they're a web designer.
(42:45):
These are all the sorts ofthings that businesses do to
offer value for money.
Do they offer any promotionalpricing?
Note that down as well.
They might offer someintroductory offers, but their
underlying price might be higher.
And remember my word of advicefrom earlier in the episode Use
(43:07):
your competitors pricing as aguide, not as the justification
for exactly what you shouldcharge.
You've got to believe in whatit is that you are selling and
the value that it brings.
Number three positioning.
So, based on the three pricingprograms that we talked about
earlier, are you going to parityor match price?
(43:31):
Are you going to go forpenetration pricing that's where
you undercut your competitorsin the marketplace or are you
going to premium price?
That's where you price abovethe bulk of your competition?
What makes sense, where do youwant to be positioned in the
market?
Do you want to be the budgetoption?
Do you want to be the premiumoption, or do you kind of want
(43:53):
to be middle of the road?
It's really important for youto think about that, because
that's actually going to linkinto the next episode where we
talk about branding.
Number four understanding yourcost base.
Now I've got to make a bigcaveat here.
I'm making an assumption thatyou've already completed a basic
business plan with financialprojections to work out the
(44:16):
revenue and the cost dynamicsfor your new business.
The goal here in this episode,by understanding your costs, is
not to do a full financialanalysis this isn't an
accounting podcast but it is agood idea to sense, check and
make sure that you haven'tmissed anything in your cost
(44:37):
base.
So here are some actions thatyou can take around that.
So, following on from theinterview with Alana, she talked
a lot about making sure thatyou account for all of the costs
of making your product orservice and your overheads.
So this is what I'd like you todo Get out that pen and paper
(44:59):
and list out all the costsassociated with making your
product or service, and then Iwant you to list out all of your
overheads.
Now, like I said, you mighthave already done a lot of this
analysis, so maybe pull that out, pull out your business plan
and your financial projectionsand have another hard look at
those overheads.
(45:19):
And remember that overheads areyour costs of opening your
business up every day.
They're things like rent forpremises, insurance, marketing
costs, employee costs.
You might have training anddevelopment costs.
You might have licensing costs.
You might have to belong to aprofessional association, for
(45:41):
example.
You might have freight costs.
These are all of the overheadsthat form part of your day to
day running of your business.
And there was a really powerfulthing that Alana talked about,
which I really do recommend youdo so.
This is the third action foryou under understanding your
cost base, think about where youwant to be in two years' time.
(46:05):
Do you need to start accountingfor now those higher or new
costs that you will have in twoyears time, when your business
has grown significantly, but youdon't have them today?
You need to be able to factorthose things in from day one so
that you're not having to havean awkward conversation about
(46:25):
putting prices up and we're onthe home straight now.
Number five.
Let's talk profit margins.
Now.
Make sure that when you setyour price, that you've taken
into account your costs to runyour business and what level of
profit you want to make.
This has got to be factoredinto setting your price.
(46:48):
So the question is what is thetarget profit margin that you
want to make per sale?
Write that down.
And, as a final side note, ifyou've got a price at a similar
level to your competition, thenyou're going to need to play
around with the percentageprofit margin and your costs to
(47:09):
make those dynamics work.
These are the only two thingsthat you're really going to be
able to influence if you have toprice match in your industry.
I always think the simplest wayto think about profit is that if
you minus all of your expensesfrom the price of your product
or service, what is left over isyour profit.
(47:30):
So there's three things thatultimately, you can play around
with influence to get that mixright.
You can play around with yourprice.
You can influence your costs toproduce your product or your
service.
So how do you keep those costsdown?
How do you manage youroverheads?
So how do you keep those costsof running your business down
(47:51):
and your profit margin.
Those are essentially thethings that you can change and
that you can pull the levers ofto make sure that you get that
right mix to get the profit thatyou want to achieve.
Now, if the thought of costs,margins, profits, overheads is
making your palms sweat and yourhead spin and you're pretty
(48:15):
overwhelmed, then I stronglyrecommend that you do seek some
professional advice to help youwork through your financials so
you can set great pricing foryour business.
It will be money really wellspent in the long run.
Now, finally, elana has a greatpricing calculator tool in
(48:36):
Excel that you can access if youjoin up to her business club.
I will share the link to thatin the show notes too.
It is another great resource tohelp you set your pricing so
you can have a sustainablebusiness that will last over the
long run.
But, of course, it's not theonly pricing calculator tool out
there.
There are loads of them acrossthe internet and there's plenty
of free options out there.
(48:58):
Wow.
Well, that is the end of, Imust say, a bit of a monster
episode the longest one so far,and interviews are going to be a
bit like that.
So I really hope you enjoyedthe huddle today and I really
hope you got some great valueout of it and enjoyed it.
Now don't forget to hitsubscribe, because next time, in
(49:18):
part five on the series ofwhere to start with your
marketing when you're juststarting out in business, we're
going to cover branding and areally simple yet super
effective exercise that is goingto help you come up with your
brand essence so that you cancreate a consistent and engaging
(49:39):
brand experience for yourcustomers.
And, as a quick reminder, visitthe episode description to get
access to today's show notes andworkbook and any other links
that I've talked about.
When you can download theworkbook directly on my website,
you can grab it athttps://marketingondemand.
co/ start up4 .
(50:00):
Thank you so much for listeningand I will catch you at the
next episode of the smallbusiness marketing huddle.
Now for the legal jargon.
This podcast is for informationand education purposes only.
(50:20):
We make no business performanceclaims or guarantees in the
information shared.
The podcast content is generalin nature and does not
constitute advice for yourunique business situation.
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