I’m no computer or programming expert, but I recently came across some articles about a concept from computer science called Service Oriented Architecture (SOA).

There was a reference to the difference between what are called “real dependencies” and “artificial dependencies”. In my non-computer-expert world, I realized this was a powerful concept when applied to small businesses—because every business has many business dependencies that hold them back.

To give a quick summary, a real dependency is where one computer system depends on the output (features and functions) of another system. The second system truly needs whatever output the first system creates. And, if it doesn’t get it, then the whole process grinds to a halt. It is a basic reliance of one system on another system that cannot be eliminated.

An artificial dependency is a restriction or limitation placed on a system that was created by the system architects. In other words, it is only a barrier because someone made it one.

Here’s a “non-computer” example to demonstrate the difference:

Suppose you travel to a foreign country. Depending on the country, you may need to take along a “power adapter” so you can operate your computer, hairdryer, etc. given a particular country’s size and shape of electrical plug.  Not every country has the same shape and size electrical outlets that all our appliances use.

In this case, the real dependency is your need to get power. That is the actual end result that you want.

The fact that you need various adapters to fit various size outlets is an artificial dependency. It is a restriction created by the “provider” of the solution that limits your ability to get the end result (the electrical engineers in the country designed a particular standard of wall plug that you must conform to).

Now think about your business. Are you creating artificial dependencies for your customers and prospects?

The answer is a resounding yes. Every business has them. It’s just that you haven’t realized them for what they are before now.

4 Steps To Get Rid Of Your Business Dependencies

This is a very powerful concept that you can harness in your business. To take advantage of this concept created by computer gurus, follow these four simple steps (it’s best if you enlist the thoughts and energies of your team members for this as well):

1. On a blank piece of paper, identify each major element of your business process. Think about how a customer or prospect first comes into contact with your business, and the journey they take toward becoming a valuable repeat customer. For example, one of the ways would likely be—let’s say it’s them calling in to your business and setting up a meeting with you to find out how you can help them.
2. On the left side of the paper, for each of those elements, identify the real dependency. What is the actual “end result” that particular element of your business is supposed to create? Be prepared. Although it sounds easy, sometimes this seemingly simple step actually turns out to be really tough. Following our example from above, the real dependency is getting that prospect to actually come in for that initial meeting with you.
3. On the right side of the page, list ALL (and I mean EVERY—because there’s likely to be a bunch) of artificial dependencies. List all the things that get in the way and slow down or complicate the achievement of the real dependency you’ve identified for each element. In our example, one artificial dependency would be that the person who answers the phone in your business does not have instant access to your calendar to book the meeting—instead they have to take a message and have you call the person back.
4. Once you’ve slugged it out that far, pick a few artificial dependencies and develop some plans and action steps to eliminate them. As you eliminate them, pick more from your list and get to work on eliminating those. Keep going and see how many you can eliminate.

What you will find, over time, is that you will have more fun and less stress, and you will improve your financial results.

Your prospects and customers will love it. And so will you.

Recycle Concept Photo via Shutterstock

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Making a decision can be tough, especially when it’s a business decision. You face an almost infinite range of things that you could be doing in your business at any particular moment.

You could choose to deal with a staff issue, a bank issue or a cash flow issue. You can decide to focus on a new customer acquisition tactic or strategy, a new ad campaign or an issue that has come up with a customer. You can choose to deal with administrative details or you can choose to deal with personal and family issues that so often seem to be intertwined with the business. Or you can choose to do any of the other infinite possibilities that face you as a business owner.

For many business owners, this massive number of options can cause them to put off making a decision.  They fall into believing that if they can just gather more data and consider more options, they may be struck with a flash of brilliance that will guide them.

In most cases, the hoped-for flash of brilliance doesn’t materialize and you are eventually forced into making a decision (i.e. payroll needs to get paid; the lease is expiring this month; you need more sales, etc.).

When faced with the sudden pressure of making a decision, the decision that is made is often a poor one.  It ends up being based on a default position that is based on ease rather than what is optimal for creating the results you want. There is a better way.

Three Steps To Making a Decision

Avoid this situation by applying a proven three-step process:

1. Realize the staggering range of possible options facing you is usually perceived rather than real.
2. Create a CVM (could versus must) chart.
3. Don’t look for a sports car when a minivan will do.

1.) Perceived Rather Than Actual Complexity

A lot of what masquerades as complexity is really only a natural reaction to a lack of clarity.  When you get right down to it, there are only four things you need to focus on:

1. How many customers you have.
2. How often your customers buy from you.
3. How much you make each time they buy.
4. What activities you do to combine these other three things.

Everything else you think you need to deal with (all the other sources of perceived complexity) are simply variations of the four things listed above.

2.) Create Your CVM (Could Versus Must) Chart

To focus your mind and effort even further when making a decision, you should do your best to only focus on the thing(s) you must deal with at any particular point in time.

An excellent way to do this is to create a CVM Chart.  This a powerful way to examine any current situation and identify the high impact things you really should be focusing on.

To create a CVM Chart, take a blank sheet of paper and on the left hand side of the page, list everything you can think about that you could do at this very moment in your business.  This is where you will generate a laundry list of things that play around in the back of your mind.  List them down and acknowledge them. It will get them in front of you where you can deal with them.

Next, on the right hand side of the page, distill from your list of all the things you could do into three things that you must do right now. Keep the four things from step one above in mind as you identify these three things.

3.) Don’t Look For A Sports Car When A Minivan Will Do

I must admit that my heart races whenever I think about owning a sexy sports car.  The reality, however, is that as a father of four children, as sexy as that sports car might be, it really wouldn’t be a good or useful solution for me.

You need to apply the same type of realistic mental discipline when you consider the things you must do.

For example, don’t get caught up thinking you need to create an entirely new product or service offering if you can get a sufficient boost in your financial results by simply asking your existing customers to buy more from you.

Adopt this three-step process in your business any time you start feeling overwhelmed by making a decision.  You will feel more in control and you will make better decisions.

Decision Photo via Shutterstock

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Recently, I had a conversation with a business owner who was keen to make some changes to his business.  These changes involved the sales mix of his service offerings and focusing more aggressively on a specific subset of his current customers. He realized that his true passion was for providing one of his current services to a very particular group of his current customers.  This focus also had the bonus of being a much better tool to improve his financial results in addition to aligning more closely with his dream lifestyle.

The problem was that if he simply “got rid of” all those customers who didn’t fit his newfound target, he would face a short-term reduction in sales and cash flow. His passion for this particular target segment would eventually generate financial results that would eclipse what he had been creating with his current customers.  But the time lag between now and that point in the future would drain cash from his bank account.

Painful frustration!

Having realized that he wasn’t able to comfortably sustain the temporary reduction in cash flow he became predictably frustrated. He expressed that he felt he would probably never be able to create his dream business.  He felt he missed his chance because he should have done it “the right way” when he first started out.  He felt that he had “built a monster” that he could no longer control.

Most business owners can relate that situation and those natural feelings of frustration. But those feelings are completely unwarranted if you understand how to overcome fear via a path to bridging the chasm that seems too wide to cross. The keys to bridging that chasm are to follow a proven series of steps that make it crystal clear what you need to do and how to do it, without suffering a reduction in financial results. Below are the steps to follow.

8 Steps to Overcome Fear

Step One

Calculate how much profit you would make from this target combination of product/service and customer segment. Then calculate how much you anticipate making from a single unit (target product/service and target customer segment combined make one unit).

Step Two

Calculate how much profit you are making right now from all the other combinations of product/service and customer segments that do not fall into your new target. Then calculate how much profit you earn, on average, from one of these units.

Step Three

Divide the profit you calculated in step 1 by the profit calculated in step 2.

Step Four

This is the number of “old customers” (from the non-ideal product/service and customer universe you looked at in step 2) you can get rid of every time you acquire one of your new target customer units from Step 1.

Step Five

Start working hard to attract your new target customers.

Step Six

Have the intestinal fortitude to jettison the number of “non-ideal” customers from step 4 every time you acquire one of your new target customer units.

Step Seven

Determine your target date to have this transition completed and back-calculate the rate you must acquire new target profile customers in order to achieve your goal.

Step Eight

You now have concrete targets for acquiring these ideal customer units that you can use to establish your goals and targets for lead generation and conversion.

Conclusion

The result of this approach is a set of clearly defined targets that will allow you to migrate toward the ideal outcome you identified, a clear timeline for accomplishing it and certainty that you are moving toward your ultimate goal as you hit the intermediate targets along the way.

You will accomplish all these things with no reduction in your current financial results and with the confidence to release those non-ideal customers according to your plan. Ultimately, you can overcome fear and achieve your target that may have initially seemed impossible.

You will be able to do it with a clear plan, minimal risk and no reduction in your financial results.

Scared Businessman Photo via Shutterstock

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Three Ways You Could React

At this point, you could react in one of three ways.

Your first option is to decide to go ahead and have the picnic in that spot despite the unexpected developments.  You resolve yourself to “make do” with the situation.  Sure the grass is prickly, and the stream has disappeared and you are going to be fighting biting insects.  But you planned to have this picnic here so you simply make the best of a bad situation.

The second approach would be to decide that your picnic has been ruined.  Off you go, back home, silently (or not-so-silently) cursing your bad luck, the bad situation, and all the other circumstances that got in the way of your nice plan.

Your third option is to admit your picnic plans need to be changed and then adjust your plan.   You pack up and try another spot – one that has lush grass, a nice stream and less biting insects. You may not have the picnic exactly as you planned, but you will still accomplish your overall objective of having a fun and relaxing picnic.

Running Your Business Is A Picnic

So how does this apply to you and your business?

As a business owner, you are continually making plans to do things you believe will drive your business forward.  Maybe you make plans to hire a new team member.  Maybe you plan to launch a new product or service.  Maybe you plan a new marketing effort to increase the number of customers you have.  Or anything else you feel will give your business better results for you.

But when your plans meet reality things often don’t unfold the way you assumed they would.  That’s not being negative or pessimistic – it’s simply being realistic.

How you react to this collision between your plans and reality determines your actual results – good (if you react in a productive manner) or bad (if you react destructively).

Do you decide to grit your teeth, and drive on with your plan?  Even if it’s unpleasant, painful, and potentially harmful?  Or do you get upset, blame bad luck, the market you’re in, your competitors, your customers, or the economy?  Or do you accept the fact that creating a plan and initiating it is just the first step in the game?

Three Steps To Make Sure Your “Business Picnic” Isn’t A Disaster

Here’s the best way to successfully implement any plan in your business:

Step One

Determine the big outcome you are hoping to achieve with your plan.  This is the overall goal – not the details.

For example, if you are planning on launching a new product, what is it that you are really trying to achieve?  Is it increased revenue and gross profit?  Is it to provide a complimentary product or service to your existing customers that will add value to them?  Maybe it’s to get new customers to experience your business in a low-risk way so you can start to build a relationship and sell more to them over time.

Step Two

Develop the major details for your plan to accomplish your big outcome.  The key is to develop these major details quickly.  Your goal is to create an plan that is adequate.

Adequate?

Yes.  It doesn’t have to be perfect.

Why not?

Because it is very likely that whatever level of detail you incorporate into your plan – it is going to need to be adjusted to react to actual circumstances.  In other words, it’s pretty much a certainty that the assumptions you use in your plan are going to be wrong.

So creating an adequate plan saves you time, and avoids the tendency to get to anchored to a plan that you spent too much time creating.

Step Three

Embrace events as they unfold, be flexible and willing to change your plans to take advantage of opportunities and avoid getting hurt by unexpected developments.  Your goal is NOT to necessarily fulfill the details of your plan.  Rather, your goal should be to adapt as needed and keep moving toward your big outcome.

You will find yourself much more relaxed, and your business will be much more likely to thrive – no matter what happens.

Picnic Ants Photo via Shutterstock

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Despite how radically different the hang-glider and the jet are, they are both flying because of the clever application of the mechanics of flight.   They would both come crashing down if those mechanics were ignored.

Early flight pioneers watched birds in flight and concluded that a flying machine that allowed them to “flap their wings” would be the ticket.  And ludicrous as it sounds, that made absolute sense at the time, given what people observed.

“Making Sense” Doesn’t Make It True

But the fact that it “made sense” didn’t make it the correct approach.

Of course, it wasn’t until years later (and after untold mistakes, dead-ends, injury, and death) that flight pioneers came to understand the true mechanics of flight.  And once the mechanics of flight were understood, aviation really took off (I just couldn’t resist).

The financial results your business creates are subject to certain mechanics too – just like flight.  The concept of financial results is a meta-concept.  That means it is an aggregated concept that is the natural outcome of certain underlying “laws” or mechanics.

It doesn’t matter what size of business you own, what industry you are in, or what level of experience, passion, or desire you have.  The financial results your business creates are subject to the same mechanics of making money – what I call Business Physics.

The Mechanics Of Revenue

Let’s look at revenue as an example of how to apply Business Physics to improve your financial results.

It’s obvious your business has to generate revenue if it’s going to make money for you.   But to control your financial results you need to break the meta-concept of revenue down into mechanical components.

Revenue is the result of the combination of three separate elements:

1. How many customers you have;
2. How often those customers buy something from you; and
3. How much they buy from you each time

Viewing revenue this way reveals that you can increase revenue by doing any of the following:

• Get more customers;
• Get customers who have dealt with you before to buy from you more often;
• Get customers to spend more each time they buy; and
• Any combination of these three elements

Different Paths – Same Destination

Looking at your revenue from this perspective allows you to clearly see the different paths that you can take to get to your desired end result.  And then you can pick the one that is the best fit for your business, your personality, and your lifestyle.

For example, maybe you have lots of customers but they only purchase a small part of your total product or service offering.  Your best path to increased revenue may be to approach existing customers to encourage them to buy other things you could offer them.

Or maybe you have a large number of inactive customers who, for some reason, haven’t bought from you for quite a while.  Your best route to increased revenue may be to develop a strategy to encourage them to come back and become active once again.

There is an almost infinite number of ways you can combine Business Physics to create the financial results you want – in a way that is meaningful and sustainable for you.  There is no one best answer that applies to every business.

Just like there are many ways to apply the mechanics of flight – the right way ultimately depends on what you are starting with, where you are now, and what you want to accomplish.

Remember the graceful hang-glider and the massive Boeing Dreamliner both harness the same mechanics of flight.  It’s just that their designers had two different ideas about what flight should look like.

Hang Glider Photo via Shutterstock

The post The Mechanics Of Making Money And The Business Physics Of Revenue appeared first on Small Business Trends.

You Are Now a Football Coach!

As you stand there in disappointment, someone with a clipboard walks up:

“Here, I’m putting you in charge of the team – I quit.  Maybe you can improve them enough so they win next game and make the playoffs.”

How would you start working with your team to help them improve their performance?

I’ve asked lots of small business owners this question.  They almost always answer the same way.  The first thing would be to review game stats and the game tapes to get an idea of how the various parts of the game were played.

It is clear that you wouldn’t be able to effectively help your team improve without knowing the details of where they were successful and where they fell short of expectations.  No matter what specific approach you might take, it absolutely would NOT be to simply look at the score, and then start making changes.

Would it?

Obvious, But Not Obvious

Trying to improve and making changes by only looking at the scoreboard is exactly how most small business owners approach their business.  It is ironic that you clearly wouldn’t act that way in our imaginary situation, yet when it comes to your business, where real dollars are made or lost, you most likely do just that very thing.

Most small business owners get trapped trying to figure how to improve their financial results by looking at their profit and loss statement.  They take a look at revenue and expenses and draw conclusions such as:

• “My revenue wasn’t high enough, so  I need more marketing to produce more sales”
• “My direct costs were too high, so I need to trim some costs where possible”
• “I’m spending too much on overhead,  so I need to find cheaper ways to operate.”

How You Measure Isn’t How It’s Created

The problem with that approach is that revenue and expenses are merely mathematical concepts that are measured on your profit and loss statement.  The reality is that revenue and expenses don’t tell you ANYTHING about how your financial results are created.  Revenue is created by the combination of how many customers buy from you, how much they purchase each time they buy from you, and how often they buy from you.

This is dis-aggregation.  Drilling into the mathematical creations that you find on your profit and loss statement and breaking them down into the actual components that combine to produce those mathematical creations.

The same approach can be taken toward your expenses.  As they appear on your profit and loss they are really nothing more than mathematical creations.  Your expenses (whether direct or overhead) are created by your customers, your products, or the activities that go on inside your business to connect them.

Taking this dis-aggregated view of your business allows you to really understand HOW your business has created the financial results you have been getting from it.

By dis-aggregating you get an up close picture of how your current financial results have been created.  And once you have that level of clarity you can take the next step toward creating the financial results you want.

And that next step will be the topic of my next post.

In the meantime, get dis-aggregating!

Football Photo via Shutterstock

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Just a few of these things include:

• What products or services to create.
• How to price your products or services (or how to update your pricing).
• How to go about getting customers.
• What type of customer to chase after.
• How to deliver your products and services.
• Whether or not to increase how much you pay team members.
• How you pay team member.
• How to go about creating the systems and processes for your business.

Decisions like these may seem just like ordinary business decisions that need to be made.  However, they are anything but ordinary.

These types of decisions are a double-edge sword for you – full of risk at the same time they are full of potential.  Full of risk because they determine how much profit and cash flow your business creates for you.  And full of potential because they give you the power to combine them in ways that can create truly amazing financial results.

If you’re like the vast majority of small business owners, however, you aren’t on either edge of that double-edged sword.  You probably find yourself in the middle – not creating destructive financial results, but not creating great ones either.

The chances are really good that instead of either of those extremes you are suffering from what is perhaps the most painful business malady out there – LFR.

LFR is a term that stands for what I call “Limping Financial Results.”

LFR is the frustrating and emotionally draining situation where you manage to create financial results that just allow you to “get by.”  Financial results that allow you to keep your doors open, pay yourself something, and make any loan repayments as they are needed.

I call that state of business LFR because it’s a lot like if you have a sore ankle or leg.  You hobble and limp along, managing to get where you’re going – eventually.  But it’s slow, awkward and painful while you’re doing it.

When it comes to creating financial results, it’s much better to be like a well-trained runner.  Effortlessly using full strides to get where you want to go with grace, speed, and confidence.

The key to getting your business into that state is to get rid of LFR from your business.

You can relax.  Because getting rid of LFR isn’t really all that hard.  Once you’ve become aware of the fact that it is affecting you, your business, and your financial results, there is a proven series of steps that you can take to destroy it.

And by following these steps you will remove LFR from your life, and replace it with the ability to confidently start creating financial results that will make you proud.

There are seven steps to destroying LFR if it is present in your business:

1. Understand how your current financial results are created.
2. Understand the mechanics of making money.
3. Examine your current business model.
4. Scenario-test your business model.
5. Make changes to your business model to maximize its potential.
6. Set new targets and actions for key drivers of your business model.
7. Measure and compare your actual results to your targets.

Don’t worry about the details of each of these seven steps right now.

In upcoming articles, we’re going to cover each of these steps so you can learn what, exactly, you need to do each step of the way toward removing LFR from your life.

Financially Limping Photo via Shutterstock

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Budgeting is a waste of time if you do it the way most small business owners do it.  You know the way – where you do a “mathematical” budget by increasing revenues and expenses and come up with a “magical” net earnings figure that you don’t really believe, or even know how to actually achieve.

But the truth is that you CAN create a budget that is useful for you.  One that actually helps you create the financial results you want and helps you identify what actions you need to take in order to keep driving toward your targeted financial results.

What is the path to an effective budget?  Here are seven quick steps.  Follow along and it won’t even feel like you’re creating a budget:

Step One

The first step is to create your revenue budget.  The way to do this in a meaningful way is to start with the number of customers you have historically served in your budget period.  For example, if you serve 75 customers in a month, this would form the starting point if you were budgeting for an upcoming month.

Step Two

Determine your average transaction size in the past for the period you are trying to budget for.  For example, if your average transaction size has been $250 in similar recent periods.

Step Three

Based on your historical number of customers for the period and average transaction size and given your planned marketing and sales efforts, decide what you feel is an appropriate target for number of customers and average transaction size.  For example, if you have an upcoming marketing campaign scheduled that will generate a number of new leads compared to the number you would normally expect you should adjust your target number of customers upward to reflect this.

Step Four

Multiply your target number of customers, and average transaction size together.

You have just created a revenue budget for your business by actually looking at the elements that create revenue.  Even more important, you have created granular targets (number of customers and transaction size) that will guide you every day in your budget period to knowing if you are on track to create that revenue or not.  If not, where you are falling behind.  For example, not enough customers, average transaction size smaller than planned, etc.

Step Five

Use the targets you just set for the number of customers and average transaction size and your anticipated direct costs to determine your budgeted direct costs.   For example, if you are expecting an increase of $2 per additional transaction, make sure you account for this in your budgeted direct costs.

Based on the budgeted revenue and direct costs you have now created, you have determined your budgeted gross profit (revenue minus direct costs) which you will have available to cover your budgeted overhead.

Step Six

Examine your historical overhead costs for the budget period.  For each major overhead item, adjust it up or down as appropriate based on actual changes you know are coming, or that you anticipate.

You have now created your budget for overhead expenses.

Step Seven

Subtract your budgeted overhead from the gross profit budget you created in step five and there you have it.

You have just created a useful, relevant budget in seven quick steps.

How Do You Use It To Create The Financial Result You Want?

So now that you’ve created your budget from the ground up, it’s time to use it – daily.

The biggest element of driving toward achieving your budgeted financial results is to ensure you meet your budgeted revenue targets.  This requires you to monitor the actual number of customers you have served and the actual average transaction size you have generated.  Then you need to compare both these amounts to your target number of customers and average transaction size.

By monitoring and comparing in this way, you will know daily, weekly, monthly – as often as you care to look – how closely on track you are toward creating your target financial results.

Then you can take quick (almost instantaneous) action to bring your actual results back on track to match your targets.

Budget Photo via Shutterstock

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Step One

In the first column, list all the things your customers and prospects want to achieve by purchasing your product and services.  For example, assume you run a hearing aid clinic.  One of the things you may list in this column is that your customer wants “better ability to hear conversations.”

Step Two

Move to the second column, the “How Help” column.  For each item in the first column, write down how it is that your product or service helps your customer achieve that thing.  Be as specific as possible.

Following our hearing aid clinic example, you might write that you match your customer with the best hearing solution for their specific hearing loss profile, attitude, and price profile.

Step Three

Now move over to the third column.  For each item, you want to identify what you believe achieving that thing is worth to your customer.  A lot of business owners find this step challenging because it is often difficult (or impossible) to put a number to how much some items are worth to your customer.

But just because you can’t put a number to something doesn’t mean it isn’t important.  In fact, sometimes the most powerful benefits your products and services provide can’t be measured by a monetary value.  So if you can’t come up with a specific number, that’s completely fine.  In those cases, provide a subjective description of what you believe it is worth.

Following our example, you may identify the hearing aid as being worth “more fun and enjoyment when dining with friends and family by being able to fully participate in conversations again.”

Step Four

This step is a bit more involved and there are two things to say about it.  The first is that most business owners who read this post will NOT take action and do this step because it takes some effort.

The second thing is that it is THIS step that really gives the power to the brilliant conversationalist pricing method.  In this step, you ask some of your existing customers “What does buying our product or service mean to you?”  And then you listen and record what they say.

This step allows you to take the benefits your customers REALLY get from purchasing your products and services, and relate them to the items you have put on your worksheet.  The key in this step is to record exactly what they say, using the words they use.  Even if what you hear is something you never even thought of – record it.  Because you are hearing (remember, this is a conversationalist approach to pricing) what benefits your customers receive and what your products and services really mean to them.

Continuing with the example we’ve been using – you could find that your customer tells you that what they get from buying your hearing aid is the ability to hear what their grandchildren tell them without always asking them to repeat it; or being able to hear their granddaughter recite her wedding vows.  Now you can relate the items you’ve listed, the benefits you have identified, and the benefits your customers tell you they get to each other.

Use this knowledge to set your prices with much more clarity and confidence.  You will almost always find this exercise gives you the confidence to raise your prices based on the value you provide.  This will give you a nice bump in profitability, and make you even more proud of what you do.

So go ahead.  Have a conversation with your customers.  You will NOT regret it – ever.

Conversation Photo via Shutterstock

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Pricing can be straightforward – but you need the right perspective.  You need to realize that pricing is really just a mechanism to communicate value.

To help you get this communication perspective on your pricing, let’s look at three type of people you meet at any party and compare their style of communicating to the three common pricing approaches small business owners use:

The Wallflower

They are the one who stands timidly in the corner; not engaging others in conversation, not asking other people about themselves, not joining the conversation unless specifically asked, and then they only answer in quiet, shy, short and non-expansive answers.

When it comes to your pricing, the Wallflower equivalent is “pricing emulation.”  This is where you base your prices on what your competitors and your market are charging, what customers expect, and so on.

This approach communicates two main things:

• That your business and its products and services are plain, boring, and the same as everyone else.
• That your customer is the one in charge.  They are allowed to control the conversation, and the relationship.

Obviously, when it comes to pricing, this is NOT the communication style you want.  Yet so many small business owners use this pricing technique.

The Arrogant Jerk

The arrogant jerk thinks they are the only one with worthwhile opinions and thoughts.  When listening to someone else, the arrogant jerk’s eyes glaze over just waiting for them to stop talking so they can start again.

You know how annoying this type of person can be (and if you’re reading this and are thinking that you have NEVER encountered someone like this, I can almost guarantee the people you talk to have).

The pricing equivalent to the arrogant jerk is the “mathematical” (or cost plus) approach.  This approach takes a look at your costs, anticipated sales volumes and target profit and then mathematically calculates the price that should be used.

When you use this method you are communicating that YOU are the most important person in the sales/purchase transaction.  It communicates that YOU believe your customers and prospects should care about things like YOUR costs and YOUR desired profits.

The Amazing Conversationalist

This person listens attentively, offers their thoughts where relevant and is often lauded as being very interesting to talk to (even though they often spend more time listening than talking).

These are the people everyone seems to gather around at a party and are almost always involved in the liveliest conversation groups.  This is the way you want to approach pricing in your business.

Listen to what your customers and prospects want to achieve from acquiring and using your products and services.  Then ethically set your prices based on the value you bring to your target customers.

In a future article, I will explain a step-by-step process for applying the Amazing Conversationalist pricing method.

For now, your homework is to ask yourself which of these three communication styles you are currently using.  Observe other businesses you encounter each day and determine which type of pricing communicator they are.

It’s fun and gives you great perspective on your pricing.

Arrogant Businessman Photo via Shutterstock

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