Many a wonderfully creative, self-promoting, innovative, passionate and seemingly successful entrepreneur has stumbled mightily when it comes to the making money part of the deal.
I don’t know about your upbringing, but I do know that entire generations of adults were taught by well-intentioned people who had the idea that money, or making money or, certainly making lots of money, was somehow a bad thing.
And, even though that’s one of the significant reasons for opening up shop, the majority of small business owners I encounter are hobbled by this deep-seated belief.
In my experience, this shows up most frequently in the way they conduct the financial affairs of the business. Now, I’m a marketing guy, remember that, so don’t get me wrong, I’m not simply referring to crisp financial forecasting and reporting. You can and probably should hire that stuff done.
I’m talking about something more basic than that, something more closely related to marketing.
- Uneasiness with money shows up in underpricing your products and services
- Uneasiness with money shows up in failing to talk about payment expectations with customers
- Uneasiness with money shows up in uncollectable accounts receivables
All of the above can wreak havoc on the ability for a business to grow and prosper, but I believe that they do more than that. Some businesses actually do muddle by doing all of the above but know this, your pricing and the way you communicate how you expect to conduct professional relationships speaks volumes about value.
So, the question then becomes, what are you communicating about the value of your work, your people, your organization, or your products? How does that make everyone in your organization feel about your position in the market?
Price is simply a function of value. When something feels overpriced, it’s because we don’t perceive the value and when something feels underpriced, we may not appreciate the value. How do you really feel about the value you offer?
Here’s the point I’m trying to make – raise your prices, get fanatical about creating and communicating value and boldly look your prospects and customers right in the eye and tell them this is what you get and this is what we expect in terms of payment.
If either one of you flinches, then a) you’re not sure about your value or b) they aren’t an ideal customer. And you can take that to the bank!
Very insightful, John. And I have to agree with the concept here because it does seem to surface eventually in other areas and our behavior. There’s just a general uneasiness period about admitting to the fact that you intend to make some money in the deal. It implies that because you have something to benefit, you may be trying to scam someone. That may be a bit of a reach but you get the picture.
It’s all about confidence – in yourself, your products or services and your business. If you cannot portray the value for your customers through your confidence – they won’t trust you or value your services and products.
Marketing is all about getting someone who has a need to know, like and trust you – and sometimes that starts with getting you to know, like and trust you!
Great advice! I’m still in the planning stages of my business, but I’m definitely going to keep value in mind when I set my prices, and try to avoid what most newbie tech consultants do by underpricing, and thereby undervaluing, themselves right off the bat in order to try to get more customers.
Many people for whatever reason have an unconscious opinion that they do not deserve to make lots of money. Many feel self conscious about it, and that self consciousness makes the make decisions about their business that do not add to their bottom line. The deep rooted internal belief that we are not worthy of large sums of money becomes even stronger when we are trying to breakout of the socio-economic status we were born into where strong ties to “our roots” keep us in the same economic situation as the family that went before us. Very interesting ideas, and a load of psychology and sociology studies could be done on the topic.
Thanks for sharing,
Hi John, thanks for sharing these marketing tips. Well, I must admit that I, too, have these uneasiness when it comes to money. Very helpful tip for business owners, indeed. Also, I can relate it to my past working experience. Just like when you’re stating your expected salary during an initial interview before, I feel like I don’t have the right to brag about. Later on I realized, I should have known my value so my service could have been paid on its best.
Thanks for the another lesson learned.
Knowing your value is just being honest of what you can offer.
There is a “Physics of Marketing” law I always use that says: When people complain about your price, they have no idea why to choose you.” The hard part is getting past the physical component of what we offer to the benefit or value that we bring.
Thanks for the great lesson. I too have been guilty of doing this very thing, even while I counsel my clients NOT to. It is a very tough issue to get past.
Very good post. One of the significant turning points in my business was when we sat down and set a minimum fee for each type of service. It was a bit (no, a lot) scary at first because we cut off 3 clients who did not fit the new compensation model. However, that decision proved invaluable in the long run as it served to shift our mindset from “scraping by” to “excelling in core competencies.” This forced us to start targeting business who could afford our new fee structure. As a result everyone in the organization started to project themselves differently – more confidence, more professionalism, more creativity (our core competence). All of this led to picking up 2 new clients within the 2 months of making the decision. Perhaps the most surprising part was the revenue from the 2 new clients exceeded that of the 3 we fired by nearly 30%.
Nice point, John. Thanks for sharing to us your marketing expertise. It’s a big help for us business owners.
Many years ago when I first started with Pearle Vision as a store manager I found my associates would cringe and apologize when they’d tell the price of glasses. I questioned this and found they had a hard time asking for more money than they knew they had in their own wallet. Asking for $300 in full was hard for them and so they’d say “that will be $300 but you can just put a $10 deposit down.” Who is going to turn down that deal? Glasses are a custom-made product. People expect to pay in full. So I told them to say “that will be $300” and then hold their breath. If they HAD to say something, I’d tell them to say “will that be cash or charge.” Our deposits went up and uncollectible receivables diminished.
So how come I can’t use that same philosophy with my own freelance writing business? John – you are absolutely right – price is connected with value and we have to stop apologizing/justifying for our prices. Alan Weiss talks about value-based fees and that we need to think about the difference/value we offer (time savings, quality products, streamlining efforts, getting their name in front of prospects) and stop apologizing for the amount of money we charge.
I need to take my own advice – say the price and then hold my breath. And as you say…no flinching. I love that image. Thanks for a great, inspiring post.
John, you are spot on!
I used to raise my price for each new client to the point where I felt squeamish. I doubled my daily rate in two years this way. I then got more analytical, and pegged my rate to 80% of what the best people in my market charged; which meant I got more work than they did while having less to prove to justify being the market leader. These are beginner revenue strategies (now I would be looking for new revenue streams, passive income, etc.). Nonetheless, I found that there was more work at the higher fee, like others who have posted…the work was better and the clients more professional. Later on, I learned the business rationales for why this is the case. First, I was able to more clearly state my value to the client (and they could see the value of hiring me rather than someone else), and second, I learned that price sets perceived value when it comes to professional services. And everyone wants to do well, so they want to have consultants who themselves are doing well.
Looks like I’ve hit on a bit of an emotional topic!
Great responses too – I love that people have created some creative ways to address this topic.
Raising your prices is only really scary once. After that you learn what a great thing it is and you don’t hesitate again – well, until you bump up against the next “worthiness in my head level.”
And I think, John, that once you’ve crossed the hurdle, gone ahead and raised your prices and you see people are still buying your products or services – it helps to build the confidence needed. They like it! They like it – and are willing to pay for it 🙂
This article is amazing.
Coming from a background that always considered making more money bad thing (former USSR), I had to go through some very painful times in order to get the idea of making money settled in my mind as something good and worth pursuing.
Your post sent me into total recall of how I got where I am. Thank you!
Great post. Have to agree with everything you say here. It takes some practise for sure, but is also a great confidence booster.
Really good points. When I was selling my handmade candles, certain customers couldn’t understand why I was not selling my candles as cheaply as the big box stores. If I needed to explain and justify my prices, those customers were really not worth convincing. I knew that even if they bought just 1 candle from me, they probably won’t be a return customer. They will just continue buying from the big box stores. I never let that discourage me though, I knew that my candles were well worth the prices I charged.
So many entrepreneurs would have to say “guilty” to all 3 of your “unease” points. Sometimes we need an outside person (like you) to reflect back to us a sense of worth.
Exactly Anita. Most especially I – really guilty with those 3 things pointed out by John.
@Susan – Love the raise your price with every new client approach. When you do this and still fill your practice it gives you the ability to say no to folks who don’t value what you do and to say see you later to folks to who came to you for the low prices you offered. Few things are more attractive when selling your services than not needing the business.
Great points. All of this goes double for those of us in the “nonprofit” sector, where uneasiness about money runs even more rampant — and being grossly underpaid seems to be a point of pride for many. The result is just as limiting as it is for small businesses. Thanks, John!
I agree and we do that in our retail store. We have one sale a year and the funny thing is the people that come to it we seldom see the rest of the year. Sure there are some regulars but for the most part it is the one-timers. Since we stopped having sales, yes we have less traffic, but sales have improved.
But you do get me to think about one thing. How many of the respondents have sat there on Wednesday trying to figure out how they were going to make payroll on Friday? Raise Prices? Sell Value? Maybe, because I have done a couple of turnarounds that I look at it differently. But Value is what value is. If you are worth it, you better charge for it!
Thanks John. It helps to see it put out there the way you did above. And it’s so helpful to find people to help us understand, and feel comfortable with, the value we bring to the table.
Got to hand it to you, you may have hit the nail on the head for me. I got that really uncomfortable feeling one gets when the have just been busted…ok, ok, I did it, I confess already, can I just go home now please??? Here’s a variation for you. My dad was a very successful salesman, had his own car dealership, we were very comfortable. For some reason, he insisted that I should get educated at the best schools around, and be a doctor or a lawyer, because they have a license to steal. I did neither. I have been trying to start a business I invested in. a dealership essentially, that fundamentally is driven by sales. I have the same, but even stonger negative reaction to convincing businesses to buy. I really do not want to work for anyone else anymore, but I see no way to avoid that without having skill and enthusiasm for sales. I’m convinced my dad programmed me to be repulsed by selling. I hate getting cold calls, and hate doing them. It seems like the same issue you have addressed. Thanks for the insight.
@Steve and others – I think this topic also gets at the heart of why people say – “I hate selling” – what they really hate is how they’ve witnessed sales as being a way to convince someone to buy. In today’s world of marketing, I think the lesson is differentiate, educate and be found – then you will love sales.
John – You are so right! Marketing and finance are joined at the hip for a small business, and you’ve explained it exactly right. This is very exciting! I hope you will expand on that thought in future posts.
Great point about the role of limiting beliefs, prior experience and perceived self worth on the art of pricing.
When you shared, “Price is simply a function of value,” though, I wonder if there is something missing from that equation.
In many scenarios price actually “implies” value.
Take the classic story in a book I recently read about a line of jewelry that wouldn’t move in a small retail store. Before leaving on vacation, the store owner told the manager to cut the price in half, to fire sale it and get it out of inventory.
Upon returning, the owner was amazed to see all of the jewelry gone. BUT, what amazed her was not that it sold, but rather that the manager misread her note and, instead of halving the price…she doubled it. At the double the price, people assigned a higher value to the exact same merchandise, perceived it as more desirable and gobbled it up.
I’ve actually experimented with this myself and and seen a very similar phenomenon. Many internet marketers, who are some of the most fanatical price testers on the planet, reveal higher sales volume by simply increasing price, with no other change in product or marketing.
So, no doubt, price and value are forever intertwined, but sometimes, in fact, very often, it’s the price tail that wags the value dog…within reason, of course.
I am in a coaching group consisting of women business owners, and this issue comes up all the time. Women, especially, are taught to “be nice” and often think that includes not charging “a lot of money.” But this comes back to bite us in so many ways.
I have consistently increased my rates, with the highest rates for one-on-one consultations. I also have a little obsession — whenever I run into someone who I think is charging too little, I tell them. In fact, I even told my virtual assistant that her rates were too low – and to charge me and everyone else more!
John, great post.
I believe that it is easy to charge whatever price you would like as long as you know that your clients are receiving an amazing service and an unbelievable value. If you know that your service is driving your client’s revenue growth, then you look well beyond how many hours you might be spending on a specific task and instead align your prices with the large growth numbers your clients are sure to see.
If you charge, do charge for a service or a benefit the customer understands.
A customer will pay for what he can estimate a value for.
If not then he will feel cheated.
Thus present your services on the invoice in a manner the customer understands.
This post really hit home. Thankfully my business partner is very comfortable with the financial portion of our business, and she is helping me to become more confident when it comes to making money. Nothing makes me happier than a happy customer and regular user of my products; dealing with the emotional aspects of dollars and spreadsheets gets easier with every order that comes through.
Margie’s comment, too, is SO true. “Nice” does not mean “give away the store!” 🙂
While at the library the other day I by chance pulled a copy of “Pricing On Purpose – Creating and Capturing Value” by Ronald J. Barker off the shelf that speaks directly to this topic.
It’s been an interesting read and Ron does a great job of explaining through the study of pricing theory why it’s critical that companies move away from cost plus pricing to value based pricing.
The book starts off by answering the question: “Why Is Movie Theater Popcorn So Expensive?” and then leads you through a series of thought provoking exercises.
I think the book ties in nicely into John Jantsch’s message of “Create value for your customers and your customers will value you” and drives home how important the concept is from the customer perspective.
@Michael – thanks for the tip on that book, but I went to Amazon and it’s $45 – are you kidding me – oh wait, maybe that’s what we are talking about here isn’t it?
@all – let’s inject another element to this conversation – price for some services should be a function of total value. There’s a story that I have and I’ve heard others express. I have charged customers a substantial amount of money for a result. I got a customer a nice mention in the Wall Street Journal and I charged them, well, a bunch. In this case, it took me 15 minutes to make the call and suggest the story, but it took me 20 years to recognize the story for what it was and develop the contact at the publication. The customer got tons of business directly as a result and had no issues with the value.
So, what about results based pricing and value?
YES! It’s not just results, but having the skills and experience to get the results, that justifies the pay. You said it — it took the skill developed over time to recognize the opportunity — and the experience (time in) to have the contact. That is what your charged for. A less experienced individual would not have been able to do what you did.
Analogy: I want a top surgeon who has experience curing what I have — not a less expensive new surgeon who read about it in a book! Both have a great education, but the seasoning that comes with time makes all the difference and justifies the difference in pay. The younger doctor might get lucky — but my money is on the seasoned one.
There is an old story of Picasso sitting on a park bench next to a woman who asked him to sketch her. He did it in 5 minutes…then told her it would be the equivalent of thousands of dollars. She was aghast, but he reminded her that it took him his whole life to be able to do a Picasso…..
I suppose the idea here is to turn the buyers decision from one based on cost to one based on value. In John’s example above, just about any small business would pay well for a mention in the WSJ but might baulk at the price without an idea of the expected outcome.
From a sales perspective reps are normally trained to talk in the future tense to help buyers envisage the true benefits and long term outcomes of their buying decisions. As marketers we can do the same by focusing on problem solutions rather than the mechanics of the service or the features of the product.
From @Michael’s comment above, $45 might be a lot to spend on a book but how much would you pay to be able to charge 10 or 20% more and attract even more business?
Returning to the original topic of the post, if small business owners look at their own services in a similar light then it’s not quite so difficult to justify (to themselves) solid pricing and clearcut payment policies.
I agree with this completely. I’d like to add that what you charge often has a huge impact on how your customers will perceive you. You can be providing the same service for $100 and be percieved as a cheap alternative or for $1000 and be perceived as an expert. Many people, even though they are experts at what they do, think that they’ll charge little to gain some clients and spread the word but in the end end up frustrated. Charge what you’re worth and you’ll reap the benefits and your clients will think they got an expert.