Your Pricing StrategyWhat is your pricing strategy and how does it fit with your overall business strategy and goals? Pricing strategy is often driven by the owner's desires and perceptions. Most desire to make as much money as possible while providing real value. (Yes, it is true, many just desire to make as much money as possible.) Many too take into account their desired lifestyle and price accordingly. Too often though pricing is done without much thought and is driven at times by negative emotions which limit a business' potential. Really, an owner's ego can be and often really is a driving force which sometimes is good and other times it is not.
ExampleLet me give you an example. One business owner started a lawn care business to provide for his family and enable them to spend more time in their ministry work. To build up his business he priced his services low to get started. Once he got enough business to hire help he did not make any pricing changes. His drive really shifted to keeping all his existing clients and still trying to add more clients. The result was like a ship without a rudder and his business ship was driving him all over the county, literally, and taking up much more of his time than he originally planned. So what could he do?
Price Change With a PurposeAfter seeing the reality of what his business had become, I suggested he consider increasing his prices for some of his customers. He was hesitant because he was afraid of losing customers. While that is a real concern, I asked him to consider the value of his individual customers. He saw their value being what they paid him. I suggested their real value is what they pay him less his cost including and especially his time. His isolated customers at the outskirts of the county were more costly to him regarding his time than customers close to his home base. What was the opportunity to solve his dilemma?
Prices Together With Costs and MarketingThe suggestion was to look at those accounts located at the fringes of his area and especially the ones that were isolated, without other jobs nearby, and consider increasing their prices. He correctly responded that he would lose some of those customers. So I encouraged him to think about how many he could afford to lose if he increased their prices by 10%. Yes, you are quick, he could afford to lose 10% of those customers and still have the same amount of revenue and at the same time he would lower his costs and give him more time for his family and ministry. What was the result?
The Real Driving ForceThe result was that his real driving force was revealed. It came out that he did not want to lose a single customer because he wanted to have a bigger business than his competitors. So to work with that I suggested he could use half of the time he saved from the price increase and losing some customers to market his business to people who where located close to the other isolated customers that accepted the price increase. If he could find a few other customers close by he would be reducing his costs and time required for those customers. Instead of driving for half an hour to get to one customer, how much better would it be to drive that far for three or four customers or more.
Help For You and Your BusinessWhile there are other factors to consider regarding pricing, many times a business owner is too close to the trees to see the forest, and he can use some insight from someone with a different perspective. As part of my business consulting or coaching services, I would be happy to help you not only make your business more profitable but also get your pricing in line with your overall business and life goals. Please feel free to contact me using my information below.
Stay tuned for other articles about business strategy including pricing articles about the relationship between your prices and the size of your business and it's profitability, value perception and how it relates to problem customers, and the problems with price cutting and offering things for free.
Contact the CPA Superhero for help with your business and your life goals. I consult with or coach business owners to manage and grow their business and develop strategies. Additionally, I prepare tax returns for business owners. For over thirty years I have worked with many different successful and unsuccessful business owners and that experience has given me unique insight that you can tap into as one of my clients. So contact me today to setup an appointment to talk about your business and your life goals.
Jeff Haywood, CPA
The CPA Superhero
Certified Quickbooks ProAdvisor
The CPA Superhero
Certified Quickbooks ProAdvisor
The above information is general information and is not all inclusive and as always in your tax situation everything "depends on facts and circumstances." So call me to talk about your specific facts and circumstances.