Pricing Strategy

On this episode of the Fearless Business Podcast, I talked about one of the easiest ways to figure out how much to charge for your products or services.

Welcome back, everybody. It's your host here, Robin Waite, founder of Fearless Business, author of Take Your Shot. It's been a little while since I did a podcast. You're probably wondering why there's been several months of a hiatus. So before I dig into my simple formula for working out your products or services, I thought I would just update you as to why I've been away for a little while. Yeah, quite simply, I just found that I fell out of love with doing podcast episodes. I don't know why, and I know that it's very selfish of me, but sometimes I find when you're doing building marketing assets, you do have to find things which you are, where your energy is kind of like, without getting too woo, in the right sort of place.

Key Takeaways: Pricing Your Products Or Services - Podcast Episode

1. Simple Formula: Discover an easy method to determine the right price for your products or services.
2. Robin Waite: Learn from the experience of the podcast host, founder of Fearless Business, and author of "Take Your Shot."
3. Podcast Hiatus: Understand the reasons behind the podcast's several-month break and the importance of finding the right energy for marketing assets.
4. Personal Experience: Gain insight into the host's journey and struggles in podcasting, as well as his renewed focus on sharing valuable content.
5. Pricing Strategy: Equip yourself with a pricing strategy that can help you optimise profits and effectively market your products or services.

Because I want to make sure that when I record a podcast episode that it is absolutely banging, it's filled with as much value as I can possibly deliver. And just with a few things that have been going on for me behind the scenes, I won't bore you with them, I just felt that if I got onto the podcast and kind of did it just for the sake of doing it, that it wouldn't necessarily deliver as much value to you all as I would have intended, as you probably would've liked. So I wanted to make sure that when I came back to record podcast episodes, I was in the right frame of mind and say that I could drop as much value as I possibly could in these short episodes so that you feel that you are getting that virtual hug from me across the podcast air wave.

So there we go. So I'm not going to make a commitment to doing this weekly or monthly or anything like that. I'm just going to stick with the vibe of doing it when I feel most inclined to do it, when I'm going to offer the most amount of value to you. So there you go. But there will be future episodes coming. Don't sweat. I won't wait another six months before I record a podcast episode for you. But okay, so let's get into it.

So a question I get asked all of the time is how do we set our prices for our products or services? And this is across pretty much every niche that I coach within. So, as some of you know, I'm a mentor on several different programmes from helping police officers to become entrepreneurs, to helping dog trainers and pet professionals. So those are groups which I'm an associate coach on. I partner with them, them to deliver mentoring and coaching in their programmes. And then obviously I've got my own programme, the Fearless Business Accelerator, which helps coaches, consultants, and freelancers.

And the thing is as well, folks, that you'll have noticed that a lot of my content is based around the service based industry, service sector, generally sort of time for money type businesses. And they range as well from anything from people just starting out, right the way through to veterans in business. I work with all sorts of different businesses of shapes and sizes, but they're all service based businesses traditionally. And yeah.

How Do You Set Your Prices?

Well, there are a number of different ways, but I'm going to share one specifically with you, which is, I call it goal focused pricing. And it is possibly the simplest way to set your prices for your services. It does involve a bit of math. So you probably didn't wake up this morning thinking you were going to get some kind of a math test, but it's simple math, folks. Just get out a sheet of paper and just do some basic calculations or use a spreadsheet.

But I think you all know me by now, there's no excuses when it comes to business. You can't say I'm not a numbers person, okay? That is just an excuse. I'm going to be a bit harsh today on this first episode back after a little hiatus. So it is just an excuse. When you have these different functions in your business and marketing sales, accounts and various other things, you can't abdicate responsibility. It's just as an entrepreneur, as a small business owner, you have to take responsibility and understand the basic sort of fundamentals of every aspect of your business and so that you can delegate it with responsibility, okay? Or delegate it responsibly, I should say. Delegate responsibility responsibly to somebody else.

But when it comes to setting your prices around goal focus pricing, here's the simplest way to set your prices when you're first starting out. The key thing that I want you to remember here though is, folks, I want you to completely ignore whatever your competitors are doing, because the goal in business is to turn a profit. It is not to collect clients, it's not to price yourself so cheap that you get loads of clients in, because inevitably what happens is when you undercut the market, you end up with poor quality, uncommitted clients who whinge and moan when things don't go to plan. And then you get really down-hearted because you're not making the money that you envisaged you would make for yourself when you first started your business up.

Goal Focused Pricing

Let's say for example, if you want, you had a product or a service that you're going to sell and you want to make from it £1000 per month. I'm going to make these numbers super, super simple, okay? Just so I don't tax you too hard. I'm not going to make you work too hard for this. Okay? So if you want to earn £1000 a month from a specific product or service, and let's say for example your capacity, so that maybe the... We are going to work on hours here. I'm not saying you charge hourly rates, but this is just a starting point. Maybe you have the capacity to deliver 40 of those products or 40 of those bits of service every month. Okay? So all we do is we take £1000 that you want to earn and we divide it by 40. And then what that gives us as just a starting point, it's not the price, but as a starting point, that would then be on average £25 per sale of that product to service.

So you can see how simple this is, a simple capacity based pricing model, £1000 per month, divide it by 40, you get £25 per sale. Now, then you can start to, once you come up with that number, and again reminder, just ignore what everybody else is doing, you can then interrogate that number. You can then ask whether you are going to make a profit by selling 40 of those things at £25 per sale. Are you going to make a profit? Okay, I'm not going to go through gross profit, overheads, margins and all this sort of stuff. We're just going to solely focus on net profit. And if out of selling those products, you walk away and you say, "Yes, if I sell 40 those at £25, make £1000 pounds a month out of it, I will walk away with £300, i.e, a 30% net profit," then you're in the right sort of ballpark. It means that it could work.

You could at this point then just compare it to the market. And if the marketplace is saying, "Well, we sell this on average between £15 a service product and £40 as product service," well, £25 is kind of in the ballpark. But what that also shows you is there's some bandwidth now. £25 might be too cheap. But what we've done is the reason why we want to ignore the competition as well is that we don't know that if the market is decided on a price, inevitably a majority of small business owners charged below market rates. So what I mean by that is this, and there are numbers to back this up, about 70% of small business owners are charging below market rate because the top 10% in any industry make about 60% of the overall income across that entire industry, which means that a majority of people are charging below market rate. Okay? So if they're charging below market rate and making a loss, why would you want to copy a flawed business model? Okay? So ideally what we're aiming for here is to be the most expensive in the market.

Pricing Is All About Confidence

Now, your confidence when you interrogate these numbers and you might go, "Ooh, I'm not sure I can sell it for £25 a product," or you might go, "Oh I think I could sell it for £25." All we've got to do then because you're not fixed at £25 for that product or service, add in forever. Okay? You only get to sell it for that product or service at £25 to the next person that comes along.

So what I'm inviting you to do at this point is that you can start to gather some data. Okay? What that data looks like is you go out and you pitch your product or service at £25 to, I don't know, 20, 30 people, 50 people, maybe 100 people, okay, to gather some data. And what we're looking for is evident to back up our hypothesis that the market will pay £25 for this product or service. So we're just looking to go and gather some data or evidence. Okay?

Now, when we pitched it to 100, people, if only 10 say yes to it could be like 10%, it could be, oh gosh, our hypothesis is wrong. The market is telling us that at £25, that product or service is too expensive, so therefore we might want to adjust our prices. But what we've got is something called statistical significance. This is when we've gathered enough data to decide whether there's a good product market fit at the price which you've set it at.

Pitch Your New Prices And Gather Some Data

However, if you pitch it to 100 people and 80 say yes, you've got really high conversion rate there, which means that possibly £25 is too cheap. So then what you can do is you can start to adjust your pricing. And remember, you are only testing your prices against not for the next year or the next six months. You're not committing to it for a fixed period. I don't know where these arbitrary rules came up that you had to set your prices and stick with them for 12 months before you could put them up, and maybe by five or 10% a year, and then maybe that would still be really hard work. All of those sort of arbitrary rules that we set for ourselves are complete BS, folks. You can ignore all of those.

You could put your prices up every day if you chose to. You can test different prices. Every person that comes along, you could pitch a different price to. Okay? So don't feel that when you set your prices, you're stuck with those forever. Okay? What you want to do is gather some evidence and then test and measure against that data that you've collected and adjust accordingly. Okay?

What's A Good Conversion Rate When Increasing Prices?

Now, here's another number for you. A good conversion rate a typical service based business is round about 40%. Okay? And I've studied about 1200 different businesses, so I've got a lot of data on this, but on average, solid businesses punching out a good solid net profit margin, they're converting about 40% of the clients come in. So we know that their price point is about right. So imagine you've got a speedo or a rev counter and the needle is nicely floating around somewhere near the middle. That is a good place to be in terms of conversion rates.

So now, here's where we can measure the data that we've gathered. Okay? So if you pitched 100 people and 80% have said yes, we can see that we're well over 40% and our product's probably too cheap, so we want to increase the price. Now, if we gather those 100 bits of data in the first month, month two put price up to £30, measure the data, it comes back 65%. Okay, conversion dropped. We're more profitable for every product we sell, great. Let's raise it to £35 per product to service like month three. Now, that percentage has dropped to 53%, okay? Well, we're still well over 40%, so we've still got bandwidth, wiggle ring to increase our prices. Let's just go for it. Let's put it up to £40.

And then with that, when we hit 40 pounds per product or service sale and it hits 40%, we know we're pretty much bang on the money and that's about the sweet spot. And if we can measure how much money we're making per sale and we're still delivering our how many pieces of capacity, 40 pieces of capacity, what we've done here is if we're selling 40 bits of capacity at £40, we're now at £1600 revenue for no extra expense in terms of the cost base. So I'm sorry I'm using a lot of numbers and jargon here. So your goal is £1000. Now you're at £1600. That extra £600 you've generated through increasing your prices incrementally every month was fall straight to the bottom line of profit.

How Does Increasing Prices Affect Profit?

Now, remember at the start we talked about £1000 punching out £300 worth of profit. Now we're at £1600 punching out 300 plus an extra £600 of net profit. £1600 pushing out £900 of net profit is a really solid business. But what you've done is you've just tested different price points, run the numbers, looked at the conversion rates, tweaked it again, adjusted it, tweaked it, adjusted it, measured the data, tweaked and adjusted, measured the data, tweaked and adjusted. And we end up with a much stronger business, much more profitable business, because remember, this isn't about collecting clients. That is not the goal of business, to collect as many clients as you can. Getting more nos than yeses really, here is the goal, because remember for every 40 yeses, we're getting 60 nos. And that could be people you are turning away. It's much better if you are in control of that process.

So there you go. So go and run the numbers on your products and services that you're currently selling. Look at your financial goals and your capacity and see where you end up. And if you get stuck with this, just reach out to me. You can email me or WhatsApp me. My email is robin@robinwaite.com. I'm always open to having conversations about this

Or you can ask questions to me in my Facebook group, which is called "Confidently Charge More" or facebook.com/group/chargemore. Come and join us in there. And yeah, I won't leave it so long for the next episode of the Fearless Business Podcast. This is Robin Waite, Fearless Coach, signing off.