Introduction: 0:05

Welcome to the Small Business Marketing Huddle. Our show is all about taking action. We equip you with the marketing knowledge and confidence you need to make real progress. So let's huddle up and listen in to the latest episode with your host, Lily Richmond.

Lily Richmond: 0:30

Hey, this is Lily. Thank you for being here today. If you're already subscribed to the show, thank you so much. I really appreciate you and I am really delighted that you're taking some proactive steps to take control of your marketing. And if this is your first time here, don't forget to hit the follow or subscribe button in your favorite podcast player, because today, like in every episode, I'm going to cover a marketing topic I think you've really got to learn if you want to master your marketing. And, as always, make sure you listen until the end, because I'm going to give you the low down and a handy worksheet on how to set pricing so you can win more business and make a profit.

Lily Richmond: 1:14

So let's get straight into the episode, because today is going to be a cracker. It is part four of seven in my series on where to start when you are first starting up in business. And, just to recap, in part one, I gave you some practical steps on how to make your product or service totally irresistible to your target market. Then we delved into uncovering who your target market and ideal customer actually are, and then, in part three, we came up with a single minded statement on how you make your customers life better. Now, today is actually a really special episode for a couple of reasons. Number one we're going to firstly demystify how to set pricing so that you definitely win business, that you definitely make profits. It's critical because business is all about the dollars and cents, and all of your hard work and 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 that today I've got a special guest joining me who's going to give you some pretty darn important insight into pricing and what to watch out for. Alana Swain is a corporate escapee and entrepreneur and she's the co-founder of a company called your Success Team, and it's a business that gives small business owners the business smarts that they need to feel supported, clear and confident and in control again, because business can be overwhelming. Being in business for yourself is amazing, but it is a roller coaster, and your success team has a range of different support plans and coaching services to help you thrive in business. Now I'm going to drop a link to her business in the show notes if you want to find out more. So I was really excited when Alana agreed to step up today and chat about how to set pricing for your small business, because she has seen the pitfalls and she knows absolutely what you need to watch out for. So I'm hoping that this is going to be a really insightful episode for you.

Lily Richmond: 3:24

But firstly, this is how the episode is going to run. I'm going to chat about pricing strategies, looking at it from a marketing and a positioning perspective, and then Alana is going to join me and we'll chat about pricing more from a financial, operational and a mindset standpoint, because they are just as important. That way, you're going to get all of the smarts that you need and you're going to be able to think about your pricing from a number of angles, and that's just one of the key things that I want you to take away from today. Pricing is multifaceted. It has so many different perspectives and angles and things to consider, so I'm going to hopefully share some of that with you today and you can get that insight that you need. So let's get straight into the episode.

Lily Richmond: 4:09

So what is pricing strategy At its simplest level? It is just the method by which you determine what prices you're going to charge, and there are a number of factors that are going to influence how you set them. The five main areas that are going to have an influence over your pricing are number one, what your consumers are willing to pay. Number two, what your competitors charge. Number three, how you want to be positioned in the marketplace. For example, are you going to be a premium brand or will you price match your competitors? Number four, the costs of creating the product or service, running your business and the marketing of your business as well. And then number five is what profit margin you want to make. Now, alana and I are going to talk more about understanding your costs and profit margins and mindset later, so I'm going to tackle the part about consumers, competitors and positioning first. So, first up, you need to understand your customers' expectations and their willingness to pay, and I want to get something out on the table right away.

Lily Richmond: 5:21

Customers don't always want to pay the lowest price possible. Why is it? For example, even within product categories that you might consider as commodities, there are variations in pricing. Take a humble bottle of cow's milk. You might think that everybody wants to pay the lowest price, but that's not necessarily true. Check it out in the supermarket aisle next time you're there and it might surprise you. There are premium brands, there are budget brands, there's generic milk, there's organic milk, there's milk fortified with extra vitamins, there's the A2 protein milk. The list goes on. So consumers are willing to pay a price that they perceive as giving them value for money, and that's a key point that I really want you to take away here. They will pay for the features and benefits that are important to them, and value for money does not necessarily mean it's the cheapest.

Lily Richmond: 6:19

How would something like a Louis Vuitton handbag be value for money, for example? If you ask someone who owns one, they might say it's handmade, it essentially has a serial number, it uses the finest materials, it's iconic and recognisable around the world as a symbol of luxury, it makes me feel better about myself and it infers a level of status in society, so for that person, it definitely has value for money. So when you consider this for your business, think about what is important to your consumer and what your value story is, and this tightly ties into parts one and two of the series, where you need to understand what it is you're offering and who your audience is. And when we think about the last episode, where we talked about how you make your customers life better, that also feeds into pricing as well. So the second area is the competitive landscape.

Lily Richmond: 7:23

To set robust pricing for your new business, it is important that you understand what your competitors are charging, and my tip here is to use this to inform and sense check what you're going to charge, but not define it. You have to make a decision. Are you going to match your competitors, and that's called, in the industry, parity pricing, or are you going to undercut your competitors, and that's called penetration pricing? Or are you going to charge more than your competitors, and that's called premium pricing? And why might you opt for one of these pricing programs over the other? Let's talk about matching first. Here you're going to want to price match if your consumer is sensitive to the price or has a really set expectation of the price, or the market for what you're selling is a really competitive place.

Lily Richmond: 8:16

If you sell identical products and services to another organization, you might have to price match. If you have to price match, then you've really got to focus on managing your costs, because the profits you make will be dictated more by your costs than the price you charge. Remember that the profit margin if you aren't aware of what this term is is the difference between the price and what your costs are. I mean, that's at a really, really simplified level. Now, even if you are selling an identical product, you don't have to match what your competitors charge, right, because maybe your offering is different, maybe you give more value via things like better customer service or free delivery and returns, or your brand and the experience that you give your customers is going to be totally different to what your competitors do. That's why I say let your competition inform your pricing, not determine your pricing. You have to look within and understand those key things that are going to make your business stand out. Be a bit different, offer more value, and that's how you can overcome the situations where you have to look at parity pricing.

Lily Richmond: 9:29

Now, what about penetration pricing, which is where you essentially undercut your competitors 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 do want you to be careful here. If you're considering the strategy, if you're competing against big corporations, comparing yourself to a large big box retailer in your country, whether that's Walmart, kmart, carrefour in Europe, they've got really deep pockets and they can outcompete you on many fronts, and primarily. One of those is scale. They can just produce a whole load more product much more cheaply and sell it in much greater volumes than you can if you're a small business or you're just starting out. So you've really got to think about if you're going to use penetration pricing, which is where you undercut your competitors. You really have to think about is how long you could sustain there for Now. Another way that you can look at penetration pricing is actually to treat it like an introductory offer, so it gives people an opportunity to try your business out and it can encourage them to take the plunge and it creates a bit of urgency. However, I am going to say I don't think that being a loss leader is a good strategy for a small business. Over the long term, we want your pricing to be sustainable and for your business to be successful, so undercutting from day one is not a great place to start.

Lily Richmond: 10:58

Finally, the third pricing program is premium pricing, and this is my favorite. This is where you are going to charge more than the majority of your competitors because you are going to offer some form of value that makes you better and, as a small business, this is where you can play really effectively. Just remember you have to unlock what value your consumers are looking for. So make sure you do your research on that first. What do they value? And if you can offer that, premium pricing is definitely the way to go.

Lily Richmond: 11:31

And this then neatly leads me on to the third factor of pricing, which is positioning. And what's positioning? Well, it's how you influence your consumers' perception of your business, brand or product offering versus your competitors. If you want to be a budget conscious business that offers a no-frills service, then you're going to price yourself at the lower end of your competitive set. But if you want to be seen as a premium offering with high quality products, then you will want to be charging more. And this is something that I do see quite a bit with small businesses. They want to be a premium brand or a premium business, but they're price matching or undercutting their competitors, or their brand experience isn't premium enough. They're using really cheap packaging or their branding just does not appear premium. So there's a mismatch and consumers pick that up. And pricing in particular is a really big signal to the consumer. So make sure that you've got your positioning and your pricing lined up.

Lily Richmond: 12:35

Okay. So we are on to factors four and five, which are understanding your costs and profit margins. And it's at this point that I'm going to bring Elana into the conversation and we're going to have a pretty free flowing but kind of a question and answer session around profit margins, around costs, what to watch out for, and she's going to give some great insights on some mindset pieces and what to consider. Okay, well, I would now like to introduce you to Elana Swain, who is joining me today on the Small Business Marketing Huddle, and Elana is going to share some really great insights and ideas and tips around pricing and some things to look out for, and we're going to talk all about the differences between pricing and profitability, understanding your financial dynamics, charging what you're worth, all of those good things. So, without further ado, I am going 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 me here, lillian. I'm really excited to talk about this stuff because it's one of the things that we don't share enough. You know the money side of business, which then makes all that hard work that you've done with marketing and getting people to know about you. It makes the business busy Totally and actually profitable, which is the difference. I always like to joke between having a subsidized hobby for an 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're talking about the idea of when you're just starting out in business. So you know, getting people set up with those good foundational principles and concepts early on is so key, because if you start really well, then you've got a greater chance of your business succeeding over the long term. So, yeah, absolutely Perfect, perfect. So, before we delve into the topics of understanding your costs and the financial dynamics and how they influence your pricing, I'd really love to hear from you about some of the most common challenges or mistakes that people make when it comes to setting pricing for their products or their services. And feel free to tackle products separately to services, because there are some different dynamics there or together. So yeah, what are your perspectives on that? So I think yeah you're quite right.

Alana Swain: 15:00

I think pricing, products and services are quite different because obviously if you're running a product-based business, your overhead and your business model is just totally different than a service model. Typically, and I think one of the biggest traps that I see people fall into for both, if I start with the general is not pricing for growth, so just as you just said, when you're starting out you're thinking here and now.

Alana Swain: 15:23

but some of the biggest challenges come when you need to do those step changes in business and if you've not got your pricing with enough fat in the tank, you can stimmy your own ability to grow and you get those wobbles because you've sort of priced a business that doesn't have, say, for example, the appetite to pay someone to help you with your marketing. Or let's say, all of a sudden you need to level up and get new premises. If you haven't built some room for growth into your pricing, it can become really hard to then increase your pricing without re-looking at your entire proposition. Who are my customers? Are they still willing to pay if I need to increase my prices by 20% because I need to meet these new costs of delivering with this growth? You know you sort of that's where we see a lot of speed wobbles. So that's one of the universal things that I see. And then I think the other thing is people not necessarily understanding the cost of running their business and pricing with that awareness, if that makes sense. So let's say for example I think this is quite common follow your passion, we hear. Follow your passion.

Alana Swain: 16:31

And so someone really loves photography, say, and they're like, I'm going to be photographer and they're working a job and they say getting paid $30 an hour currently.

Alana Swain: 16:37

So they're like well, I know that I can take I don't know 15 photos and get that to someone in the half hour window and I'm going to charge $75 for that. And look, I've increased, I've more than doubled, my hourly rate. Yay, I've more than money. I'm going to be up in the grand business owner before I know it. And they haven't realized that actually, that doing the work part of their business is just one component of running a business, and they haven't priced for the fact that they may need to be spending five hours a week doing some of the administrative tasks, or a certain number of hours a month attending networking meetings or working on website updates or planning their marketing efforts to get that person in front of their camera to do that work. And so they're going for this really direct transfer of salary or hourly rates to charge rates, without understanding their other stuff. And I think that's a particularly service based example, but it's true for product as well.

Lily Richmond: 17:33

Yeah, yeah, and I think you've just raised such a really valuable point about pricing with the future in mind, regardless of whether it is service or a product, because, yes, when you first start out, your overheads are really low, potentially, if you like, you say you're a solopreneur, you're a one person band, but that moment that you need to scale that business in any shape or form, there are expenses that are going to come out of nowhere that you hadn't planned for and, yes, your cost dynamics and your pricing completely changes. And I think that's really that is such a valuable insight to give people that, yes, you've got to think about what it might look like in two, three years time if you've doubled or tripled it in size, and what would the operation look like and the costs that are associated with that. So, are there any on top of those points? Is there anything that business owners 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.

Alana Swain: 18:36

Everyone's got an opinion about pricing and we sent out a sort of a bit of an email tip last year talking about, example, of a white shirt, because everyone's got an opinion about pricing, right.

Alana Swain: 18:48

So we use the example of white shirt. So whether or not you buy a $5 shirt from some mainstream household brandish retailer or you're off to buy a $500 completely tailored, heavily labelled item, someone's going to have an opinion about where your shop is on the end of the spectrum, right there, or fancy pants or a cheapskate, right? So you have to acknowledge that your price is not going to be for everybody. That you know, regardless of where you choose to place yourself on that spectrum. So we can't all. We sort of have a joke if you can't compete with the likes of, like, a Walmart business model or a Kmart business model because you're just not delivering at million scale items. So try the heaven's sake to stay out of that chase to the bottom the mindset that sits behind that, to have faith that you've done your homework, you've thought through your pricing process, you know your business goals and we do want to set to know that your pricing is right for you.

Lily Richmond: 19:53

Yeah, and I think that is so valuable when I think back to earlier part of today's episode where I talk about positioning. So, like you said, with that white shirt example, you could be at the cheaper end of the market or you could be at the premium end of the market and for you and your business, you have to work out what's your sweet spot, isn't it? It's that Goldilocks formula between your cost base, what profit margin you want to make, which will come on to, and also where you want to be positioned in the marketplace. So you've raised some really interesting concepts there as well around value. So it's you can charge whatever you want for whatever you offer. It's just whether you have got a market that is willing to pay that price because they see the value in what it is that you're offering.

Lily Richmond: 20:46

So, yeah, and I think that's where that's where small business owners get a little bit caught up as well. So that's where it's all about. Well, I have to charge what my competitors are charging, because no one's going to pay anything else. Well, with your white shirt example, look at the spectrum of prices out there in your own marketplace. The variation is huge and there is enough room in many, many markets for people to be able to compete Absolutely.

Alana Swain: 21:08

Yeah, and it does become really hard, and this is why I think one of the hardest adjustments to being a business owner is to understand. It's not linear, that there's one decision to make. You have to go oh so how does that sit against this? And then come back. So you might have thought you know where you wanted to position yourself. Then you do your numbers and go oh crumbs, I can't make profit on that. So then you have to come back and reevaluate, or what does that mean for where I thought that customer, that client, that group of people I've been talking to, did they still sit there at that price?

Lily Richmond: 21:42

point. Totally, totally agree. Oh no, that's super, super valuable and I think it would be really great if you could talk about that relationship that exists between your pricing and profitability. Can you talk a little bit more about 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 about your top end number, so like six bigger, this and 10 came out there and seven figures. But none of that matters if you don't have a profitable bottom line, and so pricing is above the line thing that everyone can see. If you sort of use an iceberg example, your pricing is the bit that everyone can see at the top. How you run your business is all of the bottom things, and then at the bottom of that is, and so therefore, have you got profit once you account for all of those things? And so typically I would say you need to have an understanding of whether it's product or service.

Alana Swain: 22:43

How much does it cost you to just deliver that widget? So, for example, you're going to start selling whiteboards. How much does it cost you to buy the whiteboard? How much does it cost you to package the whiteboard? How much does it cost you to dispatch that? Right, that's your above the line cost that you can see. And so that is directly linked to how many of those things you're going to sell on a month, right, so that's your gross profitability. That amount can shift depending on how many you're selling. Then you've got your open.

Alana Swain: 23:13

The business costs and I think sometimes people forget about those costs and those are the ones that can trip you up as you go and grow, because it costs you more to open your business the bigger you are, and so that's why when you're starting out, just you and your computer and your app home and you know, and then a little overhead creeps in because you need a subscription for that, oh, and then you might need that, and all of a sudden you need liability insurance here and you need this, and then, oh, now I'm going to choose to spend some money on, say, google or all of those things stack up. Those are your overhead. They typically don't change as much depending on how many units. That's just how much it costs you to open your business, and I think it's there that can get really murky and people don't necessarily like to share that. They just wait for their financials at the end of the year from the accountant to go did 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 really that familiar with the concept of the overheads, can you run through a little bit of a list of what would those big ticket items be that people need to make sure that they are definitely budgeting for, and those overheads with their startup?

Alana Swain: 24:23

costs. Yeah, so I think it's quite easy to capture. What does it cost me to provide my product or service? Right, but then below that I'd say so you've gone to at some point want me accountant To help you. Probably you may have insurance needs, whether that's liability or premises. You may want to have a premises in the future.

Alana Swain: 24:46

You have costs in terms of your ongoing subscriptions to the things like Zoom, and everything's priced at enough of an amount that you probably don't. Oh, that's right, that's $30. I don't need to worry about it. All of a sudden you've got 10 of them. That's $300 a month. That could significantly impact you when you're starting out in terms of profitability. And then I think, as you perhaps tip toe out of startup and into that, I want to run more stuff through the business mode. That's where overheads set your home office expenses, your vehicle expenses, those sorts of things, and so on the one hand, you may have an inclination to want to put as much through the business as possible, because that's old school business advice Run it all through the business. You might just say, hey, it'll be great for you, tax deductible and all of that. But same thing, that impacts on your profitability.

Lily Richmond: 25:43

Yeah, and ultimately if you're running as a consultant or that type of a service-based business, then from a profitability standpoint you can only pay yourself out of your profits. Really, If you're going to take it in New Zealand anyway, if you're going to take a sharehold salary as opposed to paying yourself wages, so that profit number then becomes really important.

Alana Swain: 26:04

if you're going to be a one-man-man consultant, for example, absolutely, and I think and this is where pricing is really important to think what'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 as much profit as possible for the lifespan of your desire to run that business. If you have a different business model, for example, a product business or a business where you have a team, you may want to sell that business. Therefore, it's important to be profitable. So someone wants to buy your business, yeah, and so that's why profitability is so important, regardless of whether that's product or service. It's really important to understand what is this business a vehicle for?

Lily Richmond: 26:52

and profit is important and, from a financial perspective, what would you say a business owner needs to consider when actually coming up with their price? What are the things that they need to consider and keeping the back of their mind or watch out for what are the key dynamics?

Alana Swain: 27:06

So I think we've still spoken about that room to grow.

Alana Swain: 27:09

I think you need to have an understanding of your supply chain costs, like, are you in a part of the market?

Alana Swain: 27:15

You saw a lot of people get really hurt, particularly in the New Zealand market, if they were at the mercy of a supply chain when the Sways Canal sort of crisis hit which came off the back of lockdown.

Alana Swain: 27:27

So we sort of got this perfect storm for some people in that they had these incredible like quadruple shipping cost changes but they couldn't quadruple their charge to the end consumer because the market demand just wasn't there. If you didn't have room and you're large in for that, you've not got profit, and we saw a lot of businesses sort of going to negative profitability. So that's why I think one of the things businesses in linear, but I do think it's really important when you're sense testing, before you go live, do a little bit of a SWAT analysis, which is what are those threats out there in the marketplace that you do need to be aware for and just put some of that thinking into your pricing. And you know that is where quite often it's really helpful to work with someone with your pricing, and obviously I'm totally biased there because I've got a business that helps people do that. But sometimes you can't see what you can't see because you're so invested in your idea becoming a business that you don't want to validate that and have someone shoot you down yeah.

Lily Richmond: 28:30

Yeah, yeah. And sometimes it's also that perspective of when you run the numbers, of thinking, well, how am I ever going to make any money doing this and actually is my idea viable? And you know, that's pretty disheartening for somebody when they follow the enthusiasm they've got these great ideas and then they think how am I going to make a living out of this? But it's so important to get that sorted right from the outset. Like you say, and working with someone like you or another consultant that does that type of work, the reality is that having that person to sense check with you might need to give you a reality check or say it might come out that, okay, the way that you're planning to do it isn't going to work. It might work a different way. You might have to change the business model or the product or the way you're going to run the business slightly so that you can Turn it into a going concern. So, and that's that insight that I think, like you say, people don't. People don't have a sense of that.

Alana Swain: 29:29

Do that yeah because, I mean, none of us know what we don't know, and that's the part, part of the part, and that's why it is like I think it's. I do think it's particularly New Zealand trait to not want to ask for help and that is damaging to our success as a nation of small business owners. If we ask for help sooner, we may not have these growing pains or growth wobbles and we might find more success. Because if someone was able to just point out a couple of things, you don't know it yet because how it is for you meant to know it, you can't know until you've been through it. That's not you being stupid, that's just you not having had the bruises yeah, someone else's bruises. 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 for help. We don't want to. You know, maybe there's a bit of pride there as well. We don't want to admit that. Maybe we don't know what we're doing. There's so many shortcuts that you could take by actually saying, well, yeah, I can, if I could Invest, not think about paying, but if I could invest in some proper advice, then it would save me thousands and thousands of dollars and hours of and heartache as well. Can you talk a little bit about profit margin in relation to your pricing and your? You know your cost of delivery of that product or service and why it's important for small business owners to actually Understand what profit margin actually is and how you set what your, you know your margin or your markup is going to be and all of those sorts of things. Can you give us some insight into 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 our Consultants starting out. If I sort of was to use that, you want your gross profit. So that is your gross profit. Actually, if you're a consultant could be as high as 80 to 90%, because your costs of delivering are really low, versus if you say, for example, the whiteboard example. If you're selling whiteboards, there's lots more.

Alana Swain: 31:51

Yeah, but I think, regardless of your business, you want to be sitting with your gross profitability at 40%, because that is going to give you that room for growth, right as you so 60% or above, and then, as you're sort of running your overheads, your net profit. So that's when you take out all the other costs of opening the door, what's your net profit? You want that to sit between 20 to 60%, depending on your business. Now, some businesses that is really hard. Hospitality has to run so much tighter than that. But if you're trying to start a product-based business, if you want room to grow, you need that bigger buffer Because you yes the likes of, like a Walmart or Kmart or one of those big box retailers. They can run on a tiny, tiny profit margin, but that is because they are pumping such volume through that it doesn't matter if they're running at 4% net profit. No one's going to buy a business for 4% net profit.

Lily Richmond: 32:49

Yeah, and their game is a numbers game, and that's where it's really dangerous to compare yourself, isn't it? So it's the thing you immediately want to do and I talked about hey, you need to go out 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 with Walmart? Are you truly? Because you're not in that same space. So someone who's maybe Going online looking for something that's slightly different it's not that mass produced product than they're not a, then Walmart's not a direct competitor for that anyway, and so 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 business it's the. I think Comparison is the thief of confidence in business.

Lily Richmond: 33:36

Yeah, yeah. What are some of the implications if you, if either you don't see your margin properly Well, not properly, but at the right level for you or you don't capture some of those expenses and costs of doing business, what are the real ramifications if you don't, if you 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 long game. You just can't. You'll just for a variety of reasons, but you'll pretty quickly hit negative profitability. But if you come back to that consults example, you find that you have to work all the hours under the sun to come anywhere close to. If I use a corporate escape example, because you and I both coming off corporate escapee bandwagon there was at least a parameter there for a salaried life Expectations to match that. If you haven't priced it right, you will quickly find that you just bought yourself a job when actually you do need to work 60 hours a week in order to be able to bank the same amount you were banking as a salaried employee and that's kind of probably what drove you to start your business. So you need to price it right now and for all the time and all the other things you're gonna need, so that what hits you because what hits your bank account 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 Ultimately themselves or time there can be a real psychological aspect to pricing there and some, I guess, some issues around self-worth and doubt and things like that. So could you maybe this is going a little bit off topic for talking about pricing generally, but I think it's quite an important one if there are people out there listening who are thinking about starting a service-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's also part of it. So I I kind of go charge the impact but also charges a business owner and just be commercially astute with that, because if you can stop apologizing to the mean Person in your brain picking holes and it, 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 of ideas that I'd love to to pick your brains on now before we wrap up. But what's your number? One piece of advice on how to set 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, divorce your emotions From the price and think commercially, and that will help set you up for success so much as you said before, yeah, we do all struggle with it, and I think because when you start a small business or any kind of business, really it's usually come out of some kind of idea or passion, something that you're really invested in personally, and so it can be really hard to divorce that and yourself from the commercial aspect of running a business, and that, yeah, you actually have to be a little bit hard-nosed and say, well, I'm in business, yes, this is this might be my passion, this might be something that I just love to pieces and I'm totally invested in, but ultimately it's a business. Ok, alana, and I guess my final question for you is as for a business owner who is struggling to set their prices high enough, what advice would you give them?

Alana Swain: 37:16

I think, the biggest thing. For me. It comes back to you have to. It sounds like really like woken buzzwordy but you have to be really committed to your vision, your passion, your why, whichever word sort of lights you up, go with that word and then try and keep that light in front of you. If you have to have it written on the screen in front of you, but just keep bringing it back to why are you doing this business thing in the first place? Because it has challenges. And so if you keep bringing it back to your why, then hopefully that will help you get over your nursing yourself, your doubt, your worries, all of those sorts of things. And to hopefully also, if the reason that you're struggling with your pricing being high enough is that you're scared to look at your numbers, then hopefully that commitment to your why would drive you through that.

Lily Richmond: 38:11

Yeah, oh no, that's a perfect piece of advice. Yeah, no, that's really really great, thank you. Thank you so much, alana. We're going to have to leave it there. I could talk pricing and business profitability with you all day and, yeah, such a great topic that you're clearly passionate about, and even for me, as a marketer, you've got to know your numbers and you've got to make sure that you can be in business to make a profit. So it's not all advertising and fancy social media. So, yes, this has been a really meaty topic and I really do appreciate you joining me today and giving me your time and sharing your wisdom and your insights with the audience. So, thank you so much and hopefully we'll be able to get you back on the podcast another time to talk about a different topic.

Alana Swain: 38:59

So yeah, yeah, I'd be delighted. It's truly been a pleasure and I just think if it could, if it helps one or several or many people, then that is absolutely time I'll spend in the work that you're doing here with the podcast. It's incredible. Hopefully people can take something from here, go away and do something with it, and it makes an impact for many businesses Wonderful.

Lily Richmond: 39:21

Okay, thanks, alana, you're welcome. Take care. Well, I hope you found that interview with Alana helpful in understanding your costs and profit margins when it comes to setting prices. So let's recap what we've covered. There are five different perspectives to consider when you set your pricing. There's the customer competition positioning, your costs and your profit margins, and after the break, I'm going to take you through each of those five perspectives and share some actions that you can take to make sure that you've incorporated these into your pricing strategy.

Lily Richmond: 40:07

Alrighty, let's get into the nitty gritty of things that you can do to set yourself up for success with your pricing. So I've, as usual, created a short guide that can help you get some of your ideas down on paper, really when it comes to pricing and the considerations that you need to make. So I've included a link in the show notes or you can grab it at https://marketingondemand. co/startup4 , and I just find these workbooks tend to be helpful for you to get your ideas down on paper, and I appreciate that when you're listening to the podcast, you might be doing something where you can't really take the time to think things through, and so that's why I recommend download the little guide and you can work through and refollow the episode as well. Ok, so remember there's the five different perspectives when thinking about your pricing strategy. Let's tackle number one, the customer. And actually that you can take here is to do some desk research, and I want you to note down what the range of prices are for the product or service that you offer. What's out there in terms of pricing? What do you think consumers are willing to pay? The second piece that you can consider here is actually listing out the value that you offer your customer that could help you command a higher price, a premium price. What's that extra value add that you are going to bring to the table that is going to encourage that customer to be willing to pay a higher price for it? Remember, consumers will pay when they get value for money. Everything has a value equation and you've just got to work out what that is for your individual product or service.

Lily Richmond: 41:58

The second area to consider is your competition, and again I want you to go away and do a little bit of desk research here. Who are your main competitors and what is it that they're charging? Now, if you have been following along in this series, in episode one there was a workbook that came along with that, and actually you will have included three competitors there. So that's a really great place to start. Go back, check out those competitors and look at what their prices are. And the second part of looking at your competitors is not just their prices. I want you to look at what value they offer as well. Right, so this could be things like free returns, after sales care, maybe it's a free website audit if they're a web designer. These are all the sorts of things that businesses do to offer value for money. Do they offer any promotional pricing? Note that down as well. They might offer some introductory offers, but their underlying price might be higher. And remember my word of advice from earlier in the episode Use your competitors pricing as a guide, not as the justification for exactly what you should charge. You've got to believe in what it is that you are selling and the value that it brings.

Lily Richmond: 43:20

Number three positioning. So, based on the three pricing programs that we talked about earlier, are you going to parity or match price? Are you going to go for penetration pricing that's where you undercut your competitors in the marketplace or are you going to premium price? That's where you price above the bulk of your competition? What makes sense, where do you want to be positioned in the market? Do you want to be the budget option? Do you want to be the premium option, or do you kind of want to be middle of the road? It's really important for you to think about that, because that's actually going to link into the next episode where we talk about branding.

Lily Richmond: 44:02

Number four understanding your cost base. Now I've got to make a big caveat here. I'm making an assumption that you've already completed a basic business plan with financial projections to work out the revenue and the cost dynamics for your new business. The goal here in this episode, by understanding your costs, is not to do a full financial analysis this isn't an accounting podcast but it is a good idea to sense, check and make sure that you haven't missed anything in your cost base. So here are some actions that you can take around that.

Lily Richmond: 44:42

So, following on from the interview with Alana, she talked a lot about making sure that you account for all of the costs of making your product or service and your overheads. So this is what I'd like you to do Get out that pen and paper and list out all the costs associated with making your product or service, and then I want you to list out all of your overheads. Now, like I said, you might have already done a lot of this analysis, so maybe pull that out, pull out your business plan and your financial projections and have another hard look at those overheads. And remember that overheads are your costs of opening your business up every day. They're things like rent for premises, insurance, marketing costs, employee costs. You might have training and development costs. You might have licensing costs. You might have to belong to a professional association, for example. You might have freight costs. These are all of the overheads that form part of your day to day running of your business. And there was a really powerful thing that Alana talked about, which I really do recommend you do so. This is the third action for you under understanding your cost base, think about where you want to be in two years' time. Do you need to start accounting for now those higher or new costs that you will have in two years time, when your business has grown significantly, but you don't have them today? You need to be able to factor those things in from day one so that you're not having to have an awkward conversation about putting prices up and we're on the home straight now.

Lily Richmond: 46:30

Number five. Let's talk profit margins. Now. Make sure that when you set your price, that you've taken into account your costs to run your business and what level of profit you want to make. This has got to be factored into setting your price. So the question is what is the target profit margin that you want to make per sale? Write that down. And, as a final side note, if you've got a price at a similar level to your competition, then you're going to need to play around with the percentage profit margin and your costs to make those dynamics work. These are the only two things that you're really going to be able to influence if you have to price match in your industry.

Lily Richmond: 47:18

I always think the simplest way to think about profit is that if you minus all of your expenses from the price of your product or service, what is left over is your profit. So there's three things that ultimately, you can play around with influence to get that mix right. You can play around with your price. You can influence your costs to produce your product or your service. So how do you keep those costs down? How do you manage your overheads? So how do you keep those costs of running your business down and your profit margin. Those are essentially the things that you can change and that you can pull the levers of to make sure that you get that right mix to get the profit that you want to achieve.

Lily Richmond: 48:04

Now, if the thought of costs, margins, profits, overheads is making your palms sweat and your head spin and you're pretty overwhelmed, then I strongly recommend that you do seek some professional advice to help you work through your financials so you can set great pricing for your business. It will be money really well spent in the long run. Now, finally, elana has a great pricing calculator tool in Excel that you can access if you join up to her business club. I will share the link to that in the show notes too. It is another great resource to help you set your pricing so you can have a sustainable business that will last over the long run. But, of course, it's not the only pricing calculator tool out there. There are loads of them across the internet and there's plenty of free options out there.

Lily Richmond: 48:58

Wow. Well, that is the end of, I must 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 enjoyed the huddle today and I really hope you got some great value out of it and enjoyed it. Now don't forget to hit subscribe, because next time, in part five on the series of where to start with your marketing when you're just starting out in business, we're going to cover branding and a really simple yet super effective exercise that is going to help you come up with your brand essence so that you can create a consistent and engaging brand experience for your customers.

Lily Richmond: 49:42

And, as a quick reminder, visit the episode description to get access to today's show notes and workbook and any other links that I've talked about. When you can download the workbook directly on my website, you can grab it at https://marketingondemand. co/ start up4 . Thank you so much for listening and I will catch you at the next episode of the small business marketing huddle. Now for the legal jargon. This podcast is for information and education purposes only. We make no business performance claims or guarantees in the information shared. The podcast content is general in nature and does not constitute advice for your unique business situation.