Fixing the Pricing Problem

Speaker A00:00:44

I want to share some interesting statistics with you today. I found these when I was doing some research for today's show. And when I read these, I was really amazed by these. And I think you will be, too.Listen to this one. Only 46% of small firms with employees actually earned a profit in 2023. Over 1/3 of small businesses say they operate at a loss in 2023.That's from Inc.com Listen to this one. In 2024, more small businesses reported revenue declines, 41% reported revenue declines, with only 38% reporting revenue gains.And here's the most shocking one of them all. Revenue is now the top concern. 35% of small businesses are saying revenue is a major worry for them.And listen to this final statistic before I jump in today's show. Micro businesses, those are Those businesses with one to four employees are particularly stressed.44% of them, almost half, say revenue is a major concern. And I've been doing this for over 30 years and I'm going to tell you right now, it is probably the most common dilemma for small business owners.Now you're thinking, Ralph, what are you talking about today? I'm talking about pricing, and I see this all the time. And actually, the reason I'm doing today's show is I got this listener question.This is what the listener said, Ralph, I know my products are good, but every time I raise my prices, I lose customers. How do I know if I'm charging too much or too little? When I got that question, I said, wow, that is a really tough question.And at first I thought, well, let me send off a quick answer to this question. But it's such a critical question.It's a question that I thought was so important that I needed to talk about it on today's show because we're really talking about balance in two things. And this question alluded to, and you might be listening right now, you're thinking, ralph, I feel exactly the same way as this person.You have that fear of losing your business.You put your blood, sweat, tears into building this business year after year, and you're thinking, well, if I raise my prices, am I going to lose my business? But of course, that's battling with the other side of this. And the other side of this is you have a desire to get paid your worth.I don't know how many small business people I've worked with over the years who have said, Ralph, and I'm going to talk about this later in the show today, but they've said to me Ralph, I feel like I'm busy, but I'm just constantly broke. I'm working, too. I can't work anymore, but I'm not getting anywhere. And here's the simple truth I want to start today's show with.Pricing isn't just numbers on a tag. So many people think that pricing is. Well, that's what I'm going to put on this service. That's what I'm going to put on that product.But the truth is it's one of the most stressful decisions that you will ever make. Trust me, I've been through this with so many business clients. I've been through it myself.I'll tell you a little bit about that here in a few minutes. But the problem is this. If you get it wrong, either leave money on the table or like the listener, ask. You scare customers away.Well, don't fear, because I've got answers for you. I'm going to help you find the right balance and actually build confidence on today's show. Running a business isn't easy.It's long hours, tough calls and relentless pressure. No shortcuts, no handouts. Just grit, grind and the will to keep going when most would quit.Welcome to Grit and Growth Business, the show for entrepreneurs who success is built the hard way.Hosted by Ralph Estep Jr. A seasoned business coach, accountant and fellow fighter in the trenches, each episode brings you real talk, proven strategies, and the unfiltered truth about what it really takes to build something that lasts. Because if you've got persistence, perseverance and determination, this is the place for you. This is Grit and Growth Business. Hello there.Welcome to Grit and Growth Business. I'm Ralph Estep Jr. I've been doing this type of work for 30 years.I've been counseling and coaching people just like you, always small business folks on how to make their businesses more profitable and how to really grow when it's tough out there to grow. And I've seen firsthand how profit leaks just, just absolutely destroy businesses. As I talked about a few minutes ago.I've seen how these pricing mistakes, these are tough balance and things. I've seen how these price mistakes have really made businesses struggle. And I've learned it firsthand running my own business.And listen, I'm going to tell you right now, 100% transparency here. I've made some of the mistakes that we're going to talk about on today's show.And the truth is these are the kind of decisions that will make or break your business.And I don't know how many times that I've worked with individual businesses and I've coached people that we discovered when we got into the details of things, they weren't charging enough for their services. I'm going to talk to you how to get onto my coaching calendar.I'd love to have you as a member of my coaching team, but I'll talk to you a little bit of that later in the show. I want to start by telling you a story. I'll never forget this story. I just started my practice not too long after I got started, and I.And I had this guy come in for a consultation. Now, this guy was a window cleaner, and he did beautiful work. I actually had him clean my office windows. That's how I met the guy.He came out to clean my windows and he started saying, ralph, he says, do you help people with small business? I absolutely. That's what I've been doing. I've been doing it for a long time. He says, man, I would really like to sit down and talk to you.I said, absolutely, let's sit down and talk. So I guess a week or two went by, came in for a consultation. We sat down, and this guy was tired, I could tell.And it's interesting, when I called him, it took me several weeks to get onto his calendar and his wrong waiting list. And I said to him, I said, let me ask you about your business. I said, do you feel like your pricing is correct?And the reason I asked him this question, to be very candid with you, is when he did the service, he did a great job, but I thought his prices were really low. Actually, when he came to me with the prices at, wow, you're really going to do it for that as a dad's a fantastic price.So he sat down, I said, tell me about your business. He said, ralph, he says, I am so busy, I don't have anything available for the next four weeks.And I said, I can understand why you do a fantastic job. And he sat in the chair and you could see he was glowing from ear to ear. He was just so excited that I had made this connection with him.And he says, man, I work hard at what I do. It's very important to me, Ralph, that I give a good service. And I said, but here's the problem. I don't think you're charged enough for your service.And I tell you what, he looks across the desk, he says, ralph, what are you talking about? He says, if I raise my prices, I'm probably going to lose a lot of business. And I said, yeah, but here's the issue.You've got a four week waiting list. People want your services, people want to do business with you, but you can't get to them. And he goes, well, that's a really good point, Ralph.I said, here's, I want you to try something. I want you to double your prices. He says, wait a second, Ralph, you're telling me you want me to double my prices?I said, yes, I want you to double your prices. He said, ralph, if I double my prices, I'm going to lose all my business. Are you crazy? I thought you knew what you were talking about.I said, listen, bear with me here a little bit.Double your prices not for your existing customers, but as you've got new people calling in and you're going to do estimates for them instead of quoting them what you would normally quote them. And I don't remember exactly what he was charging for a window. Let's just say $20 to clean each window inside and out. Did a fantastic job.Like I said, great job. Instead, tell me to be $40. And he says, Ralph, wait a second. He said, if I go in there with that, they're never going to take it.I said, do me a favor, just try it. And I could tell he was kind of, yeah, I don't know if I really want to do that, Ralph.I put my blood, sweat and so many squirts of that spray on the, on the windows in that squeegee. So I've been doing this for a long time, Ralph. So he thought about it and I said, okay, well, let's see if this guy calls me back.I guess a month or two go by, hadn't really heard from him. And he scheduled a call, came in, did a follow up meeting, sat down in front of me, he says, ralph, he says, you're never going to believe this.He said, I took your advice. I said, okay, tell me about what you did. He says, here's what I did. I was a little scared to double my prices.He said, so what I did was the next day I was going out to do an estimate and I raised my prices by about 25%. And I said, great, what happened? He goes, I didn't get that job. I said, okay, well tell me about that.He says, yeah, at first draft he says, I thought you have lost your mind. I said, there is no way I'm going to do this. He said, but I really believed in what you said. He said, so the next morning I had another quote.I went out there, met with the person. And again, I threw him that price, 25%. He said, Ralph, they signed a contract right away. He said, in fact, they signed up for a monthly service.He said, so now they're recurring revenue. I said, that's fantastic. I said, but why didn't you go up to that double the price? He goes, ralph, I was scared to.He says, but let me tell you what he says. A week later, I did exactly what you said. And he said, I doubled my price. He says, ralph, I don't get every job now.He says, but the ones I get, I'm making twice what I was making before.And see, that's why pricing is so important, because in so many ways, and we'll talk about this a little bit later in the show, we get into the meat and potatoes, if you will. So what this show is all about the meat and potatoes of how to make your business grow.If you're listening right now, I'm going to give you some action steps later in the show. But in so many ways, pricing is a perception.I got to be honest with you, when I went to do business with this guy and he told me his price for the windows, remember, mentioned it to my wife. I said, I'm a little skeptical about this. Is this guy really going to clean these windows for what he said?Because I had gotten another quote and the other guy's quote was like four times what this guy was charging. And that's the problem. There is a perception to this because customers will perceive whether there's value in this.I'm gonna tell you about another story. I had this client, he was a carpenter. Now this guy, he built some beautiful stuff. I mean, this guy could make a hammer and nails dance.That's the best way I can explain it. But this guy, you talk about the window guy being busy. This dude was like six months out on business. He was always busy.When he came in to meet with me every year to get his taxes done, he said, ralph, I am so busy. He says, but I am broke. He had credit card debt, he had a second mortgage to help build his business. He had bought some awesome tools, a new truck.He bought this trailer. Let me tell you about this trailer. He would go out to job sites. He had this trailer. It was the most meticulous thing.Every single tool you could ever imagine that he would need in his carpentry work. But it had put him behind, money wise. And he would share with me every. Ralph, this is really hurting my family.My wife and I are struggling because of this he said, I feel like I'm always scrimping and saving. And I said to him his name was Paul. As a matter of fact, I said, paul, let me tell you something, are you charging enough for your services?He said, wait a minute, Robbie says I got to charge what I charge. I mean, you know, I think he felt like I was telling he was charging too much. And I said, no, no, Paul, I said, let's back up a step.I think the issue actually is you're not charging enough. And the truth is Paul was not charging enough. He had a six month waiting list because people saw the value he did.He was an artist, he was an artisan in what he did. And honestly, Paul wasn't getting the value he deserved. And he took my advice and his waiting list dropped substantially. Let me tell you right now.I just met with Paul. It's been about a couple months ago now. Paul is doing well financially. His business is growing.Actually, he still has, believe it or not, about a six month waiting list. But he is making three, four, five times what he was charging back then. And it's all in that pricing. So that's what I'm saying.Pricing is so very important. I love this quote from Warren Buffett.Now if you don't know Warren Buffett is the business person, fantastic business guy has built substantial businesses and this is what he said. He said, price is what you pay, value is what you get.And I really think we need to focus on that right now because price is what you're going to pay. Yes, that's true. But as a small business owner, and I hope you're listening to me right now, as a small business owner, ask yourself this question.What is the value that your customers are getting? Now I'm getting ready to get into the actual meat and potatoes of today's show.But before I get there, I want to tell you, with every single grit and growth business show, I prepare an action sheet. That action sheet gives you the things that you need to use to put these things into action. That's why I call it an action sheet.Pretty simple, right? And I want to give you a copy of that action sheet with every single show I do. If you want to sign up for our action sheet, it's super simple.All you've got to do is go to gritandgrowthbusiness.com action. I'm going to give you that website again because it's really important that you get this action sheet. I do them for every Single Show.It's gritandgrowthbusiness.com action and download that action sheet. This will give you the tools you need to put this into place. So at a top level, here's what I'm going to cover today.I'm going to give you a quick 1, 2, 3, and then we'll actually get into the details. So today as it comes to pricing, I want to talk about, first thing, how price sends a message.I want to talk about cheap pricing and that race for the bottom. The second thing I want to talk about today are how do we get to a price? I'm going to tell you right now, cost are a baseline, but value is the key.So that's the second thing we're going to talk about today.The third thing we're going to talk about, and this one is super important, I'm going to tell you how to find that ideal client, which here's a little alert, a little spoiler alert. It's not always the bargain hunter that you think it might be. So that's number three. Number four, we're going to talk about underpricing.Because so many small business owners that I've worked with, freezer you might be sitting there right now, you're like, ralph, I feel like this is me. Underpricing is leading to hidden stress and burn. I'm going to tell you how to solve that.And last but not least, and this is the real key big takeaway from today, I'm going to actually help you build confidence in your pricing model, because that's really what it's all about. All right, you ready? Let's get into the details. Let's talk first about how price sends a message.And I'll tell you what, when I first started my practice, I really didn't buy into this whole approach. I had read a book about how pricing was so important. But here is the honest to goodness truth. If you set your prices too low.And so many small business owners I've worked with have done this, they want to get that job, they want to get that client. But customers perceive that if you set your price too low, your product's no good.Like I said when I shared that story of that window cleaner, my wife was actually in charge of that project. She said, ralph, these windows in this office look terrible. I said, you're absolutely right. Let's get them clean.She went out and looked for some window cleaners. And I'll never forget, and I'm like a frugal kind of guy, kind of a cheap guy. My wife said, oh, you're pretty cheap about stuff. Fair Enough.You might be right there. Now you're like, ralph, I'm right there with you. I am cheap also. But I remember the first person came out.I remember the guys, let's say Bruce doesn't really matter. Bruce come out and gave me a price. And my wife came back to me, she goes, all right, I'm gonna go ahead and sign up with Bruce.I said, hold on a second. That number is really high. I don't remember at the time. Maybe we had 12 windows. We had an end unit. I love light.That's one thing about me, I love light. In my office we had this end unit and there was windows all around it.So I was expecting was going to cost, I don't know, at the time, maybe I thought a couple hundred dollars. But this guy gave me a price. Like, this is crazy. My wife's name's Jennifer. I said, jennifer, hold on a second. Let's see if we can get another quote.We called this other fella, the other fella came out and his price, I'm telling you, it was a third of what the other guy said. My wife looks across me, she goes, ralph, do you really think this guy knows what he's doing? Do you think he, he's going to do a good job?And I said, you know what, that's a good point. And at the time I thought, you know what, it is so true.And if you're pricing your services right now that you're the lowest in the market, it could very well be that your customers don't perceive that you're actually giving them value. And it's kind of counterintuitive.But I've counseled and I've coached so many small business people, the first thing I've told them to do is raise their prices. And you know, I get a pushback sometimes. But when they've done that, when they've taken that step, I'll say step of faith, they get more business.And I know it sounds counterintuitive, but it works. Let me tell you about a coaching client I just finished up doing a 12 week coaching plan with. This is a person that does online coaching for couples.And when I started meeting with them, the first thing I do when I get to know somebody's business, I understand their business, understand what they're doing. Well, this particular person was offering these free discovery calls.You could come make this discovery call with this person and she would actually give you a half an hour of her time absolutely free. And I said to her, I said, okay, what's Your schedule. Like, she said, ralph, I haven't got a single person to book one of those calls.And I thought to myself, that's really interesting. Here you're offering a free service and nobody's taking it.And we had gone through this couple meetings, and I finally said to her one day, I said, I'll call her Sally for a second. I don't want to use her name. And I said to Sally, I said, I got an idea for you. You know, she was getting kind of burned out.She I've been doing this, Ralph. I've been in this grind, and I just don't seem like I'm getting anywhere. I said, sally, I got an idea.Why don't you think about actually charging something for that quote, free discovery call? And she says, ralph, do you think people will pay for it? I said, listen, you're not getting anybody to do it for free. Give it a try.She said, okay, I'm gamer. Let me try this. So we arrived at a price. We said, oh, we're going to do this. We're going to charge $27 for a discovery call.Help me discover how to fix your particular situation. Take a leap of faith. She says, I'm going to try this. We met a week later. I said to Sally, I said, how's it going?She goes, ralph, you're never going to believe this. I said, well, tell me, Sal. I'm excited, and I really am. When I see clients growing their business, I am just absolutely, super excited.So tell me what's going on. So she goes, ralph, I booked two discovery calls this week. I said, that's fantastic. And it was all because she was giving away something.And when she changed the dynamic and when she started charging and she wasn't charging a lot of money for it. So listen, be totally candid with you. $27 for her. Half an hour of time is chump change. It's nothing. But in my mind, it's all about that perception.So we got to start there. Your price sends a message. And I don't know how many clients don't see this. So ask yourself right now as you're listening.So you're watching this, maybe. What does your price say about your business? Now, let's talk about the next step to this. I mentioned this a few minutes ago as we talked.We talked about these bullet points. Costs are only a baseline. So many small business clients get trapped here. They ask this simple question. What does this service cost me?What does this product cost me? And I'm going to tell you Right now, that is the wrong question to ask. It just is the wrong question. Yes, that is a part of it.Obviously, you want to make sure you're covering your cost. I have met clients that were not charging even what that service was costing. But that's a show for another day.But you got to start with, what does it cost me? That's part of it. But that's not the full answer, because what that leaves out, I'm going to talk about my own particular situation here in a second.But if you only look at what does it cost you, you're leaving out your expertise. Most small business people have a ton of expertise. They know what they're doing.In a lot of cases, if you're a service contractor, for example, you may have been doing this service for somebody else for years. And you say, you know what, Ralph? I going to venture out on my own. Maybe you're listening right now. You're like, ralph, that's me.That's exactly what I did. I was a plumber. I worked for this plumbing company for years, Ralph. And then I said, I'm going to step out on my own. Well, guess what?You're bringing to the table. In every customer service interaction, you're bringing expertise to the table. There's value in that. You got to factor that into your pricing.Another thing you got to factor into your pricing is time. It takes time to offer products, it takes time to offer services. You got to factor that into your pricing as well.If something takes you a long time to do, you got to factor in. I was talking about that carpenter a little while ago. What he does takes time. And a lot of people don't get it.It's not just the time that he's out there on the site with the hammer and the nails. It's time in developing the thought, it's time in developing that product, developing the view of what that's going to look like. It's drawing it out.It's going and figure out the materials that he needs. It's putting those material order in place, is going to pick up the material. It's putting all that stuff together. Expertise, time.And here's a big one. A lot of people don't think about this when it comes to pricing, customer transformation, because that's really a big factor, too.What is the transformation that your customers go through? So let me use an example from my practice directly. One of the things that I do a ton of is tax preparation.I do a lot of consulting work and I do a lot of tax Work, you might be saying, ralph, okay, how does this relate to pricing? Well, guess what? I've got to price that. Tax preparation work. No, I could go out on the Internet and see what everybody else is charging.And I'm not saying, don't do that. I think that's a piece to the puzzle as well. But I've got to factor in a few things.I got to factor in how much time do I have to prepare the tax return. Now, a lot of people say, okay, Ralph, that's pretty simple. Person comes in, sit down, and I'll be honest with you.Most of my clients come in with, or they send their stuff over. We sit down, we have a meeting, we go through their documents. But I've got to factor that time in.I also have to factor in the time of my staff to schedule the appointment. I've got to factor in the time of my staff to assemble the tax return. I've got to factor in all the other ancillary pieces of time to go into this.It's not just the time that I'm sitting there in front of the customer. I got to factor in that whole picture. There's the time of preparing the return. There's the time of reviewing the return. There's.There is a time of electronically filing the return. I have to factor in. Sometimes things get rejected. Sometimes the clients have changes they want to make. All those things go into that pricing model.I also have to factor into my expertise. And this is one that is so difficult when you have intellectual property.I don't know how many times clients have said to me, ralph, well, you don't have a lot of product cost here. I'm like, yeah, but my mind is expensive. I've used this mind for 30 years. In most cases. I've seen tax returns. I've seen issues.I know how to fix that. Hey, listen, sometimes I find something I don't even know how to fix. What do I got to do? I got to go research that. I got to build more expertise.There's a huge gap in the client viewing this. You may be listening to this right now. You're like, ralph, I totally get it, my friend. I feel the same way.I'll give a client a price, and they'll say to me, wait a minute, that seems really high. They don't understand that I've been doing this for years, and it's all about that professional value.Let's get back to that carpenter example I talked about a little while ago. This carpenter is an artist. He didn't Just decide this morning I'm going to go learn how to cut boards and I'm going to make beautiful cabinets.That's a skill that took time. That's a skill that took mistakes. To be blunt, I'm sure he cut a lot of wood that didn't quite work out the way he wanted.I'm sure a lot of nails got pulled out, stuff got redone. But look at the outcome. Look at the beautiful carpentry work he does. And that result, that customer transformation.For example, in our kitchen, we had this old rickety desk in the corner. And one of my friends from high school is an artist, he's a carpenter. Let me tell you, this guy can build some beautiful stuff.And my wife said we should really have this fellow, his name is Richard. Actually, I don't mind using his name because he does fantastic work. Richard came out, met with us and he said, I can build something.He wanted to build like a sort of a built in cabinet with a little, little bench and all this sort of thing. And I gotta be honest, again, cheap. Ralph comes out, my wife is like, man, this is gonna look great. Ralph. He gives me a price.I'm like, wow, dude, like, seriously, it's gonna be that much. And I gotta be honest with you, a little begrudgingly, I'm thinking, oh, do I really wanna pay this much for this?Well, let me just tell you right now, it is the most beautiful piece of furniture in our house. It's a building cabinet, beautiful, nice bench, mirror behind it. But he's an artist. He brought that skill to this.I mean, the doors close perfectly, the things all work great, it looks beautiful, the edges are great. The transformation. Our kitchen looks fantastic.Now, instead of this old rickety desk, we've got a piece of furniture that so many people remark about. And see, that's the key to it.So one of my big takeaways right now, I want you to hear this and I want you to hear loud and clear, I tell my coaching clients this all the time. You're not selling a service, you're not selling a product.One of the things you've got to really change your mindset into is you're selling a solution. See, Richard came out, met with my wife and I, we had this little area in the kitchen. We wanted a transformation.Honestly, that's what we were looking for. We were looking for a transformation. Now, Richard could have come out there and said, well, I'm going to sell Ralph a product.I'm going to sell him this little cabinet that's Going to go in the corner. And honestly, if he had come into it with that mentality, I probably wouldn't have done it.I could have gone to Ikea and bought something to throw over. There would have been one tenth of the cost. But Richard was wise. He said, here, let me show you what this could look like. He had some cool drawings.He said, what about this? And I'll tell you what, my wife fell in love with it. I did, too. I gotta be honest. I'm a cheap guy, but I fell in love. It looks beautiful. I love it.To this day, Dog sits up there. When people come over, it's always a discussion piece. Who built that? It was a solution.And if you're really going to do good with your business pricing, if you're really going to understand the model here, you got to start breaking free of that idea of cost and really build a solution. So that's the second thing. It's all about finding that costs are just the baseline. It's really building all those other things.The expertise, the time, the artistry. And what is that? Customer transformation. Let's get to the third part of this.And I talked a little bit about this at the beginning, and this one is super critical. I don't know how many small business clients I've worked with over the past 30 years that have no idea. And that's, who is your ideal client?Who's your ideal client? When I work with new customers, the first thing I asked them, as we're doing coaching services, tell me about your ideal client, Ralph.What are you talking about, ideal client? Whoever calls me that's my ideal client. So many people get lost there. Give you a great example of this.When we first started our accounting practice, man, I was on a shoestring budget. I'm telling you, shoestring was an understatement. I actually started my business on the second floor of a buy here pay here car dealership.I told that story in one of the other episodes. But my wife was my secretary at the time. More like my partner is a better way to say. My wife was my partner at the time. Still my partner. 25 years.We just celebrated a couple weeks ago. Anyway, my wife is the person answers, the client will call it protects. Prospective client will call it asking about prices.And one of the things my wife said earlier, and this was brilliant on her part, she said to this customer, and I don't know exactly what's going on, I heard kind of the. You could hear the one side of the conversation. Have you ever been Sitting in a room and somebody's having a conversation on the phone.You can hear one side of the conversation while I'm here, one side of this conversation. I'm thinking, what is my wife telling this person?And what she said was, if you're looking for the lowest price, you might as well hang up and call somebody else. When she got off the phone, I was like, wait a minute, Jennifer. We can't talk like that to our potential customer.She goes, ralph, she said, we're not in a race for the bottom. We need to really focus on our ideal client. And she was absolute. It's a statement that we make to this day. I've trained my current staff on this.Someone calls my office and they're worrying about, are you the lowest price? We're not going to be the right fit for them.And I'm going to tell you right now, in this pricing idea, this pricing structure that we're talking about today, you got to think the same way. Because here's the deal. Took me a long time to understand this.If you find a customer that's just attracted to price, they're going to leave you when the price goes up. They're not loyal customers. They just aren't. I can tell you from my 30 years of experience how many clients have been in that race.I call it the race to the bottom. Let's see who can get the lowest price. And we'll get all those customers. You see advertisements all over the place. I've got the lowest price.Well, guess what? You also have the most unloyal customers around, because guess what? If your price goes up a nickel, they're gone. The key is this.Find that ideal client. Find the customer who values you. That's what my wife Jennifer was saying.She was saying as the person was calling, and it was brilliant what she was saying to them. And we got a lot of clients because of it. So many times she would say to them, listen, if you're looking for the lowest price, keep looking.And when you find somebody lower than us, let me know, because I'll send some business their way. Because there's some clients that just aren't. That's another thing. I'm going to take a little. Little Ralph ran here for a second.You can't just go out there and try to grab every single client that's out there. Because guess what? They're not your ideal clients.I have so many small business clients that have focused so much of their effort on chasing that client for price. Those clients are not your ideal Clients, they will cost you in the long run.So if you don't hear anything else I say today, listen to me on this, please. Got 30 years of battle scars in this. Don't chase that lowest price client. Find the clients who value you for a couple reasons.Number one, they're going to pay you what you're worth. Second thing they're going to do, they are going to be loyal beyond all measure.You can make mistakes with it, and trust me, I've made mistakes with my clients. Make an error on a tax return or something like that. If I had that client that was price sensitive, they're gone.But if I have that client that's loyal to, they're also going to be a referral engine. They are going to be your brand ambassador. So that's why I put this in today's show. It is so very critical.As you're building that pricing model, you've got to know who your ideal client is. So I want to challenge you. Later in the show, I'll tell you how to get in connection with my coaching services.That's one of the first things I work with when I talk to small business clients, is who is your ideal client. So that's the third thing, number four.And we really got to spend a few minutes here because so many people don't understand the cost of underpricing. And it sounds kind of like an oxymoron, the cost of underpricing. But this is a real thing. I want you to hear me loud and clear today.This is a real thing. There are costs to underpricing. Like I said that at Carpenter. Client of mine said to me, he says, ralph, I feel like I'm working for nothing.You might be listening right now. You're like, ralph, man, I feel the exact same way. I feel like I work for nothing. I'm busy all the time, but I am broke.I have got busy bills out the wazoo. My wife is upset with me. The family doesn't have any time with me. I'm working like crazy, Ralph. And you start to resent your business.Hey, you even hate your business. I did a show a couple weeks ago about that. If you miss, I'm gonna encourage you to go check it out.But there are so many small business clients I've worked with that resent their business. They hate their business. And when I look at it in depth most of the time, what I find is they're underpricing their services.They're getting burned out, they're getting worn out. It drains your energy.And you can't focus on your profitable clients because you're chasing after those small money, those people who are worrying about price. I'm going to tell you right now, I did the same thing when I first started my tax practice, when I went out on my own.I had been working for my dad's accounting practice for several years. I went out on my own. I said, well, I got to make some money here. I got a wife, I got kids to feed. I just bought a new home.Gotta pay rent for this building. Yes, I was on the second floor of a buy here, pay here car dealership. But guess what? I still had rent to pay. I had car payments to make.You get the idea. You're a small business person. You get it. You still got bills paid. Nobody's paying your bills for you, right?So I started thinking, okay, how am I going to price my services? First thing I did, I got on the Internet and I said, let me go find what everybody else is charging, and I'm going to be smart.I'm going to charge just a little bit less than everybody. My phone started ringing. I started getting people coming in the door.And let me just tell you right now, that was the worst decision I ever made in my life. Because what was I attracting?And I'm not making a judgment call, I'm not making a social comment here, but I was attracting the people that were just stuck on price. Nine times out of ten, they were simple tax returns. They were the type of tax return that honestly, most people could do on their own.But these people were siphons on my time. They were siphons on my soul. You got a business like that, probably thinking, ralph, I got a lot of those customers.But you got to really think about that. It's because a lot of times you're underpricing your business. You're underpricing. So when I finally said, you know what? I can't do this anymore.I can't just go chasing after that lowest price. I stopped doing coupon advertising.I stopped doing all those type of things that race for the bottom that I talked about, because I had to protect my energy. And one of the ways I protected my energy was really look at the things. We're going to talk about this in a couple minutes exactly how to get here.I'm talking about how you all the problems that you have, but I'm going to show you exactly here in just a couple minutes how to actually solve these things and get to a point where you have a pricing model that works for your business. But you got to protect your energy. One of the ways you can do that is make sure you're pricing effectively. So that's number four.And finally, and this is the key to the whole thing, you've got to have confidence in this pricing decision. Because if nothing else, today that I'm saying, what you're really searching for is confidence. Think about what that listener said, Ralph.I'm worried that if I raise my prices, I'm going to lose customers. But I also feel like I'm not getting what I deserve. That's all confidence question, isn't it? Because here's the thing. Somebody said this.I remember who it was, and it may have been somebody special, but this is what I wrote this down in my notes here says, if you don't believe in your price, neither will your customers. And I thought, you know what? That is a very profound statement.But if you don't believe in your price, if you don't find the value in your own service, your customers are never going to see it either. And it's a mindset shift. It's not so much math. That's a cool thing about accounting.One of the things I didn't expect when I went into accounting, I always thought I'd be talking about numbers. Every day, day in and day out, I'd be talking about numbers. But what I'm really talking about is a mindset. And this is really a mindset.You've got to see the value in what you offer. My friend Richard the Carpenter, he clearly sees the value in what he offers. He sees that vision. He sees that transformation.He's passionate about it. Listen, I bet you're passionate about your business as well. And this isn't something that comes intuitively.A lot of people say, ralph, yeah, okay, great. I need to make these changes, but I don't know how to do it. This is a learned behavior, and it's something that I can help you with.It's something that many successful clients have reached, but it takes time to get there. Which leads me to this statement. I want to say this right now because it's so very important. Intentions are great. You might have the best intention.You might be like, ralph, I'm going to do this. I'm going to set my pricing model. But it all comes into action. So now let's pivot a little bit. Let's talk about how do we fix these things?Because the truth is, you're probably. Ralph, man, you painted a picture. I get it. I am right there with you. I'm going to be honest with you.Nine times out of ten, when I meet with a new business client, the biggest struggle that we have, nine times out of 10, is pricing. So I want you to think this thing right now. This is the value proposition. I want you to think this and then we're going to break it down into detail.I want you to think, calculate, value, position, review and test. I'm gonna give you that one more time. And again, this will be in the action sheet. That's@gritandgrowthbusiness.com action.But calculate, value, position, review and test. So let's get right to it.Number one thing you've absolutely got to do, if you want to fix this pricing model and really make your pricing work for you, you've got to know your true costs. It comes down to you got to know the numbers. I did a couple of shows, a few back about know your numbers.You've got to understand all those things, track every single cost. That's material, that's labor, overhead, marketing, administration.So many small business people get stuck on, on just their time or that product cost. But you've got to look at the big picture. Think about that tax preparation I talked about.I've got to factor in the building cost, I got to factor in my staffing cost. I got to factor in all the pieces of that puzzle. Software cost. You get the idea. All those things go into that.And the problem is so many people break this because they only think about the direct cost and they forget about those hidden expenses. Those things they hadn't thought about. Oh, yeah, I hadn't thought about that.Insurance is one of those things a lot of small business people don't think about. Oh, yeah, I gotta have insurance for that. They don't think about the other pieces that go into that puzzle. Yeah, they understand the product cost.They know.I can tell you right now, Richard, when he's building something, he knows the cost of his wood, he knows the cost of his glue, he knows the cost of all the componentry. But he also needs to understand the cost of his time. He needs to understand the cost of that truck to get him to the job site.He needs to understand the maintenance on that truck. He needs to understand the insurance on truck. He needs to understand the administration cost of that.He needs to understand the marketing that goes into this. See, it's not a simple process. It's all part of that puzzle.And the other thing I'm going to tell you right now as we're here, this is where you got to build a buffer. Remember we talked about statistics at the beginning of the show? So many people are not seeing profitability. Why? Because costs rise.And when they rise, if you don't have a buffer built into that, you're going to get caught short. So as you're thinking about, what is my true cost? And you've got to know these numbers.Another thing I work with small business clients is, how much does it cost to run your business? One of the things I asked them and kind of shocks them, a lot of times it's the first or second meeting.I say, what does it cost you per day to open up the door of your business, Ralph? What do you mean? I show up at the door to unlock the door. I'm going, no, no, no. You got to understand, what does it cost you? So start there.Number one thing, know your true cost. That's why I said you calculate. Calculate those costs. Second thing, value. Your price is based on your value, not just the time or cost.Ask yourself this incredibly important question. What is the worth of my product or my service to the customer? You got to start there. What is that? Customer transformation. I'll give an example.If your service saves a client $10,000, if they do what you're asking them to do, if they buy your service, they do whatever that product is, saves them $10,000. I'm gonna tell you right now, a thousand dollars isn't expensive for that. It's a bargain.If somebody says to me, ralph, listen, I can save you $10,000, what would you pay me for that? Be blunt. I'm gonna pay pretty close to $10,000 is gonna save me 10,000.Obviously, that's a ridiculous example, but I'm certainly gonna pay a thousand dollars for a $10,000 savings. Maybe I paid $2,000 for a $10,000 savings. And see, that's where the mindset shift has to change, because you might be saying, ralph, okay, great.You know, I can sell that $10,000 product, Ralph, it cost me 50 bucks. But that's not the value. The value is, what is that client transformation, that $10,000 savings? You got to tap into that. It's not what it costs me.It's what is it worth to them? Think of a plumber example. What's it worth? In the middle of the night, a pipe breaks, and I got water shooting all over the place.I say this to my plumbing clients all the time. You can charge about anything you want. Now, within reason, you might come out and fix that pipe, and it's a $3 repair.I can tell you right now that plumber is not going to charge you $3. First of all, they got to put that truck on the road.You probably got them out of bed, middle of the night, got this pipe leakings, getting water everywhere. But shift that mindset, it's not what it cost you. What's it worth to them? So that's the second thing. Price on your value, not just your time.That's why I said first thing. Calculate value. Let's talk about position. Position is super important. I alluded to this a few minutes ago. Check your market.But here's some secret to this. Don't just copy the market. I did that when I first started my own practice. I'm going to go out there and find what everybody else is charging.I'm going to charge just a little bit less. I see so many clients do this same thing. Yes, you got to research competition, but it's not a race to the bottom.So many times I've seen this in my practice, we're in a race to the bottom. We're going to get to that lowest bottom price. What's that perception of your customer? But that window guy, he was at the bottom. He did a great job.I think it was an aberration. Honestly. Don't race to the bottom. Position yourself and think about the value. Let me throw a couple terms out there. Premium, middle, or budget?There's nothing wrong. Listen, if you are listening to me right now, you're like, ralph, I want to be the budget person. I am totally cool with that.You understand where you want to be. You understand your ideal client.The problem is, you got to understand if you're going to be that budget, bottom line, whatever, that rock bottom pricing, it's all about volume. At that point, you're going to have very thin margins. Your customers aren't going to be loyal. So think about that ahead of time.I am totally in agreement. That's the way you want to do it. If you want to be that budget, fantastic, enjoy that. It's going to burn you out.I'm going to be very candid with you. You got the stomach for it, do it. But I think you're going to move towards something else, whether that be premium or middle.Those things are going to find better customers. One of the other ways you can do this, and I've coached many clients on this, offer bundles, offer packages, or maybe some tiered pricing.That way the customers can actually make that decision. I'm working with a plumber right now. He's actually Going to offer this. I think this is a brilliant idea.Don't have any other plumbing clients that are doing this. When he comes out to meet with you, he's going to get. Let's just use a simple example. Let's say your hot water heater dies. Not a fun experience.Been there, done that. You might bend that too. That is not cool.When your wife is screaming in the middle of the morning trying to get ready for work and there's no hot water, that is not a fun place. But anyway, this plumber, he's going to do this. I think it's a brilliant idea. Somebody comes out, he comes out to fix your, your hot water heater.He's going to give you three choices.He's going to give you the premium replacement, he's going to give you the middle replacement, he's going to give you the budget replacement and then you can make the decisions. He doesn't have to discount his prices. He doesn't have to give away the store. He doesn't have to give away anything for free.He's making it very clear actually, I think what he's going to say, he's going to, here's a premium decision, here's the middle decision and here's the budget decision. Then you make that choice. But he understands the market. He's not just copying everybody else. He's not in that race to the bottom.And I honestly believe, and I think if you do this too, you're going to find the same thing. You're not going to find yourself always selling that budget because people understand value.People understand, they love their now I would bet what's going to end up happening here. And I think it's ideal way he did this, people are going to go to that middle place.They're not going to take the real budget going like, oh, that's probably cheap, that's not the way to go. And they're probably thinking, ah, premium. Some people see premium, like I got to have the premium.But I think what is going to happen is that middle of the road pricing is going to work. So check your market, understand it again, calculate value and then position yourself. It's all about positioning.Pricing is so much of a positioning thing. Let's move on to the fourth thing and that's review. I'll tell you right now, this is a big struggle for so many small business people.They set that price and they forget it. I don't know how many times I've worked with customers and I'll say to them, hey, when's the last time you changed your pricing?Like, Ralph didn't really think about it. Business is going good. Why would I change the pricing? What's your lead time? What's your waiting list look like? Build this into the model.I'm gonna tell you at least once a year, you gotta look at your pricing. But I'm gonna challenge you to do something even more frequently than that. I think quarterly. You got to re look at your pricing.Now, it's not just the pricing. Look at your costs. The last several years, stuff has gone up in price big time. Know your costs.If you set that price a year ago, chances are, and I don't know how, I don't have a statistic to share with you right now, but I don't know how many times clients have set these prices. They have no concept that the cost of doing business has gone up. You got to look at those things. Look at the demand.Do you have that waiting list of months? Maybe you've got a waiting list of years. Fantastic place to be. But guess what? I guarantee your prices are too low. Guarantee it.And also look at your competition. I don't know how many times I've seen where the competition's charging more. Like I said to my customer, what's your competition charge?I don't know, Ralph. I haven't looked at it. You got to know that. Because here's the thing.Inflation alone, if you're staying flat on your pricing, means you're losing money.Because the cost of doing everything, your cost to operate your truck, to get to the job site, your insurance cost, your fuel cost, all those things, all are going up. If you're not changing your prices, guess what? You're falling behind, I guarantee is going to affect that bottom line of your income.And think about that. Here's a statistic I am going to throw at you. Even a small increase, just 2 or 5%, can protect that profitability.In general, inflation's like 3, 4%, whatever that looks like. It rarely is going to drive customers away. Because the truth is your customers are feeling it all around them. It's not going to be as big surprise.Now, here's the thing, another really good point to this. If you do raise your prices routinely, it's not like you're gonna be hitting a client over to Mallet when all of a sudden you change them.I've had clients that say to me, rob, I gotta double my pricing. They lost customers because all of a sudden a price that was this week was, this is now twice that. But they hadn't changed it in three or four years.And they said to the customer, wait a second, I haven't changed this price in a couple years. The customer didn't care about that. The customer would have absorbed that 2, 3, 4, maybe even 5% and increase year after year. But do it all at once.And it's like, wait a minute, I'm going to go shop for this. So understand and review. And finally, this piece is most important of the whole thing. Test, monitor and adjust.This is not one of those places where you just set and forget. I'm going to set it, Ralph, and I'm going to walk away and forget it. No, that's not how pricing works. You may have to experiment a little bit.I've had to do this in my own practice. I also run a cattle operation. I sell beef now. I could easily go out there and there's websites where I can see, okay, what is the cost of beef today?But what I found is that not necessarily going to work for me. I actually found that I can charge a premium because my cows are grass fed. They don't have any hormones. I don't have any garbage stuck in them.But I can't just drop that and say, well, let me just test it. Nothing else go. You got to test those things. You got to monitor things, see what happens, run some promotions.You know, a lot of people think, I'm going to run a promotion, I'm going to run a sale. Run a promotion where your price is higher. Give some value to that, show the value in that. Maybe offer some payment options.I see a lot of small business contractor clients offering payment options. It's a great idea. So many people are cost sensitive right now. They're hurting financially. Offer them some payment options.You can't just set it and forget it. You got to monitor. You got to test and adjust it and measure the impact on your sales volume when you make those little tweaks to your pricing.Like I said with that window cleaner guy, he's a little hesitant at first, but a couple months later he said, ralph, he said, I'm doing fantastic. His sale volume was going up. His profit margin was increasing because the top line's going up.And he was actually getting more positive response from his customers because when somebody would call his office, they weren't hearing, yeah, I can come and see in three months. I got a window that needs to be cleaned now. I don't want to wait three months. Somebody's calling somebody else.That leads to that customer feedback and that customer Feedback is, is going to be stronger. But you got to understand, you got to test it, you got to monitor it, and you got to adjust to that. And think about this right now.It's a wonderful statistic. And I want you to really, really lean into this one. A 1% price increase often boosts profit 8 or 9% when costs are stable.Just a 1% price increase can boost your profit 8 to 9% if costs are stable. So I'm going to give you that recap one more time. These are the main prices you want to break. You want to fix your pricing model. Remember this?Calculate value, position, review, and test. Because that's really the secret to this. You want to be confident in your pricing. Do those things. Calculate, value, position, review, and test.They're all part of the puzzle. Now what I've talked about today tells you a bit of the story. Let me ask you this question.What story does your current pricing tell about your business? Talked a lot about pie in the sky ideas and how to do this. But think about it.Right now, I want you to really take a minute and just think about your business. What does your pricing tell about your business? Are you the budget person? Are you the premium person? You middle of the road?What is your pricing model telling you about the business? When's the last time you changed your pricing? Let me ask you this question.If you doubled your prices tomorrow, just like that window guide, that's what I encourage them to do. What are your fears? You think, Ralph, if I do that, I'm gonna lose all my business? I'm not gonna have a business anymore. People are gonna run away.Or does it excite you? Think, wait, I could be like that window guy. I actually make some more money. I can take some stress and I can pay off some debt.I can not feel like I'm burned out all the time. And let me ask you this question. Are you building just for sustainability or you building for survival?Because standard survival mode is not a fun thing. But are you building that future? Are you building that sustainability?These are critical questions and honestly, they can't be answered in a podcast episode. But they can be answered. And I can help you. I would love for you to apply for a discovery call with me.I work with small business clients just like you. You can apply by going to gritandgrowthbusiness.com coaching. I'll sit down with you. We'll do a zoom call. First call is absolutely free.And taking my own advice, I don't charge for this, but I feel it's important. 15 minutes. I want to understand your business. I want to understand what your concerns are. I want to understand what your fears are.Then we'll work together. We'll come up with an idea how we can put together a coaching program for your business. It all starts with that discovery call.And I want to encourage you to apply for that discovery call. Right now. You can go to gritandgrowthbusiness.com coaching because maybe you're listening today.You're like, ralph, man, I'm on board to this, but, man, I don't know where to start. Yes, I can download your action sheet. I encourage you to do that.I can download your action sheet, Ralph, but I'm not sure how to implement this for my business. My business a little bit different than that. That's ideally who I work with. Let's work together and let's take your business to the next level.Because you can do this. And remember this pricing is a mindset. It is not just simple math. If it was math, I could show you, I could give you a calculation here. Go do this.And you're fantastic. But it's not that it's a mindset we talked about today. It's that value. It's that customer transformation and underpricing.I hope you heard this loud and clear today. It is a silent killer. It is killing so many small business people. It's killing small businesses in general and it's draining your energy.And in the end, if you really want to be successful in this pricing model, it's all about building confidence in your value.Because that's really the foundation of, of profitable pricing, is knowing your value and demonstrating that to your customers so they can see the transformation. You're going to take them down. While I'm talking about transformations, I've launched something brand new and I hope you can join me.Every Tuesday night I go live. You can come join me. You can join in the chat.There's a place where you can talk, write to me, get asked questions, and if you're interested, you can actually come online and we could do some live coaching. So I'm gonna encourage you to join me. It's every Tuesday night at 8pm Eastern time. It's super simple to get there.Just go to gritandgrowthbusiness.com live every Tuesday night, 8:00pm Eastern Time. Come there, ask your questions. I would love to coach you online.We talk with other small business people and you can see what's working for them, what's not working for them. Hey, we can all learn together. But I'M encouraging you again. Join me live every Tuesday night, 8pm Eastern Time. Go to gritandgrowthbusiness.com live.And don't forget today, as I do with every show, download that action plan. We talked about a lot of things today. There was a lot of discussion about the steps.Sometimes it's easy to forget those things as you're watching or listening to this. But go get that action plan by going to gritandgrowthbusiness.com action. And don't forget to join me next week.We're going to be back in the trenches again together. Now get to work. God bless you. And I'll see you again next week.