Too Hungry To Eat | Pricing Strategy
“Far better it is to dare mighty things,
To win glorious triumphs,
Even though checkered by failure,
Than to take rank with those poor spirits
Who neither enjoy much,
Nor suffer much,
Because they live in the gray twilight that knows
Neither victory nor defeat”
Theodore Roosevelt
Different sizes of businesses typically encounter different problems.
Problems don’t disappear, they change and adapt based on the issues at hand.
However, just the other day, I came across an issue that plagues ALL businesses in some form or another.
From solopreneurs, to micro businesses, to SME’s, to large corporations.
A universal struggle in businesses of any size is that many are not charging enough for their product/service to invest in the marketing activities that would actually provide enough consistency for them to confidently scale up.
There are a multitude of reasons for this, but there is this broken ‘conventional wisdom’ that people adopt that suggests that success comes from pricing for ‘everyone’.
This then generates volume, and revenue, and ultimately grows the business.
But as business owners know, revenue is only one factor in the equation - there is a lot more that lies below the surface.
And, we all know what happens when there are unexpected interruptions to volume.
When our pricing strategy is not aligned with the desired direction of the business, a myriad of problems present themselves.
It begins with a condition known as ‘too hungry to eat’
i.e. the business is not factoring in enough profit in their pricing to actually invest in the sales and marketing activities required to continuously feed the business.
Picture being in a position where you have reached an insurmountable level of hunger, so much so, that you can’t muster the energy to go to the kitchen to eat.
Your options are either
Someone steps in, and feeds you
You wither away
I know there was some Sundays in my early 20’s where I definitely felt this after a late night. I slept through til Monday more times than I care to admit.
All jokes aside, this is, in essence, how Marc Andreessen describes the condition that ravages so many businesses (he has a net worth of 1.3 billion USD, so knows a thing or two about pricing for profit).
Now, what I’m referring to is not just generating enough profit for the sale to deliver the product or service...
...but to actually understand what level of investment it takes to diversify across different marketing channels, and predictably generate a return
Strategy first.
Tactics second.
This ensures there is a level of consistency that supports the business, and enables better strategic decision making, and this benefit compounds over time.
This is why I spend so much time on determining the profitability of a client based on their Lifetime Value to the business.
Without this knowledge, we look outward at our competition and try and charge accordingly.
Even worse, we don’t do that, and we charge based on assumptions of what we think they can afford - which, more often than not, is just a reflection of our own relationship with money - so we continue the cycle (I spoke about this here).
Therefore we revert to low tangible cost, but extremely low impact activities that are almost impossible to scale - I say tangible, because while they may be cash cheap, or free - they are extremely resource heavy exercises
This includes networking, and waiting on word of mouth and referrals to build our business.
Relying on others to fill our coffers, while we fade away.
The best defence, is a good offence, and we must be proactive with intentionally focusing on diversifying our activities.
The key is focused - the shotgun approach won’t work here, this is about calculation.
The best time to start was the day you registered your business name with the relative authorities, at the start of the conception of the idea.
Realistically, we don’t all of that luxury of time travel, so
The next best time is right now.
We will always find the answers inside the business.
First, start with understanding the pricing model, and aligning it with the goals of your business, not on haphazard assumption of what others can afford.
It’s important to note money objections are always from a place of perceived value, not of perceived cost (there is a difference).
Second, outline the number of clients you are looking to secure. What you spend in marketing has to be in direct proportion to this quantity, with unit economics and subsequent profitability factored in.
Third, map out the customer journey to determine the focus of the marketing activities. Do not throw an arbitrary number, or percentage of revenue without anchoring it to lifetime value, and an accurate lead to sales conversion (this concept is called Metrics That Matter)
Dependent on industry, this should confidently sit between 35-60% for the Quote > Sale conversion if you are dealing with qualified leads.
If it’s above 60% - then you are only talking to the 3% of the market that are taking action, and you need to focus on building your audience - the front end of the funnel needs work (see Larger Market Formula here)
If it’s below 35%, or if the sales process takes too long, then the sales process needs work, and realistically, the back end of your funnel as well.
Depending on the leak in the funnel, you will need to employ different levels of tactics, with varying levels of investment.
Many can be slight, inexpensive changes that generate great returns.
Without the above, any marketing activities will be hinged on guess work, which is not ideal for anyone.
Don’t be afraid to make changes, but please be methodical, not reactive.
You might find you don’t even need to raise your prices, but you do need employ the resources with more strategy.
Hope this helps, this is a bit of an objective overview, but if you need advice on the intricacies of how to employ any of the above, just reach out.
Zac
Ps. if increasing your prices is something you are interested in, especially in the service industry - we call this charging for your mind instead of your time.
It’s built on developing messaging and brand positioning that shifts you from an interchangeable commodity based on the service provided, and into an unmistakeable authority.
This pays respect to the quote that opened this article, it is far better to establish authority, than to be stuck in the grey twilight of the masses.
Spend the time on getting this right, and the change can be pretty magical.