But many times people see large businesses and what they do and assume that's what they should do what are good things to take away from larger businesses as far as pricing and what what are bad things to take away from larger businesses as far as pricing

yeah i think some good things to take away from larger businesses is um being able to do pricing research and it doesn't have to be a big fancy piece of work if you're a small business even just talking to customers um talking to customers, understanding how do they value and how do they understand the service that you're providing to them.

A lot of the mindset shift that the folks who work with us, clients, people who listen to us, who are trapped into our ecosystem understand and the mindset shift that they go through is moving from looking at just the cost and the markup as equating to their pricing and moving towards understanding, well, what does my customer actually value this at? There's a big difference if you as selling water in the middle of a rainstorm versus if you're selling water and everyone around you has just finished like a marathon and they all thirsty.

Like there's a difference between the value of the water at that time, right? So you're trying to understand what is the value of my service to my client? What would they be willing to pay for it? And now I can back that up and create pricing based on what I know my clients actually will value my good or service or product at, right? So that's kind of like one of the things that you can take away from big companies is understanding and being willing to do that pricing research.

We have a tool called FRED.

It's like an interactive pricing guide.

Folks can go into it and kind of test their pricing with that.

What are the three most popular pricing strategies or best pricing strategies for small business owners to start with in terms of when they're considering their pricing decisions?

How does it how does what you do come into play there?

really interesting and depends on if you are how you're setting your services up right the joy of a lot of people who use the aum methodology is that it's kind of invisible right you just take it from the assets every year but then with more and more rias trying to do what they i guess they viewed has been more transparent more fair and wanted to say this is exactly what it's going to cost you every month you have the option of understanding how do I structure this and put this in front of clients? So for example, I worked with an RIA last year, and part of what she was doing in a bid to be transparent to her clients was showing them all the different packages and setups she had.

She was putting nine things in front of her prospects and saying, I could do all these things for you, and this is what it costs.

And so we had to say, let's dial that back.

Let's think about who are the different segments who you work with, who do you like working with, who brings you, you know, who do you make more and what are the kinds of things you like to do with them? And then let's structure that and build the pricing so that you're not showing people nine different options when it comes to pricing.

You're saying, if you look like this, we're going to show you this option or this option.

If you look like that, is that option or the other option? So it really comes into play where you are an RIA who's moving away from AUM or trying to do things that aren't just managing assets, but also thinking through how to restructure the advice on a monthly, quarterly retainer basis.

What's the biggest mistake you see RAs making when it comes to pricing?

Um, so I'd love it if you could share, uh, just a little bit about you, quick 30 seconds to a minute, and then we'll dive into our conversation, 'cause this is a hot topic.

Absolutely.

Uh, my name is Etiosa Agbonlahor.

I am the CEO of Decision Alpha, and at Decision Alpha, we help business owners with how to price, how to package, and how to communicate their value to clients so they can build more profitable businesses.

We do all of this using the power of behavioral economics, which really focuses on understanding, how do people make financial decisions, and how can you use that, um, to structure the decision you put in front of your clients? So, that's kind of what we do at Decision Alpha.

I am a behavioral economist, trained as one.

I've worked with big organizations like Fidelity Investments, the Commonwealth Bank of Australia.

Yep.

Do you have an example of like a small change or shift in pricing made a, you know, a significantly better outcome, whether it's through growth or, you know, looking to exit and increasing value?

Yeah, let me give you two examples.

So first one was an ed tech company that we worked for.

And their whole perspective was they had been selling into schools and they were changing ICP a little bit to sell into parents and students.

They felt like those were markets they hadn't really fully explored.

And so they came to us and they weren't quite yet ready to change their pricing, but they did want to understand when we're not selling this as a big ticket item, how do we structure it? How do we position it? And so we took their pricing page and we did some research and we rejected, first of all, just introducing packages.

So human beings make decisions relative to reference points.

What role does perceived value play in negotiations?

Right

... versus working in, you know, [laughs] in a bank.

Um, so I grew up very quickly in the bank, um, had to figure it out very, very, very fast.

And within, I wanna say, it was under two years that I got my promotion and I started to have the ability to recruit and, um, build a team.

And so I was running what I call a behavioral advisory portfolio, which is we're consulting internally within the bank, helping the bank do things like get people to save more money, get people to, um, uh, for, to select better loan products, those sorts of things.

And so in order to do that, I was leading most of the charge around, you know, who are we working with, how are we working with them, how are we calculating the returns, what do they pay us, you know, all of those things.

Kind of working with the head of the team, but running my own portfolio and having my own team within the, the broader structure.

Yeah.

yeah

yeah so um we have a proprietary framework uh i'm pricing framework it's got four steps so the first one is um what we call mapping and monetization zones that's basically you're looking at your entire customer segments and you're fencing them you're deciding you know Maybe enterprise needs a different kind of experience and a different kind of pricing than your small to medium businesses compared to your individual users.

So you're segmenting them and saying, we're going to treat these three groups differently, even though the core product we offer is the same, right? So that's the first one.

You're mapping the areas of your business that you can monetize within your customer segment.

You take out of that, and then you move it into the second step, which is doing the willingness to pay research.

That's why you want to establish that ceiling we talked about for all of the different customer segments.

And that's why you're asking questions about alternatives, competitors, context, switching costs.

How should companies price their AI-enabled Should the pricing be based on effort, usage, time saved, risk transferred, results delivered? What the new pricing looks like in an AI economy?

So what do you think is more important as kind of my first question? Is it knowing yourself or knowing the clientele that you are trying to target with whatever you're trying to sell or do?

I think that knowing your client is very important.

There's a symbiotic relationship, right? Knowing yourself and knowing how you present and knowing what you offer, of course, very important.

But then also knowing your clients is very important because they are the ones who are making the decision as to, am I going to buy this? Am I going to work with you? Am I going to invest in this relationship? Am I going to continue to be a good person to work with? Will I then refer you afterwards, right? Knowing your clients is very important.

And also more than knowing them, knowing what they value, What do they care about? A lot of times as business owners, we think they care about costs.

They care about making sure it's done quickly.

We think we have these heuristics for what people care about.

Can you speak a little high level for the audience just from a kind of a storytelling way? Like, what is that? So as we talked earlier on, setting your pricing, understanding your value, what is this kind of pricing framework and how does it work?

So could you clarify the difference between that perceived value and bottom line pricing?

Yes.

So I tell people all the time that good pricing starts with understanding perceived value, right? What is perceived value? It's very simply, how does your customer view and what is the number they would put on the good, the service that they are bringing to you, right? And so we talk about our pricing structure as it's almost like a house, right? So you've got the cost floor, which is what does it cost you to have the business, to keep the lights on, to deliver the service.

That's almost like they are your bottom line, so to speak, the cost floor.

The ceiling is willingness to pay.

That is how high is your customer willing to go to pay you for your good, your service, et cetera.

The pillars in between are the competitors, the alternatives.

right?

But you know what I mean.

Yes.

Yeah, yeah, absolutely.

I think that there's a couple of things going on with people underpricing.

I think that the first one is that there's this kind of bias towards in-internal cost structures.

This is what it costs, right? And so I wanna...

It's cost plus pricing.

Is there a framework you like to use when you come in to kind of analyze pricing or frameworks? What do you typically do? 'Cause I'm sure you come into all kinds of companies and you have a pattern you use to, to analyze things.

But you know what I mean?

Yeah, yeah, absolutely.

I think that there's a couple of things going on with people underpricing.

I think that the first one is that there's this kind of bias towards internal cost structures.

This is what it costs, right? And so I wonder, it's cost plus pricing.

And I just did a presentation to the Tampa Bay Chamber, and I gave them this story of I was in Kenya a couple of years ago, and there was a warthog on safari, Masai Mara, Little warthog running across the plain with a lioness chasing it.

And this poor warthog runs from one distance where we can think of how far a horizon is.

So if someone's thinking about implementing outcome-based pricing, what process should they walk through? I mean, how would you encourage them to get started or how to think about it?

Whatever it is, there's a different way of thinking about pricing when you have to come up with these fixed numbers as opposed to the, well, I will set what my effort is worth and then however long it takes is what it takes.

I think that there's, yes, to your point, there's kind of a shift that's happening with regards to lawyers being more willing.

I also think AI is driving some of this, right? Being more willing to say, okay, if it's not hourly, what else can it be? And I think in addition to just the kind of the cons of the hourly model, I also think that to your earlier point around There's something about hourly that ends up almost negatively harming the customer experience because a lot of customers, unless you're dealing with customers who are very savvy and who have worked on many legal matters before, a lot of customers, this is their first time working with a lawyer or the second time.

And so they don't understand like, hey, this case might take two years.

It might take a year.

And every month you're going to get an invoice for me stating what you owe.

And by month 13 of you getting that invoice, it's going to feel a bit weird.

every day?

Like, "Well, I don't know, what would people pay?" What type of research do we need to do, and how do we think about pricing products correctly?

At Decision Auto, we have a four-step framework for this, our pricing framework.

The first most important thing, of course, we talk about it's mapping out your monetization zones.

It's talking to customers to understand what are the different elements of this that are useful to you? What problem does this solve for you, and what would you be using if you weren't using this product? If you weren't using our design element, you weren't using our tool that also makes certain parts of the design for you, what would you be using? Would you have to hire a full-time designer? What does that cost? What does that look like? Just trying to understand your customers' or your future customers' current state and what it's costing them to solve the problem that you want to solve for them.

Then you move into the next step, which is where you start to understand and actually do the pricing research around, "This is our product, this is our service.

These are the different elements of value it brings to you.

What would you be willing to pay for it? What is too low? What is too high? What's a price where if we charge you this, you would think it was so high you would walk away? What also is a price where if we charged you, you'd think it was too low, and you'd wonder if there was something wrong with it?" We're trying to find that in-between number where you're like, "It's getting high, but I'm comfortable with it," or, "This is a steal.

How should we think about setting a price and what it says about our brand?