The Most Expensive Way to Price Your Business | Ep 188

When I talk to business owners and ask them how did they price their services, I usually get a pause and then one of these three answers.

So number one, I just came up with the price that I thought was fair.

Two, I just looked at industry averages.

Three, I just looked at competitors pricing on their website and I just used the exact same numbers.

Now ask yourself, How does that make sense when your goals, your costs are going to look so different from a competitor or even the industry averages? If an industry averages, like, why are you trying to be average? Aren't you trying to be the best in your industry? Like, how does that make sense? Really ask yourself.

Now, your costs are not the same.

How much you want to pay yourself.

Your rent looks different.

If you want to sell your business one day, that's going to look different from someone that doesn't want to sell their business.

If you don't have team members or contractors, but industry averages or your competitors have them, then how does any of that make sense? I feel like a lot of us, when we start our businesses, we have no idea how to price our services.

So we're just like, okay, like, let's just look at somebody else.

And this is like, I feel like it's standard in our society.

Like, People just don't think about pricing the same way they think about like profit or like money in their bank or like how many things or how many services do I need to sell in order to hit my revenue goal.

So I want you to understand that like pricing has a strategy behind it.

You can't just go into it blindly copying someone else, undercharging or using like your industry averages because those numbers aren't accurate.

Those numbers don't reflect what your costs are, what you want your profit to be.

you need to look at what you want your business to look like in the long run so really if you're charging a premium and you want to work with less clients then it's like okay does the math actually make sense so you need to really sit down and ask yourself For one client service, how much time do I put in? How much do my contractors put in? How much do my employees put in? Like how much time and how much is getting paid to those costs? If you're paying for a subscription or even like rent, how does that factor into like your pricing? So for example, I'm working with a floral preservation business.

It takes her eight to 12 months for the turnaround time.

So from beginning of the client saying, yes, I want this done to her delivering the product, it takes 12 months.

But she just came up with like three different packages based on frame sizes and was like, okay, these are my prices.

But she never factored in cost of rent into that because she's holding on to those flowers for 12 months which is taking up space in her studio but she's never thought about like adding a percentage of rent into her pricing Another thing is that her supplier for the frames, they ran out of inventory.

So now she's like purchasing frames and glass like from Amazon.

So now her costs have increased and she hasn't changed her prices.

So it's like your prices need to reflect all of your costs.

If your costs are changing, your pricing also needs to change.