[00:00:00] Fiona Johnston
We've made a lot of progress as a society in many of the areas that we needed to in the last few hundred years. But one thing that has not changed enough is money. If we want to be able to tip the scales towards the favour of marginalised people, we need to understand the secret. money in small business.
The more we talk about money and the secrets that usually stay at the golf club, the more likely we are to be able to make money. My mission is to get more money into the hands of good people, specifically good business people like you. This is Money Secrets, the place to learn about the money secrets of successful small business owners, because I believe small business can change the world. And in order to do that, we need to be making a lot of money. Let's go.
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This podcast episode was recorded on the lands of the Wurundjeri people of the Kulin Nation. And I'd like to acknowledge them as the traditional owners and custodians of this land and water that I live. Work and play on. I'd like to pay respects to elders both past and present and note that sovereignty has never been ceded.
This always was and always will be Aboriginal and Torres Strait Islander land. Today I wanted to talk to you about one of my favorite topics and it's going to be a bit of a meaty lesson for you today about how to price your product or service. Now, as I have said before, you are going to hear a lot about pricing on the Money Secrets podcast, because it is the biggest mistake that I see small business owners making.
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So many of us don't know how to price our product or services, and I want to step you through how to actually do it. So before I kick off on that, I want to just tell you a little bit more about who I am, especially if you've just started listening to the podcast. I don't think that you should be taking pricing advice or business advice from just anyone, so I want to give you a few snapshots of who I am and why I think that you should listen to me about how to price your products or services.
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So the first thing to know is I have been working with small businesses for 25 years. Yes, I know I sound like I'm really young, but I am 45. And I have been working with small business owners that whole time on purpose. I finished university and went straight into a very small accounting firm where I worked with small business owners for six years before continuing on with my career.
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I'm a chartered accountant, which means that I have an extremely Chartered Accounting is pretty much as high as you can go in my field. I could go on to do an MBA, but it's just never been my area of expertise or my area of interest. I am highly qualified with a Bachelor of Business with a double major in Accounting and Human Resources, and I've worked with small business owners for 25 years.
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I've been a business owner myself for nearly 15 years, and in that time, I have founded other businesses, some of which I've closed, some of which I've sold, and some of which I'm still involved in. I've invested in multiple small businesses. And I have mentored and coached thousands of small business owners.
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I am led by purpose, and I love working with impact led business owners. I'm a business strategist, which means that I'm not just a numbers person. I'm actually somebody who sees a business as from a really holistic perspective. So what I can do is work out what is it that you want to do with your business, and then I can work out how you can make that happen.
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That's what a business strategy is. I'm a numbers and a words person, so I'm actually not as good at numbers as you might imagine. I'm more of a problem solver, and I'm most certainly a words person in that I've always loved writing and speaking about topics that I'm interested in. My clients tell me that I'm really good at holding space.
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And I'm also a small business diehard. I have and always will work in and with small business owners because bloody love you guys. So hopefully that gives you enough reasons as to why you should listen to me or consider listening to my opinion about how to price your product and services. I want to cover three topics today.
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The first is undercharging. The second topic that I want to discuss today is about breaking your income down. And the third thing that I want to talk about is how your price is your positioning, is your perception of quality. So let's come back to the first topic, which is undercharging. Now, almost every single small business owner I've ever worked with was undercharging when I met them.
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Not after they met me, usually. Part of this is about mindset and psychology. Lots of us have these ideas that we want to be affordable, or we want to be accessible, or that we want people to like us. A lot of women and people socialised as women think that having their price at a certain level is going to mean that people like us more.
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This idea that we need to be affordable really gets my goat. And the reason it gets my goat is because affordable is usually poor quality and high volume. And I've never met a business owner who was looking to be high volume and low quality. If what you are wanting to do is build a business Amazing product and services, great customer service, and to treat your customers as though they are part of your community.
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Affordable is not what we should be aiming for, and it's not possible either for small businesses to be affordable in inverted commas. Because we just do not have the economies of scale that bigger companies do. The second part of undercharging is we actually don't think about the role that our price plays in our ability to earn revenue.
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So when we can break our income down and understand how our price informs how many clients or projects or sales we'll need to reach our income target, it's much easier to understand how to price our offers to be able to reach our annual targets. So a lot of business owners don't have an annual target that they're working towards, and that's the first thing to really consider.
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And then the second thing to consider is, how am I going to reach that target? We need to understand the cost of delivery of our products or services. And I don't just mean the Australia Post. I mean, how much time does it take to deliver this particular service? What cost is associated with this product or service?
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When we understand what time and cost it takes us to deliver our products and services, we can obviously price them better. So that's what I wanted to say about undercharging, is that it is absolutely rife in small business. And it is the result of us being socialized to think that being affordable is something that is going to have people like us more.
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The next thing we want to think about is to break our income down. Now, there's two levers, and for those of you who've heard me talk about pricing before, you will know exactly what I'm going to talk about. I find that this particular little analogy works really well in people's minds when they're trying to think about their revenue and their pricing.
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Now, I want to tell you that there are only two levers that you can pull in order to increase your income. Those two levers are volume and price. So you can increase your income by increasing the volume. So if you sell more of the thing that you sell, then you will make more money than you did the year before.
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Also, you can increase the amount that you earn by increasing the price that you charge. And what I would like to put forward is that increasing your price is actually an easier way to make more money than increasing your volume. Most of us think that what we need to do is increase the volume. So let's break it down with some examples.
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So these two levers, volume and price, could also be expressed as how many do you want to sell and how much do you want to sell them for? So if you were an e commerce business and you knew that your annual income target was, say, 500, you were What you would need to do is work out what is your average order size, how many orders do you make on average per week or month, and how many trading weeks or trading months are in your business.
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Then you can work out how you're going to get to that 500, 000. So for example, you might have an average order size of 100. In order to get to 500, 000, You would need to sell that 100 order 100 times a week over 50 weeks of the year. And that would get you to your 500, 000 number. Now, what I would put forward is that rather than trying to increase the average orders per week, it's so much smarter and more effective to work on increasing the average order size.
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Let's break that down for a service provider too, or a freelancer. So, let's say, for example, you wanted to get to 100, 000 in revenue. And you think that you could charge an average of, let's just say, 5, 000 per project. So in order to get to 100, 000 in annual revenue, you'll need to do 20 5, 000 projects across the year to hit your goal.
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When you break it down like this, it actually makes it so much easier to work out how you're going to be able to get to that 100, 000. If you needed to do 20 projects, you might decide to break that up by saying, let's do two of those a month, over 10 months of the year, and take the other two months off.
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It's a pretty sweet business model if you ask me. So that was what I wanted to say to you about breaking down your income target into those two levers, price and volume. How much are you going to charge and how many will you sell? The third part that I want to talk about in terms of how to price your product or service is positioning.
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Your price is your positioning. So, back to the original topic that we were talking about, which is that so many of us are undercharging because we've been socialized to believe that pricing ourselves to be affordable is going to help people to like us more. What happens though, is that when our price is set too low, it gives our prospective client the perception that we are low quality or inexperienced.
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So what we think we're doing is providing a really affordable or accessible price for our product or service. But in fact, what we're actually doing is setting the perception that our product or service is poor quality. So think about it like this. Your price is the financial decision that you make every day in your business that has the biggest impact on your bank account.
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And I really don't think that we think about it enough. If you are wanting to attract high quality Clients, which, who isn't, you need your prices to reflect the fact that you are offering a shithot product or service that is full of value, high quality, and backed by an experienced business owner. Savvy clients understand what good quality costs.
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You thinking that you are presenting your product or service to be affordable could actually be bringing the wrong clients into your inbox and accidentally turning away the right ones. So let's recap how to price your product or service. First of all, note that you are probably undercharging unless you have done some work on your money psychology and your money making.
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There's a very high chance that you are undercharging. Number two, how are you going to hit your revenue goal? Break your income or revenue goal down into the two levers that are going to get you there. Price and volume. Or in other words, how much will you charge and how many will you sell? The third component to knowing how to price your product or service Is that your price sets the perception of quality.
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And if you want to bring in high quality clients who value what you do, you need to show them how valuable your products and prices are with the price that you put on them. If you found that helpful, you're in luck, because I actually have a really great downloadable document that's going to take you through all of that, but even better, there's a checklist to go with it, because I know that there is a lot to think about when it comes to pricing.
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And I want you to have everything you need to be able to effectively price your products and services so that you can get paid well from your small business. Go to the show notes and have a look for the link to how to price your products and services and you will find a really Fantastic free cheat sheet there with a checklist and all of the information that I've talked about on the podcast today in your beautiful little inbox.
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I hope you found this valuable and really thrilled you're here. Bye. Thank you so much for listening right up to the end. I hope you enjoyed this episode of money secrets. where we talk about the money secrets of successful small business owners. If you enjoyed the episode, I'd love it if you subscribe to the podcast, could leave us a review or share this episode with one of your friends. I hope you learned something. I hope you got a new perspective and I really hope you enjoyed the listening experience.
