I don’t listen to podcasts often, but I was recently asked to participate in the OnFire Ignites B2B Podcast, where I was interviewed by April Renee, who is a Denver-based financial advisor. It was fun!
April was great and I spent a good half hour with her after the show just talking shop.
I don’t know who suggested I be a guest on the show, but I appreciate it. The group cleverly asks the people they interview to recommend someone else in the B2B space to interview so I imagine they found me through someone in my network. Thanks, whoever that was.
My pay-it-forward suggestion was my friend Valerie Novak of Novak Birch, who is a huge go-getter in the trade show event productions space. NB’s outputs are just the coolest things ever and I would recommend them to any company that needs branding and production materials.
I also got to speak about some other really important aspects of running a business — topics that I stumbled around with for a couple years while I was getting my company’s footing.
— Get your BAIL team in order. That’s your banker, accountant, insurance agent, and lawyer. I’ve had to use all of these in ways I never thought about when I first said, “Yeah, I want to own my own company!” (So naive.)
— Make sure your own in-house policies, procedures, and documents are in order before you go to market. Knowing how to handle even mundane internal employee disputes will put you in a better position to serve your clients.
— Don’t discount! You can add value to your services in order to justify your price, but when you train your clientele to pay less than your worth then you end up undermining yourself. There’s a simple equation that was taught to me by one of my mentors that a lot of people miss. It is very logical and goes like this:
Let’s say you sell widgets. Each one costs $100. Your cost basis is $70 so you make $30 per widget. If you sell that widget at 10 percent off, you’re selling it for $90 but your basis is still $70 so you’re now only making $20 per widget instead of $30.
Now imagine you want to make $1,000 in profit selling widgets. That means you have to sell 33.3 widgets with a $30 margin to make $1,000.
($30 X 33.3 widgets = $1000)
But by discounting the price 10 percent, you need to sell 50 widgets.
($20 X 50 widgets = $1000)
Why would you want to sell 50 percent more widgets (33.3 X 1.5 = 50) to make the same profit?
Go the other direction. Increase the price by 10 percent to $110 per widget.
Now you’re making $40 on the margin for the product. If you want to make $1,000 profit, you need to sell 25, not 33.3 widgets (25 x $40= $1,000). Will you lose 25 percent of your market if you increase your price 10 percent?
If you’ve taught all your customers to shop by price, then yeah, you may lose some of your customers but if you’re offering value then the likelihood is no, you won’t lose many.
Pricing strategy is one of the questions that I sort out with business owners when I sit down with them to review their margins. I have a magical proprietary software that runs the numbers and spits out the best plan for increasing revenue and covering costs. Want to run some numbers? Give me a call.
Want to hear my lustrous radio voice and see my chipmunk cheeks just one more time? Then watch the podcast again!