By: Dr. Ada Barlatt
One of the hardest aspects of starting a small business is pricing. Even if you have done your research and feel pretty good about where you’ve set your prices now, you may find yourself feeling unhappy or growing resentful down the line. Not a good feeling!
The good news is that you can master pricing if you change your perspective. With my background in Industrial and Operations Engineering, I love to find straightforward ways to help small business owners. In the process of building a set of small business growth calculators and dashboards, I spent quite a bit of time reflecting and researching pricing. I concluded that pricing is both a science and an art.
With this in mind, let’s discuss how to know if your pricing is working and what to do if you discover it’s not.
The Pricing Cycle
Knowing that pricing is both a science and an art is useful, but it doesn’t yet give us much direction for thinking clearly about how to make pricing work for us. Here, I think it helps to think in terms of business operations.
From an operations perspective, I see pricing a cycle. There are three parts to the “pricing cycle”—you (as the small business owner), your business and your customers. Each of these parts informs the other and all must work tightly together for the cycle to continue.
As the business owner, your role boils down to setting the vision and listening to feedback (e.g., testimonials, key metrics, other data). Your business’s role (and yes, it’s important to think of your business as separate) is to convert your vision into action (via streamlined processes) and provide high-quality results. From there, your customer’s role is to enjoy the fruits of your labor and provide feedback (through, e.g., testimonials, survey responses, conversion rates, and responsiveness).
Is Your Pricing Cycle Working?
When the cycle is working well, your business is continuously improving and growing. When the cycle is not working well, you know.
- You feel resentment: the amount of time and energy it takes to provide the results doesn’t match up with the amount of revenue being generated.
- You feel desperate to find new clients: you do what it takes to serve your customers well, but at the same time, you aren't making enough money and feel constant pressure to get new clients. Your cash flow off and it is stressing you out.
- You feel overworked: you have so much work that you are exhausted and overwhelmed. You are working so much in your business (because the demand at your current price point is so high) that you don't have time to work on your business. You have money, but not time, and are feeling burnt out.
- Your clients aren’t happy in the end: the feedback you are receiving through the customer journey isn’t matching up with the effort that you are exerting. Examples here include (a) potential customers not resonating with your marketing or (b) existing clients complaining—both of these are reflected in your metrics.
So, if your pricing isn’t working, what can you do about it? Well, you have several options, but here are a few to consider:
- Raise your prices. Raising your prices allows you to work with fewer clients and gives you more time to deliver great results. What you do is valuable -- own that fact and know your worth.
- Change your target audience. If you know that what you are offering provides value, but are still experiencing low conversion rates and/or hearing complaints, this could mean that you are barking up the wrong tree. It may be time to consider other markets or pivot in a new direction to find your ideal clients. Also, if you are spending time with people who don't see your value or complain about your pricing, it is definitely time for you to move on. Remember, if they can't see the value, it’s their problem, not yours.
- Look at your systems. Recognizing when your current systems aren't working and investing in your processes, could be the time-saving boost that you need to get your cycle back into alignment and get your business back to growth.
In short, if you discover your pricing strategy isn’t working, it’s imperative to take an honest look at yourself, your business, and your current customers. This means pulling data, examining your metrics, and asking others their perspective about what’s working or not working.
[Related: Selling – An Art or a Science?]
Here’s where the art and science of pricing comes back into play. There’s no substitute for taking a close look at your pricing cycle and making smart adjustments when something feels off. Once you have the numbers, you get to make the decisions, you set your own path! Your metrics can provide you the insights you need to grow your business!
Dr. Ada Barlatt, Ph.D. is your cheerful OperationsAlly. She empowers with small business owners, like you, to systematize, streamline and automate their use of small business tech. If you are a small business owner that knows that tech can help you grow but aren't sure where to start -- let Ada be your Ally! She been featured by the Ellevate Network.
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