July 19, 2024
Small Business Q&A
One of the surprising things about my recent foray into the world of gaming LinkedIn for fun and profit has been that an increasing number of people have reached out to interview me for a podcast or blog.
One interviewer recently sent over some prep questions and I typed up my thoughts to get ready for the call. Figured I might as well share my answers with y’all here on the list :-)
Here you go...
Q: Why is pricing important to a small business?
Pricing is arguably the most powerful and direct lever the small business owner has to improve their marketing, sales, and, ultimately, profits.
Q: How can small business owners factor in their costs and break-even points in pricing?
The main thing is for the owner to realize that their salary is not profits. It’s a cost.
Think of it like this...
If you hired someone as good as you to do your client work while you sat on the beach, how much money would you have left over at the end of the year?
None, that’s how much.
Why?
Because your business is not profitable.
Q: What factors should small business owners consider in pricing their product or service?
The main thing is to set their prices based on the value delivered to their customer, NOT the cost of delivering the service.
Q: How can small business owners use market research to determine the competitive landscape when it comes to pricing?
Look at your competitors through the eyes of your ideal client. Odds are good that they all look more or less the same to your clients.
Then find a way to be different in a way that is meaningful to your ideal clients.
For example...
If you google for “plumbers near me” you’re going to get dozens of websites that look nearly identical. In a case like this, you’re probably going to pick one based on price because it’s the only difference between them that is meaningful to you.
A plumber who wants to break out of this "apples to apples" trap could try something novel, like packaging their expertise as a subscription service that promises the customer will never have to worry about water damage again.
Wealthy homeowners might pay hundreds of dollars per month on subscription as a sort of proactive insurance policy that helps them sleep better at night.
Q: What are the main pricing strategies small business owners should consider?
Value pricing, subscription services, productized services, and possibly in the long term, products.
Q: Do you have any advice on how small business owners can adapt their prices for different markets and segments?
Starting out, I wouldn’t try.
It’s too much work for a small business owner to deliver amazing value to a wide variety of clients.
So what do you do instead?
Deliver amazing value to one market.
Of the segments you’re considering, pick the one with the most buying power and focus exclusively on them for at least a year.
Q: What tools and techniques can small business owners use to monitor and adjust prices?
This isn’t really a tool, but I’d recommend you find a way to innovate on a regular basis.
Most small business owners just try to keep getting better at what they do and never look for novel ways to package and deliver their expertise more profitably.
Q: What are the most common pricing pitfalls for small business owners, and how can small business owners avoid them?
Hourly billing is the most common pitfall. It’s a trap that keeps you busy and unprofitable.
Another common pitfall is setting your prices based on your costs instead of the value you’re delivering to your clients.
Your prices will determine your costs, not the other way around.
Q: Are there any tools and resources you can recommend for pricing services in a small business?
Built To Sell and The Automatic Customer by John Warrillow are both excellent books for small service business owners. And for folks who are still billing by the hour, I’ll plug my book Hourly Billing Is Nuts :-)
That’s it for today!
As always, please hit reply and ask if you have any follow-up questions.
Yours,
—J