Over at Scoutie Girl, I write a lot about mindful spending. In other words, encouraging others to think about where their money goes and what kind of goods or services they get in return. And today, thinking about my own issues with pricing and then reading a fantastic article by Dave Navarro (no, not that Dave Navarro) on pricing to build a success identity, it hit me:
mindful earning is just as important as mindful spending.
Here’s an example of how price will affect the mindful consumers checking out your business:
An independent sandwich shop that my husband and I used to frequent quite regularly recently put up a gigantic sign advertising that all of their sandwiches were now $5.
Really?! The reason we used to frequent this shop is because they offered good food at a reasonable price ($7-9 for a sandwich). The sandwiches were creative, contained good ingredients, and were always prepared fresh. My gut – quite literally – tells me that those things can’t all be true if the sandwiches are now $5.
Something’s gotta give.
So, instead of that sign inducing a visit for delicious sandwiches, I’ve avoided it – and probably won’t go back.
The first problem here is that I am that joint’s target customer. I like good creative food, made out of good ingredients, and if it’s prepared fairly quickly all the better. They lost their target customer by dropping their price. I wouldn’t be surprised if traffic has suffered because of the price – and because the price is lower, they don’t have as much margin to accommodate for a dip in traffic. Will they be able to sustain their business if they are missing out on their target customer? Doubtful.
The second problem is that by lowering their prices they are almost certainly unable to pay or maintain their staff adequately and unable to purchase quality ingredients. That affects others livelihoods & businesses. They are hurting their supply chain because they’ve devalued their product.
By pricing their product to the lowest common denominator, the sandwich shop has moved away from sustainability. And it’s probably hurt others in doing so.
setting prices with a conscience.
Pricing is a cornerstone of creating a sustainable business model. It is also one of the least understood (by me included!) and most terrifying parts of building a business – especially one that thinks big.
But pricing is an amazing tool for communicating who you are & what you do to the right people. Pricing is a tool for creating a business that sustains you, your family, your business partners, and the wider economy. Setting a fair price – to you & to your customers – is the key to have a successful, sustainable business.
Rule #1. Price your services or products at what your ideal customer expects to pay for them.
Your ideal customer is not you. You won’t pay much for your service because you can do it yourself. Your service has no value to you. If, in your mind, your ideal customer is yourself, reevaluate your ideal customer right now.
Your ideal customer is someone who puts a great value on the service or product you offer. You are saving them countless hours of their valuable time. It’s your job, though, to mindfully consider what your service is worth to them. Set your price at this value and not a penny lower.
When you set your prices lower than what your idea customer expects, many will question your product or service. They’ll question your expertise. They’ll question your ability to drive results. They’ll question your quality. No – this isn’t a fear that big box stores have, but you’re not a big box store. You are a business that is completely reliant on your own reputation. Your prices – mindfully set – reflect on your reputation.
Rule #2. Price your services or products according to the pace you can sustainably maintain with your business.
If your prices are too low, you will be forced to work unsustainable amounts of time or be forced out of business entirely because your margins are so low. Having reasonable prices contributes to the sustainability of your business over time.
To be mindful about your earning power, you really need to come to terms with what your goals for your income are and how that affects your ability to do business long term. You also must consider your goals for how you will contribute to the greater economy. What services or products (whether necessary or frivolous) do you want to purchase from others? What kind of home do you want to live in? Will your business be employing others?
These decisions are not made in a vacuum. If you put a cap on your own earning by setting your prices too low, you are in essence being negligent of your responsibility as a contributor to the economy. Your role in society is limited.
Rule #3. Price your services or products with your colleagues in mind.
Mindful earning takes into account the price your colleagues – or if you prefer, competitors – charge. When you mindlessly engage in price cutting to attract customers that don’t really want your product or service, you start to devalue the whole industry. You deflate the true value of what you and others do.
Your business becomes less sustainable and again, you put a cap on your own income potential.
If you really feel that your business isn’t worth what others are charging, you probably need to reevaluate the service or product that you’re offering. But more likely, you are unfairly judging your experience & value to a customer in relation to another producer’s value. Been there, done that. Try not to do it anymore…
Pricing wars don’t help anyone – including customers. Charge what your service is worth, expect others to want to pay that price.
but what does it all mean?
Earning money, and sizable sums of it, is not a crime. Charging what you need to stay in business, help grow your industry, and give back to others through your own purchases is an essential part of growing a sustainable business that has a conscience.
Earning money mindfully means that you and your business contribute to the larger economy in the best possible way!
Don’t be afraid to earn what you’re worth. Don’t be afraid to grow your business for the benefit of yourself and others. Be truly mindful of what you need to earn and build your business accordingly.
Like this post? You’ll love Megan’s post on how earning more means there’s more to give!
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Amen!
thanks, girlfriend
the sandwich shop is trying to compete with subway, which they can’t, instead of blazing their own creative path. each business has it’s own decisions to make, understanding your real competition is important and charging a real cost is paramount. great post.
exactly right, nick. i think to truly understand our businesses, we have to view them through the lens of your “real competition” AND through the lens of the real cost of doing business.
Thanks for another well thought out post! I am in the process of creating realistic, sustainable prices for my work after the ever popular selling myself short. Fortunately I realized my error before my “sandwich shop” became popular.
shwuh, gwyn! it is so much easier to do it before your biz takes off! i got lucky with that too
of course, it’s so much easier for your business to take off when you take your prices seriously, too!
Charging what you’re worth also acts as a very smart filter for attracting the types of clients that are right for you and your skills. Too often, low prices attract clients who simply don’t understand the value you provide. If client’s don’t understand how to incorporate your fee in their grand ROI scheme then you’re better off letting them walk away.
As for the sandwich shop…you ought to plan a meeting with them to see if they can benefit from your expertise. Chances are they’re just hungry for bigger profits and they don’t understand how to get them. If you love the place that much, go an offer your services. It’s always easy to sellabrate what you love.
precisely, tracey!
and you’re right, i need to start courting a lot more local business. there’s an entrepreneurial spirit here – but consumers aren’t entrepreneurial biz savvy… if that makes sense. so a lot of biz owners get frustrated fast.
Great post – this is all so true, Tara. I’ve been thinking about sustainability and under-earning a lot lately. I’ve undervalued myself for so long, partly because I was in that ‘starving artist’ mindset. It’s taking a lot of effort to re-educate myself and realise that I deserve to earn an income from my art and expertise but it still doesn’t come easily.
I’m blessed that my family doesn’t need me to earn an income. However, unfortunately I’ve also got the handicap of being chronically ill, which really puts a spoke in my grand plans for world domination. So my pricing also has to take my rather shaky health into account. Sigh, this stuff is all so complex…
thanks, kirsty! seriously – i’m a big champion of this but i have such a hard time with it as well. i figure the more people i can get on board, the more accountable i have to be – right?!
ah, world domination. i think we can all have it on our own terms – but it does take really understanding yourself, your needs, and an authentic business plan!
Pricing is something I have struggled with since I started my business. I actually feel bad about asking a price that I cannot afford myself for a product. I have been reading your blog, your e-books, and have read on Megan’s site quite a bit. I am starting to change my mindset. You are totally right about setting a price to ensure longevity of the business as well as quality!
“I actually feel bad about asking a price that I cannot afford myself for a product.”
Yes. I totally struggle with this too. But ya know what? I think that mostly comes down to your ideal customer not being you. There are things you spend money on that others wouldn’t. There is nothing wrong with courting a higher end customer especially – and not in spite of – if that helps your become a higher end customer.
That’s how the American consumption-based economy was supposed to work. But somewhere along the line, huge corporations stopped making it a point to move lower earners to higher earners. And we all suffered. Small – even micro businesses – can reverse that.
fantastic tips!
tara,
Thanks for your article! I am struggling right now with this same topic, I want to produce a new project that I’m having a terrible time pricing, and people are exclaiming it’s too much, when in the back of my mind, I know I need to be fair to myself. I can’t let myself be my own customer! People have said, “I don’t know if there is a market for that” and I know that there is. It’s hard when your close friends and family don’t understand the value of what you do. always love your advice!
Great post: thank you!
While I agree with you in general about asking for the right price, I disagree with your comments on the sandwich shop. If I saw a sign saying $5 sandwiches, I’d be curious and want to find out how/if the sandwiches are different, and maybe talk to the owner or the counter people to find out more.
I immediately thought about my local favorite cafe which offers $7 – $9 per sandwiches, a price that I and most people I know simply will not pay. We’ve figured out, though, that we can buy the bread and cold cuts alone for around $3 at the same place. I really love this shop and I like the owners, and I’d rather spend the $3 there than at any other place in the neighborhood. I don’t really need the super fancy sandwiches they sell for $7 and I would probably buy a simpler one for $5 if they had it.
Perhaps because I’ve been going to them for years and they have my respect, I certainly wouldn’t write them off if they lowered their prices a bit!
This is a great article! Here’s another challenge… Those of us who are trying to make a living with arts & crafts have to compete side-by-side with people for whom this is just a hobby. Some hobbyists only want to make enough to pay for their supplies, whereas the rest of us also need to pay for our time.
Great article, Tara, and one which has come at a perfect time, as I’m about to raise this very issue with fellow colleagues.
As a photographer, my initial barrier to securing a job has become more tricky since the dawn of digital. Because everyone has a camera, more and more people tell themselves that they can save money by taking care of their photography requirements themselves.
Invariably, this is a false economy, and as a result, I am seeing some lovely websites/brochures/magazine features ruined by lousy pictures.
The first question would-be clients ask is “How much will it cost?”… whereas they should be asking “What is the value to my business/product/service of hiring a professional photographer?”
In this article, you state “When you mindlessly engage in price cutting to attract customers that don’t really want your product or service, you start to devalue the whole industry. You deflate the true value of what you and others do.” This is absolutely true!
I know of one particular photographer in my area who is currently offering a full day’s corporate photography at an astonishing 63% reduction. This action reeks of desperation, of course, and is completely irresponsible as far as I’m concerned. What’s more, he should know better, having been in the industry for at least 15 years. When the economy recovers, it will now be even harder for those in our industry to command fair (and justified) rates.
By comparison, I have put my prices up twice in the past 18 months, and have seen no negative impact, as I continue to grow my brand and attract the sort of customers I want to work with.
Excellent post. So glad to see ideas like these being presented in a widely-read blog. It’s especially good to see you busting the “price-it-to-make-it-affordable-to-every-single-person-I-know” myth.
I shudder when reading “success story” interviews with craft makers/sellers who work 16-hour days and talk about how they’ve changed their lifestyle to deal with the fact that they’re now living on half their day-job income. If you call that success, I respect that. But…
People who shrink from the notion of increasing their prices should ask themselves what would happen if they had more spending money. Here are a few possibilities that come to mind:
less or no need for public services/assistance
better personal spending power—to buy things that have also been priced fairly
more time for relaxed, meaningful interaction with friends, relatives &
acquaintances, making new friends…
You can have a great “ripple” effect by losing the “I-don’t-wanna-be-greedy” mantra—without being greedy. Wall Street executives are greedy. You’re not.
I like what you say about pricing.
This is none of my business, of course, but since your business is the web, and helping people have spiff sites, I’m surprised to see a couple of typos in your post. You know?
I’m actually a member of your target market, a person whose web presence needs spiffing, but I’m put off at a gut level by that.
Hey Kate – I appreciate you calling out my typos. Well, it irks me – but it’s always good to fix the things I mess up!
Truthfully, my strong suit is not details. I try to be as mindful of details as possible but in the end, my business revolves around strategy. I bring people in make sure my t’s are crossed and my i’s are dotted. And yes, I’m aware that technically, there shouldn’t be apostrophes in that last sentence!
Unfortunately, my detail-oriented peeps don’t proof my blog posts. That being said, my blogs are living, breathing creatures that I work at improving daily – so fixing typos a day or two after publication is just something I’ve learned to live with. And while details make a great impression, in the end, it’s not the thing that makes or breaks a business.
I appreciate your comment!
This is great post. As with most crafters – I have been struggling with my prices. So after looking at other posts and talking to my friends. I have decided to increase my prices to better show the quality of my work. Your post has given me the courage to see what happens. Thanks.
I like this,the best for you!
Interesting article. You have addressed the most touching aspect of “Pricing” for a woman business owner like me, in a very clear and concise way. Thanks Tara.
I love going into local businesses and looking at pricing, customer service, and everything that they do. It is amazing how some of them survive, yet they seem to… for a while.
Every place where you visit or shop is a learning experience.
I hear you Tara. I’ve learned not to do anything for free anymore, even a contribution of 2 euro makes people be more aware of where they are and what they are doing there. Not easy though for a social service as mine…