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What if we told you you could—and arguably should—be charging more?
Many of you are probably hesitant to believe us, which is why we are thrilled to be talking with CPA, certified coach, and business cheerleader Sheila Hansen!
By supporting other female business owners and being a business owner herself, she has seen first hand the challenges and struggles that we—as women—face when it comes to finances. Sheila is on a mission to help female business owners feel confident about their money and build wealth, without the burnout.
And, on this episode of Priority Pursuit, she’s breaking down the power of value-based pricing for small businesses and how you can implement it in your own company.
What is value-based pricing for small businesses?
According to Sheila, value-based pricing is really just thinking about how you set your prices and basing it off how your customers perceive the value of your product.
If you think of the big picture, everybody has different needs. They value different things at different degrees for different reasons and at different times. With this in mind, it becomes important to specifically offer your client what is going to be the most valuable to them and price it accordingly.
What are the benefits of adopting value-based pricing for small businesses?
Growing up in our current society, we have the idea that pricing should be based on time. That’s why we have hourly billing, hourly pay, etc. As such, it’s natural for new small business owners to set prices based on those same metrics. “I made X amount of products in a year and worked 40 hours a week, so I need to charge Y.”
Or, business owners get hung up on the pricing of individual products or deliverables—for example, a photographer getting hung up on the difference between five images from a photoshoot versus twenty.
But to Sheila, there is so much more to it than that. In fact, thinking and pricing this way can be a disservice to both you and the client.
A Win-Win Pricing Model
Your clients don't necessarily care how long it takes for you to do your job. In the end, it doesn’t change their outcome if it takes more or less time. But by charging hourly, you’re creating a sense of opposing values. Your customer is going to want it to take less time to keep the price down while you’re going to want to earn a larger income. With this mindset, there isn’t a mutual benefit to both parties.
Meanwhile, with value-based pricing, you are focusing on the quality of the product or service and the value it holds for your customer. The biggest benefit of this is that it helps your business determine your priority and where you should be focusing your time and energy and where you’re going to make the greatest impact.
As we’ve spoken about before on Priority Pursuit, it’s important for every small business to have a main focus or niche. If you focus on what is valuable to the client and tailor your specific processes and services around what’s valuable to them, you create a win-win situation for the both of you.
For example, think of a bottle of water. There’s a different price for a bottle of water depending on where you are—the gas station, airport, grocery store, etc. These different locations, on top of other factors, such as the weather, impact how much somebody is willing to pay for that bottle of water. Your services should be thought of in a similar way.
How can small businesses apply value-based pricing?
When it comes time to apply value-based pricing to your business, there are two things to consider: the mindset and the tactical “how-to”.
It all starts with a conversation with your clients—whether that is market research or just listening to your current and potential customers. This can be simply asking for feedback after you delivered something or, if they’re buying a single product, making sure you check in with them to see what was valuable to them or if they could rank various elements of their experience.
You then need to listen to these conversations. What are you constantly hearing from people? For example, Sheila repeatedly heard that people felt they couldn’t get in touch with their CPAs. Communication may feel very simple, but without those conversations, Sheila wouldn’t have realized how much value her clients placed on it or put in measures to ensure she provided the best possible communication.
It really starts with asking the right questions to your customers or potential customers and finding out what they feel is valuable.
Different clients have different values.
Values can vary depending on the product or the customer. Sheila gives the example of a photographer shooting a family portrait session or a branding session. While at a glance these appear to be very similar and may take the same time or effort, they have different levels of value to the customers.
In a family session, you’re capturing memories. But, you’re not necessarily going to use those to help build a business or bring in revenue. It’s just a picture you’re hanging up on the wall. With that in mind, the outcome or end result is capped for that client.
However, with a brand session, you’re using images to portray something to your customers. It’s going to be on the website, in marketing, on social media, etc. The value then increases because there is an increase in the potential for the product. What you’re portraying and the quality of those images matters and will change the outcome of that potential customer’s business depending on how and when they use those images.
So while a brand session and a family session may create similar physical products, they can produce different potential outcomes for the customer.
Depending on your audience, different people are going to value different things. Sheila mentions it’s kind of like going through and looking at all of the levers that you can potentially pull within your offer or business that will help produce a different value to the potential clients. But for the most part, it really is just asking for their input.
How can small businesses determine what to charge?
The big question then is, “How much do I charge?” To Sheila, this lies in the mindset. You may be looking for the “right price,” but there isn’t always one right answer. It’s more of an experiment, and it’s important to treat it as such to figure out where that price point is.
The experimenting never really ends.
The concept of experimenting with your price goes back to continuing to get feedback. If nobody’s inquiring about a price that you have on your website, try to get some feedback as to why or do an experiment with a different price and see if people start inquiring then.
It comes down to listening to the conversations that you’re having and continuing to adjust, which goes along with the concept of creating a niche. It’s never an end destination. You don’t just arrive at a final ideal customer or product. It’s continuing to adapt and adjust and figure out what those characteristics are and giving yourself permission to try something else if it’s not right.
And the same goes for pricing. From an internal perspective, you do need to know your numbers. It’s important to know what it takes to run your business so that you aren’t going backwards or underwater on certain projects. But overall, when you’re coming up with pricing, it is important to treat it like an experiment of what’s gaining traction and what’s not.
One of the questions Sheila thinks is super valuable for this situation is asking clients, “If I were to change your package or your offer, and I were to charge you $1,000 more, what would make it worth that price?”
This question helps you put a dollar amount to different things that they would find valuable or not valuable. If that means they’re getting to the results twice as fast, then they’ll let you know. Or, if it means they’re having additional communication or that there is something else that’s helping them make that decision, you’ll have an understanding of what they view as important.
It’s important to pay attention to your audience.
Sheila shares value-pricing also comes down to who you’re trying to serve. If you think about it, there are people charging hundreds of thousands of dollars for something that other people are charging $1,000 for. Why? Because they’re serving a different customer. The value to that customer is different. So, you have to make sure you’re communicating your specific value and attracting the person that would see that value.
Why do small business owners—especially women—struggle to charge what they’re worth?
The first thing Sheila wants to clarify here is the concept of self-worth. You are worthy simply because you were born, period. There is no level of anything that you do or don’t do that will change your worth.
However, this element of self-worth tends to feed into pricing. Many small business owners find that their sense of self is often tangled up in the success and progress of their business. When this happens, you’re no longer just promoting or pricing your products or services, you’re also pricing yourself and your own worth—which can complicate both you and your business.
This is especially true for women. For generations, women were raised to put the needs of others before themselves and to not have the voice and confidence to ask for what they need. Sheila believes this comes into play when women small business owners debate how much to charge. That sense of lowered confidence or self-esteem can cause women to feel they need to keep their prices lower to accommodate potential clients.
According to Sheila, if you can separate who you are as an individual and what you have to offer this world from what your business is doing and its success, it becomes easier to charge more.
What are some examples of how value-based pricing for small businesses can help increase profitability?
When Sheila began working with one particular client—let’s call her Janice—Janice wanted to offer all kinds of different services to all kinds of people. But, Janice wasn’t an expert in all of those elements or areas.
When it came to looking at Janice’s business and how to increase profitability, it became a question of can these clients be getting better service for each one of these things somewhere else. Does it make sense for them to come to Janice for all these things?
When Janice then started focusing on what service was most valuable, she and Sheila got to dig into creating offers and packages around a very specific element. Then, over time, as they peeled those unnecessary pieces off, Janice was able to lower her expenses by reducing the number of contractors that she was using to try to serve all these different areas. And because Janice was now only focusing on one or two areas and providing one or two offers in those areas, her profitability skyrocketed.
Janice was also able to change the time and effort it took to run her business. When she had all of the different clients and contractors to manage, so much of her time was spent just managing the business and not actually providing value to any of the customers. Now, she’s able to dedicate her time to what best serves her clients and her business.
Shelia’s Experience
Sheila can even speak to her experience in her own business. When she was trying to serve all different types of clients in all different ways, she felt like she was getting pulled in different directions and not making a lot of progress, which can quickly lead to burnout.
But when she honed in on who she specifically wanted to work with and how, it became much easier to run her business because she could then anticipate what those conversations were going to be before they ended up happening. She understands her clients’ minds and knows exactly what the next step will be.
And, by focusing on the same kind of client and work, she no longer has to reinvent a process for each person she works with. Instead, she can use a tested and proven system and modify it for the specifics of her clients.
How can small businesses effectively communicate the value of their products and justify their prices?
The biggest challenge, in Sheila's mind, is making sure you step into the customer’s shoes. Business owners often think in terms of deliverables—a meeting, ten social media posts, a report, etc. You need to be able to take a step back and see what problem the customer is facing and what they’re looking for as far as results or an outcome go rather than a physical deliverable. The more you can shift your wording and communication to focus on that, the more they’re going to assign value to what you are offering.
Using photography as an example again, Sheila explains that 100 images could either be really valuable or not valuable at all. It could overwhelm the client to get 100 pictures that they have to go through and try to figure out how to use. Or, it could be super beneficial for them to have a wide variety of shots to choose from. You need to be able to understand what it is the client is needing and then communicate the way you can solve their problem and get them to their desired outcome.
There are also different sales strategies you can use depending on what you offer. Sheila has found that offering tiers is rather valuable for her clients.
If you give them two to three options, then you’re shifting their decision from a yes or a no to a “which of these” works best. It’s important to highlight and educate them on what it is they’re getting in each tier or option, but be sure to frame it in response to what’s being solved.
For example, “This tier is more expensive because it gets you faster results while this one is going to keep you where you’re at.” It helps them know that you’re presenting options to them that make sense rather than just throwing options out there to give them lots of choices.
How can you get started with value-based pricing for small businesses?
It all begins with taking a look at what you offer and how you service your clients right now and determining what the recurring themes are. What is most requested? What do your clients see you as an expert in? These are the basis on which you can build other elements of your business and services.
Then decide what the levers are that you can pull. What can you change or add to make your services more valuable to your customers?
A good way to think about the value is to think about the strategy behind whatever it is you offer. The strategy and end goal is going to be more valuable to them than that ongoing maintenance. Your value, then, lies in helping them see that big picture and the value they’re creating with the help of your service or offerings. So, when you shift your business model, your systems, and strategies around that, you can begin filling in the gaps where you can take advantage of things.
It’s also important to look at your own priorities and goals. Do you want your business to run fewer hours a week? Are you building the business to grow and eventually sell to someone else? All of that is going to impact the structure of how you go about running your business.
If you’re interested in learning more about the power of value-based pricing for small businesses, be sure to listen to this whole episode (at the top of the page or wherever you listen to podcasts) to hear more about Sheila’s experience. If you’d like to connect with Sheila, you can check her out on LinkedIn and Instagram or visit her website: https://www.hansenllc.net/.
Links & Resources Mentioned in This Episode
- Visit Sheila’s Website
- Receive 30% Off Your First Year of HoneyBook
- Learn More About Treefrog’s Small Business Marketing Resources & Services
- Join the Priority Pursuit Facebook Community
- Follow or DM Treefrog Marketing on Instagram
- Follow or DM Kelly Rice on Instagram
- Follow or DM Victoria Rayburn on Instagram
The Priority Pursuit Podcast is a podcast dedicated to helping small business owners define, maintain, and pursue both their personal and business priorities so they can build lives and businesses they love.
You can find The Priority Pursuit Podcast on Spotify, Apple Podcasts, Amazon Podcasts, Stitcher, and wherever you listen to podcasts.
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