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Episode 86: 5 Pricing Mistakes to Avoid
173 Plays5 years ago
BTB regular, Vanessa Kynes, joins me for a conversation about 5 pricing mistakes I see businesses make. We talked through lots of different examples and scenarios and we also try to dive into some related questions, such as in what sort of circumstances is it okay to offer things like discounts. All that and more in today's episode! Be sure also to check out the show notes and corresponding blog post that contains a few additional thoughts on this topic.
For the show notes, go to https://daveyandkrista.com/btb-episode-86/
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Transcript
Pre-Pandemic Context
00:00:05
Speaker
An important note about today's episode. It was recorded prior to the pandemic and subsequent quarantines, which we're currently in the midst of. We wanted to mention this because one of the things we talk about during this episode is not discounting your time. And under normal circumstances, I really think that people should be hesitant about ever discounting their time. However, the world is not currently working under normal circumstances.
00:00:31
Speaker
And we understand that people, of course, need to do what they need to do to keep their businesses going during this tough time. So, as you listen to this episode, please keep in mind that it was recorded prior to current events. Thanks for listening, and we hope everyone is staying healthy.
Introduction to Pricing Mistakes
00:00:51
Speaker
Welcome to the Brands at Book Show, where we help creative, service-based businesses build their brands and find more clients. I'm your host, Davy Jones.
00:01:04
Speaker
BTB regular Vanessa Kynes joins me for a conversation about five pricing mistakes I see businesses make. We talk through lots of different examples and scenarios, and we also try to dive into some related questions such as, in what sort of circumstances is it okay to offer things like discounts? All that and more in today's episode, be sure also to check out the show notes and corresponding blog posts that contains a few additional thoughts on this topic.
00:01:31
Speaker
And as always, I wanna hear from you. Let me know what kind of content you'd like to see on the Brands That Book podcast as we move forward to leave your feedback. Head on over to Davey and Krista Facebook page and send us a message. You can also send us a DM on Instagram at Davey and Krista. Now onto the episode.
Story of a Haircut Discount and Valuing Services
00:01:55
Speaker
Vanessa, welcome back. One of a number of podcasts we're going to be recording, not today necessarily, it's a Friday afternoon, so I don't know about you, but this is the last work item before the weekend.
00:02:07
Speaker
I'm a little bit behind today, but yeah, I'll be wrapping up soon. We're also not really good at brevity, so trying to cram two into one slot or one hour. We've learned that lesson. Here we are, but today we are talking about five pricing mistakes. I know we have done an episode about pricing before, and the episode that we did on pricing, I think it was called Getting to Yes. Basically, how to present your pricing, maybe a little bit of how to create your pricing.
00:02:30
Speaker
These are more just a few mistakes that I see people making when it comes to pricing. Let me tell you how I started thinking about this or why I wrote this post. It's because I was at the barber. I went in, I didn't really need a haircut, but I was going to an industry retreat earlier this year and I just wanted to make sure I didn't look like a bum.
00:02:55
Speaker
So I go to the barber, I sit down in the chair. I'm like, hey, listen, could you really just kind of clean me up, you know, take it off my ears, yada, yada. So the guy's like, fine. And it's a younger guy. He actually opened the shop. His parents helped him. His parents previously owned a barber shop in the area. So a great little family spot. Really have enjoyed going there. So he's the owner. He's cutting my hair. It probably took him
00:03:16
Speaker
about the same time to do all of that as he normally does, right? But at the end, he was like, hey, listen, I think he charged me like 15 bucks. I think it's usually like 20 maybe to get a guy's haircut. And I kind of stopped there and I was thinking to myself, I'm like, no, no, this is a terrible. I mean, first of all, there's other people here. I took up time in his chair that he could have devoted to somebody else. And he did basically the same amount of work and he's giving me like a 20% discount.
00:03:47
Speaker
So anyways, thinking to myself from a profitability standpoint, I'm like, this guy can't just do this all the time. It's not profitable. All right. Do you have any initial thoughts on that story? Am I overreacting to this?
The Dangers of Discounting Services
00:03:57
Speaker
Well, did you tip him well? I did. And so what I did was I tipped him the amount to get him to what I would normally pay him with tip, right? So he made out well, right? Like it actually turned out well. And I should say like, I'm not like, of course, there's something to be said for like, I go in there a lot.
00:04:15
Speaker
Yeah, the recurring kind of subscription model. Yeah. And there's just something to be said, like, you know, he hooked me up. And so maybe that makes me more likely to talk to, and I have, I feel like, you know, I've talked to other people about the shop in, in Annapolis here. So I get all that, but I was thinking like, you know, he could have charged me full price and I wouldn't have blinked.
00:04:34
Speaker
you know, and I would have been just as happy with him and the services provided and all of that. But it made me think that I see this mistake, I think, being made by a lot of service providers especially.
Understanding 'Get Out of Bed' Pricing
00:04:47
Speaker
All right. And so one of the first things that I wanted to talk about was never discounting your get out of bed collection. Okay, you're gonna need to explain what that means.
00:04:57
Speaker
Yeah, so we talked a little bit about, I think, your get out of bed price in the first podcast episode we've done. If not, I've wrote about it in a blog post somewhere. I have a couple blog posts about pricing now. So one's getting to yes, the other is a super simple guide to pricing. You can find those both on the blog. I'm sure they'll be in the show notes as well. But that lowest collection, and by lowest I mean that most inexpensive collection, to me should be your get out of bed price. You shouldn't have a price that you're not willing
00:05:26
Speaker
Get out like you're not happy to get out of bed that day and go work that job right and occasionally I'll walk I'll talk to you and I'm thinking of wedding photographers in particular here for this example but it would apply to any service provider where they have a collection and they're like I just really hope nobody books it.
00:05:42
Speaker
You know, it's like they're low collection. I'm like, I really just hope nobody books this collection. That collection shouldn't exist then. You know, we didn't want to when we were wedding photographers work anything less than seven hours. And the reason being is because we felt like we would have to rush to produce the quality that people would see on our website in anything less than seven hours. And so we decided like, hey,
00:06:04
Speaker
Seven hours is our minimum. This is the price for our seven hour collection. If you want us to show up and only work six hours, I guess that's fine, but this is the collection, right? So that's what I call our get out of bed price. So for sure, you're not willing if someone comes to you and says, hey, I don't need that. It's a small intimate wedding. There's not that many bright, there's not that many people in the bridal party. You would say not going to discount the service. I would say tough.
00:06:33
Speaker
Of course, I wouldn't put it that way. But I would say no. So one of the things that we also had in our collections, and I use this as an example in one of those other blog posts as well, is our engagement sessions. We always did engagement sessions. We did complementary engagement sessions because we wanted to build that rapport with people before their wedding day. It was just a valuable part of the experience. And of course, we'd have people say, well, I don't need the engagement session. Can you take X amount off as if whatever the a la carte prices of the engagement session?
00:07:01
Speaker
And we would just say no. And the reason being is because it was a, first of all, it was technically complimentary, right? And the second thing is, is we didn't want, we knew that that person would have a better experience. We would have a better experience if that person took advantage of the engagement session. Can you give an example of like how you would educate your client in a positive way? Take someone who's asking for a discount and turn it into someone who's excited to pay the full price. Like what's an example of an email response that you could give?
00:07:30
Speaker
Yeah, for sure. I think it just outlining. So in any case that that happened, and oftentimes it's over the Skype call. So we always did. And we still do for even for website design, a call before anybody books with us. And it's just going through that exactly like, Hey, listen, we find that having done an engagement session just gets everybody comfortable in front of the camera, your wedding pictures are going to look that much better. No one has ever come to us and has regretted
00:07:57
Speaker
done an engagement session prior to their wedding. Nobody comes and says, oh, I really wish I didn't have those engagement photos. Even for couples who maybe they got an engagement session before they booked a photographer for their wedding because it's in part of that relationship building between us and the client. So just explaining that to them
00:08:16
Speaker
I would say 99% of the couples that booked us decided to do the engagement session and really the only examples that I can think of were military and so it just wasn't possible for them to get maybe back into the area to do the session. That makes sense. That's good to have that exception. I like that. Yeah.
00:08:33
Speaker
Yeah, I'm thinking of there's other examples too that I don't want to jump ahead too far as I look into because this ties into mistake number two. But in general, I think that your time, think twice before ever discounting your time.
00:08:50
Speaker
Okay, products that don't have a time component to it and are a little bit more quote unquote passive and I think you know how I feel about passive income and it's a little bit of a misnomer, right? I just think that, yeah, okay, discount products but services always think twice about discounting time because you're really giving up more. For a couple to come to us and say, hey, well,
00:09:16
Speaker
We don't need seven hours. We only need four hours. Can we get a discount? Well, what are the ramifications of that? Yeah, in one sense, you're making less money than you otherwise could, but not just that. You're missing out on revenue that you can make off of a couple that would book whatever your typical package is, and it's not like you can work a second wedding in a day.
00:09:38
Speaker
Yeah. So you're giving up that Saturday. And so who knows how many inquiries you might get for that date. And I think that something that's smart to think through is off-peak times, you know? So for instance, the membership at our gym, we could get a membership where we could only work out between 11 in the morning and like three in the afternoon because those are their off-peak hours. And so they're really trying to get people in, I guess, during those hours. So it makes sense to discount that membership, right?
00:10:06
Speaker
Okay, side note, I see that in the notes. And I'm really dumbfounded by that. So do they like police you if you were to walk in? Like, does an alarm go off? Are you basically going to get in and they figured it's I don't know, to me, it almost seems like a marketing play. Sure. It might be a marketing play might
00:10:23
Speaker
be like a decoy price. And I think the psychology of pricing and selling is just fascinating. I have a book right next to me, The Science of Selling, that I've talked quite a bit about on other episodes that people should totally check out. I think it's just one of the most interesting books that I've read. So it could be a decoy price. I don't know if they police it because I don't have that membership. I have the one where I can go wherever. And really, the price difference between the two isn't super great.
00:10:47
Speaker
But just thinking through off season as well. For a while, we discounted weddings that were booked between December and March because it just wasn't a busy season anyways. We eventually stopped doing that because we just didn't like shooting between December and March and valued that off season to build the business and all. But Friday weddings, I know photographers who discount Friday weddings because to a certain extent, they'd rather work on a Friday, not give up a Saturday, and it's just a little extra incentive for somebody to book that photographer.
00:11:17
Speaker
And that makes sense. But, you know, discounting your get out of bed price, I think, will almost always come back to haunt you. I know in situations where we've discounted our prices, both in paid advertising for a till, both with Davey and Krista for brand and website design, and then also in the photography business, never have we ended the project, I think, and have said, oh, we feel really good about that.
00:11:44
Speaker
We're gonna be talking a little bit more about that low hanging fruit too.
Strategies for Profitable Services
00:11:48
Speaker
Can I make a little confession? Just a little confession. So I'm not a photographer and many years ago I wasn't a service based provider. And so I actually went to someone and it was her side hustle. She did family photography and I said, hey, can you take our photos and give me all the unedited images and I'll edit them myself. Like what would that cost? And she did it, which she probably, she said it was a weird request, but she did do it and maybe she was being too nice.
00:12:14
Speaker
But I think that that's why it's really important to educate your clients on why your pricing is set as it is because I mean, that's an example of me. I'm not a rude person and I promise you I wasn't trying to be rude. I was trying to save money on our kind of meager budget.
00:12:28
Speaker
But I think it is important, like you mentioned, in that call, in that client communication, that you show them the value they're getting by adding in that or by having that extra two hours or whether it's for getting more time and not feeling rushed. So just keep that in mind. A lot of us as non-photographers like we just don't get it. So just educate us.
00:12:47
Speaker
Yeah, and I think that's important to recognize. I think that one thing, and this is a little bit of a tangent, but I think one thing that we mistakenly do is write people off who have lower budgets.
00:13:02
Speaker
One thing about when Kristin and I got married, we had zero money. A friend of hers shot the only pictures that we have of our wedding. Now, looking back, of course, having just the experience that we've had, we, of course, wish that we had hired a photographer. But even if we could have hired a photographer,
00:13:17
Speaker
there was no way that we would be able to pay the prices that people had paid us when we were photographers, right? It just wasn't. But so do those people like Kristin and I in our situation, do they deserve no photography because they can only afford a certain amount and oh, that means that they there's no way they could value good work, yada, yada, yada. No, of course not. So I think sometimes we demonize clients like that maybe have a lower price point.
00:13:40
Speaker
But I do think that there is a burden on us as service providers regardless of what price point we're at to teach people or educate people on the value of your services. And then also just to understand, and I'm thinking specifically, I had a discovery call with somebody who was interested in website design and I really want to work with them and they seem really interested in working with us. But they basically had asked like, hey, is there anything that we can do
00:14:04
Speaker
are like basically is there anything that you could set up for us and start and then we could finish and maybe that would decrease the price a bit and eventually went back and said hey this is the lowest price that we can go and the reason is i know from experience that.
00:14:21
Speaker
This isn't like you're not going to have a great experience if we go this route and then it's not going to be a great experience for us. And at the end of the project, no one's really going to be super thrilled with the end result or the amount of work that you end up having to take on and maybe not realizing how much work that is. And that's simply what was communicated and there was no hard feelings about it.
00:14:42
Speaker
So, I think people appreciate service providers bringing that to the table and just saying, hey, listen, an engagement session is important for this experience. I know the value that you can get out of it. So, I think it's a mistake if you don't take advantage of it.
00:14:58
Speaker
And you know, as a side note, like, because we're so good at that. A lot of times you can create like when you have that person, I don't know if our template would have worked, but creating products that kind of serve those clients that you can't serve in a one on one capacity that you can say, Hey, we may not be good for one on one, but I do have a template service or you guys have like a customizing template, which is kind of like an in between, right?
00:15:21
Speaker
versus a big custom brand so it can give you ideas of ways that people can work with you whether it's through one of your digital products or courses or group I guess coaching if you provide that so that's kind of interesting to you but I think you're right like you want everyone to walk away with a good service and if you don't then no one really wins so exactly look out for that.
00:15:40
Speaker
Yeah, exactly. And you know, like for me, I think the editing images thing, you know, it's a good example, right? Like, if I give my images up to, you know, and I'm not, I'm not filing out here, I promise. But if I do, if I shoot, you know, like your family photos, and I say, you know, and I agree, like, hey, I'll just give you the images, right? You're going to be editing them however you want to edit them.
00:15:59
Speaker
you know, so even though I took them, it doesn't really make sense to me to share those images anymore, right? Because they're not, you know, they don't necessarily reflect the aesthetic that I want to produce for clients. And so I think it's important to, to think through those things. And like, there's nothing better than finishing a project, I think, feeling really, really good about it, knowing that you did a great job, knocked it out of the park, knowing that your client is super happy with it. And then realizing like, hey, I can, you know, basically have all this great stuff to show off,
00:16:27
Speaker
for maybe years to come even that's going to book me more work. I know people at the end of the day have to pay their bills. I know and I'm not going to sit here and say that I've never discounted or offered a discount before or anything like that. I think part of the reason I know it's a mistake in a lot of ways is because I've done it before and I've been reminded that it's a mistake.
00:16:51
Speaker
There's definitely exceptions as we talked about, you know, that gym example, off-season example, if you're just getting started, you know, in a certain field like, hey, I don't think it's bad if you're just getting started to go and show up and do something for free like once, you know? And then maybe even the next time, do it for a little bit of a discount. I don't think you should say that in that season for any extended amount of time, but I definitely acknowledge it's a way to get your portfolio going, right? Yeah.
00:17:19
Speaker
Yeah. Anyways, that's mistake number one, discounting your get out of bed service. And again, I don't mean to throw my barber under the bus, great dude. And obviously, like, I mean, to a certain extent, even more loyal to him that, you know, like he was willing to do that. But I just, you know, I hope for my sake, and you know, that he doesn't do that often, you know, because I want him to be profitable. Like I want him to stay in business, right?
00:17:41
Speaker
He knows you're a good tipper. That's why he made that decision. Yeah. Yeah. Maybe that's the strategic decision. And the other thing too, something just about pricing that because we've gone on to so many side notes anyways, I've been thinking about this more, especially as I hire people. Okay. Like I want to know when I hire somebody and they're cheaper than they should be, I want to think to myself, okay, how many people would that person have to work with to be profitable?
00:18:06
Speaker
And that's an important question because if that number's like, oh, well, this person would have to be working with like 50 people, right, for their business to be operating, you know, some sort of profitability, like how much attention really could they give me?
Evaluating Service Worth
00:18:22
Speaker
So, I mean, don't get me wrong, like, it's not, again, not like I'm never hunting for a deal, but I've actively been thinking through that certainly in the last couple years. And you should ask that about your own business, right? Like, if I'm shooting a wedding for $500, like, how many weddings am I going to have to shoot this year to be, you know, to feed my family and have, you know, margin for life and all of that. And that's not good for you. It's not good for your clients because you'll end up being burnt out.
00:18:49
Speaker
Something to keep in mind. Anyways, I feel like I've started this episode and I've been like up on my stool, like in my pulpit. Come back down. Yeah, exactly. I apologize. So if I'm coming off that way, forgive me. Know that they're mistakes because I've made them. So know that's the place I'm coming from. We appreciate that humility always. That's why we keep coming back to the show. So tell us about mistake number two. True.
00:19:17
Speaker
Tell us about mistake number two.
Incorporating Essential Services
00:19:19
Speaker
Yeah, mistake number two, and a lot of these are intertwined, but not including a core service in each of your collections. And so if there's something that you usually charge as an add-on or people would have to pay extra for, but
00:19:33
Speaker
you end up doing it anyways 99.9% of the time, you should really consider building it in to your core service and then adjusting your price accordingly. I want to use a personal example first for the Till Agency.
Case Study: Till Agency's Retainer Strategy
00:19:51
Speaker
When you typically hire an ads manager, what you're usually hiring, and it does vary, but what you're usually hiring is somebody to manage your Facebook ads. That means you create the ads, you hand it over to your ad manager, they run it and optimize it, but that's their job.
00:20:10
Speaker
They're not creating the ads themselves. And to a certain extent, they may not even be consulting, right? They might tell you, they may give you a report and maybe make some suggestions on how it can improve, but they're not consulting on the larger funnel, right? What we found for Till was that, you know, and that's originally, we always had the option for those things, but what we found was we would end up doing consulting anyways. One, because we want our clients to get really good results, right? Yeah, you want them to succeed. Yeah. Yeah.
00:20:39
Speaker
So we quickly learned like even though technically this was like a add-on service or whatever, it was a real bummer to have to go back to clients and be like, hey, you got to pay us for this advice. And it was something that we were ending up doing anyways. So we just decided to build it in to our retainer.
00:20:55
Speaker
We actually also made the decision to move ad development into our retainer as well. So we do all three of those things now at a base retainer. And I think it significantly improved the experience that people have with our services. But it would have been unprofitable for us to be charging just ad management level service and also providing all this extra time in consulting.
00:21:20
Speaker
So, I would say if you're thinking of a, if you have a service that you end up performing anyways, anytime somebody hires you, but it's typically a la carte and people would have to pay for it, but you're doing it anyways, add it to your collections.
00:21:34
Speaker
let me circle back to something you've talked about before which was in the early stages of till you talked about how you did things that were not scalable like you offered insight maybe it was something like a console call on their funnel that they weren't necessarily paying for early on but you knew would create this buzz about
00:21:53
Speaker
the success of Till and then also of their campaigns but then also working with you. Do you feel like there's a shift at some point? Like maybe you kind of have things that aren't scalable at first that you don't charge for and then you see the success in those and like the workflow for them and then you add them onto your package?
00:22:11
Speaker
Yeah, I definitely think there's a shift there. I mean, that's kind of the shift that we went through with Till. But I also think that there's things that maybe you do in the beginning that you do end up actually spinning out into its own thing. You know, for instance, and again, for Till, just because we've been talking about that as an example.
00:22:27
Speaker
There's probably certain things that we do now, especially in troubleshooting certain integrations. For instance, if somebody's given a webinar, it's not as simple. If you've ever been on a webinar before, know that there's – and you know this, right? There are complex things happening on the back end of there. It's connected to your email platform and there's probably different connections that are held together by Zapier and all of that.
00:22:51
Speaker
Yeah, and truthfully, we should probably charge for jumping in there and troubleshooting those kinds of issues because they do take time, right? And it doesn't necessarily fall within the scope of what we do. With that said, where we are now, which is still in a growth phase, I would say that we're busy, which is good, right? But still, we're hoping to grow even more
00:23:13
Speaker
that it's just in our best interest to jump in and do that because it's going to help them have a, one, it's going to give them a better experience. Two, we're not going to be held up because they're then trying to find somebody else to help them with those issues. But that would be an example, I think, of sort of a level of service that doesn't scale. Like if we had a hundred clients, like could we necessarily do that? Maybe we'd probably have to bring on a person whose entire job was just doing that though.
00:23:37
Speaker
just setting ups apps. Well, I mean, it's good because when you're doing that, you develop a workflow and a system for it. You might even build something into your, you know, just whoever you hired to do that. And so, but at some point, it sounds like you have to charge that. It also, to me, if you put it into your package, someone who's never run a webinar before, say they're a solopreneur and they have a VA and they're working with till at some point, they come up to this webinar problem. They're not even aware of all the pieces involved. And there are a lot of pieces.
00:24:05
Speaker
Look, I love to run a webinar. I love that aspect of it, but like you're getting to tell them in advance, like here are the things that you're going to have to have set up and you get to say, and we're going to take care of that for you. So again, it's kind of that like custom hotel experience, like your lecture experience that takes it off their plate.
00:24:24
Speaker
Yeah, for sure. Another example just for other service-based type businesses, it worked with brand photographers and did some coaching with brand photographers.
Enhancing Services with Styling
00:24:33
Speaker
And they were going through their pricing and they mentioned that styling was something that they felt like really set them apart as brand photographers.
00:24:41
Speaker
And so they had this upsell for styling. They would do all of the design and styling if you paid them X hundred dollars. And one of the first questions I was asked them was like, well, how often do you end up doing that anyways? Because you know that if you step in and offer your expertise, the pictures are going to be that much better. And it was nearly a hundred percent of the time, right?
00:25:02
Speaker
So they built that into their service. And I think it ended up being a really good move for them because one, they're providing a better level of service to people. And to a certain extent, it's so core. It's really core to their service because it sets them apart, right? Like this is an intangible that they bring to their service that really makes them special.
00:25:21
Speaker
So, I think people are more willing to pay their higher prices knowing that that's going to be offered. And it does take a little work because by doing that, right, they had to raise their prices to account for that. And of course, if you give people option between a lower price and a higher price, you know, the one that, oh, well, I don't need the styling and design, right?
00:25:40
Speaker
Well, you know that they do, right? And so that goes back to that, what we were saying earlier about discounting your get out of bed price. It's like, hey, I know that you're going to benefit from my expertise. All right. And so they're just going to have a better experience and everybody's going to be thrilled at the end of the day. And so I think that's what should drive us in, you know, being upfront with our clients about those sorts of things. You may not know the answer to this. I don't know if you just chose a hundred dollars. You said that they had like a hundred dollar add-on to do the styling.
00:26:08
Speaker
having done my own brand photo shoot, it is a ton of work to plan for. Did they end up adding that into their package at more than $100? Let's say like scaled it to $300 more? Do you know? I don't think I said $100. It definitely is not worth $100. No. So I don't know where you got that. It definitely wasn't a $100 increase because that's a $100 increase for something like what they do is a pretty small increase. Yeah. Yeah. Okay. Well, we can listen back over the sound clip.
00:26:36
Speaker
Okay, yeah, yeah, yeah. So I'm hoping if it was, then I misspoke because it was several hundred dollars, at least several hundred. I guess my point was, if you just have an add on, like on the side that you can do a la carte, I think you could probably scale the cost of the service as you build it in even more than just having as an add on would be my guess.
00:26:55
Speaker
Sure. Yeah. I think you could do that for sure. I also think too, but another strategy is having the a la carte price of it being more. Okay. Yeah. You know, and then it makes the collection price seem like a better value. So that's also a strategy when it comes to, you know, splitting things out. I mean, for instance, like we still offered engagement sessions, a la carte, or we had a standalone engagement session price, but they were built into every collection.
00:27:20
Speaker
So, you know, and then of course that was at a premium because it would require like an extra session of us where we knew we weren't going to get the income of the wedding. So yeah, anything else about that? We're moving on to mistake three. Now, I think it's a great point to show how people who are starting at one point in their business and they want to, well, actually that does move into another point. So I don't want to get to that, but just how you can continue to improve your service because really that's the key and that's going to give you what stands out in a saturated market.
00:27:50
Speaker
Yeah.
00:27:51
Speaker
So jump into mistake number three, that you haven't identified your most profitable customers or you're spending too much time on your least profitable customers.
Identifying Profitable Clients
00:28:00
Speaker
And because you haven't identified your most profitable customers, you're spending too much time on your least profitable customers. And I think this just goes back to another reason why you shouldn't discount your services or certainly that get out of bed price because and maybe if you're listening and you're thinking about an example or a time when you've discounted your bottom collection,
00:28:21
Speaker
Tell me it's not true that those people end up usually requiring the most time. So true. I think so. I mean, hopefully the people who are listening right now haven't made that mistake before. And so this is your warning not to. But I think in almost all situations where we've been talked into some sort of discount, that customer or client has become or becomes the most, just the most needy of our time, right? It just that project becomes yes. Yes, that's all I have to say.
00:28:51
Speaker
Probably because it doesn't get finished. Because they say, no, we will work on these aspects of it if you provide these deliverables. But then life happens. They're assistant. Or maybe they're just poor time managers. And in the end, the project doesn't get done. And they're coming back to you. And you're like, well, wait. And this is probably a good time to talk about having a good contract. But you can't just swoop in and take it over, even though that's what they wanted in the beginning. Yeah.
00:29:15
Speaker
There's something else to say about that. I mean, just leaning on some teleagency experience because it's such a recent experience is when we started teleagency, we just assumed that we were going to serve a certain type of clientele and we ended up serving or taking on a few clients that didn't really fall within that, the type of business we assumed we were going to work with. So I'm talking about SaaS businesses in general, so software as a service. So we took on a couple of software as a service businesses and we ended up getting great results for them.
00:29:41
Speaker
and they ended up being some of our best clients just because they were having a great experience because we were getting great results for them and we were having a lot of fun because we were getting great results for them. Without going back and looking at, okay, here are the types of clients that are churning. If you're a service provider that works on retainer, so somebody pays you a monthly fee to do whatever it is that you do, people who cancel are people who churn.
00:30:08
Speaker
So, we were looking at the types of business that were churning, the types of business that were doing really well and continuing to scale. And then it gave us a lot of, you know, by going through that exercise, we determined like, hey, these are our customers that are doing really well, that we're serving really well. And these are the customers we want to go after. So, we've very much shifted our marketing efforts to target more of those clients. But that shift isn't possible, right, if you're not paying attention to those things. Yeah. What kind of things did you notice about the higher churn rate clients?
00:30:38
Speaker
Yeah, so just I can talk about this. For a tool agency, what we notice is a lack of experience with Facebook ads. And you would think like, oh, well, wouldn't they be your best clients because they don't know what they're doing? That's not usually the case. I would say that like some of our best website design clients are people who built their first websites themselves.
00:30:57
Speaker
right? Because they realize exactly how much work goes into it. You know, somebody who's never tried building a website before doesn't really understand how much work goes into it, right? And I think the same is true of Facebook advertising. Like somebody who's actually spent some time in ads manager understands the maintenance that goes into a campaign and then optimizing the campaign and scaling that campaign. You know, it's easy enough to jump onto Facebook platform and get results for a single campaign for a certain amount of time.
00:31:26
Speaker
but there's things that inevitably come up and there's adjustments that have to be made. So people who had done some sort of Facebook advertising before or had experience with Facebook advertising, that was something that we recognized. People who came in with low budgets, and again, that sounds – maybe that doesn't sound how I want it to sound, but what I mean by that is if you're spending $5 a day on Facebook,
00:31:48
Speaker
then you're going to see volatility in your results. Some weeks are going to be really good. Some weeks are going to be really bad. It's going to take a really bird's eye view over a long amount of time to understand what's working and what's not just because you're not getting enough data on that kind of spend. We made adjustments from there. We said that way during a discovery call, I could say to people like, hey,
00:32:09
Speaker
You know, here's our fee. Here's what we recommend for starting an ad budget. If you can't devote at least this amount per month, then we're probably not the best fit for you. It's not a matter of like, oh, well, we just don't want to work with, you know, people with low ad spend. No, that's not the case at all. And hopefully one day we'll have a product available for people who find themselves in that boat. It's more so that, again, I know that person's not going to have a great experience.
00:32:35
Speaker
Right? And when they're not having a great experience, I'm not going to have a great experience, right? So it just allows us to be more upfront with people as we get on calls with them and whether we figure out. I mean, it truly is like, I mean, to me at least both on the website design side and the ads management side, like when I get on a discovery call with people, it is truly a discovery call. Like I'm trying to sort out, hey, are you a good fit for me? And am I a good fit for you? And I think that's an important part of the process. So
The Role of Discovery Calls
00:33:04
Speaker
Yeah. Does that answer your question? Yeah, I know it really does. And I mean, I would encourage people listening to the podcast right now. It doesn't mean that like Facebook ads aren't for you and you should just give up the search, but to know that there are different levels of the types of campaigns that you run and maybe a DIY option through a course is good for you. Or I don't know if Till does this, but there are console calls where you could get
00:33:25
Speaker
advice on how to do it and run it yourself. So don't be discouraged by that. But I think from Till's standpoint or Davey and Chris's standpoint, you're focused on your profitability too and what works. So there's a service for someone at every level.
00:33:39
Speaker
And it's a matter of covering our retainer too. If you're only spending $5 a day on Facebook, then you're going to have trouble. You might get a positive ROI, but that positive ROI doesn't also cover what you're paying us for the retainer. So we want to make sure it's important to us that our clients win. And I hear that all the way.
00:33:56
Speaker
Yeah, and you can get some short term gain in like tricking people into work with you. But it's not going to work out long term if you do that. And so that's why we try to be as upfront with people about, hey, you know, in our experience, we've been able to get or not get results for people in your industry. And this is why or why not? You're a good fit for us. You know, so look at us. See, this is why we don't record two episodes in a single session.
00:34:22
Speaker
We provide a lot of value always. I think so, I think so. So points four and five, I think that they really, there's a lot of overlap here. Point four, too few or too many price points and not incorporating any pricing psychology. All right, so that's the first one we wanna talk about. And then point five, not optimizing customer value. I'll talk about in a minute why or how price points play into that.
00:34:51
Speaker
But what do you think about pricing psychology in general? Well, we did talk a lot about this. I think we were talking about sales pages. You can probably include the episode in the notes. But we did talk a lot about how you can overwhelm your client by just having too many options. We all go to IHOP and there's like 400,000 options on the menu. Honestly, it really hurts my experience. When you go to a fine dining luxury restaurant, usually it's like four or five different entrees.
00:35:21
Speaker
There is some pricing psychology there and I'd love to hear your thoughts on it.
00:35:25
Speaker
Yeah, for sure. And I think at a place like IHOP, it's kind of okay. It does hurt your experience in the sense that you never make up your mind what you want and you take a thousand hours looking at the menu trying to figure out what's what. But because of the price point, maybe you go in there and you can get over that because of the price point. Whereas if you were to do the same in a fine dining experience, then maybe you feel like you missed out on something else because you chose what you chose. Something else about fine dining restaurants, have you ever noticed that they don't include dollar signs?
00:36:01
Speaker
Why do they do that why do these across the board because it doesn't feel like money that way or as much like money that way or communicate cheapness like you're yeah fifty cents or zero cents yeah.
00:36:12
Speaker
Oh, good. That's a good point too. That's a really good point too. So they drop the dollar sign. And then also, I mean, typically when you go to a restaurant, you're not spending thousands of dollars in the same vein. If you ever have purchased a service that is thousands of dollars, they often drop the comma because it looks cleaner that way, right?
00:36:30
Speaker
7s and 9s with pricing, you know, like why are things, why are courses that you buy $497 and not just $500? You know, because it actually makes a little bit of a difference, right? It can get tricky too, you know, like just because if you're a service provider, then offering a service at, you know, $29.99 to a certain extent almost sounds cheap, right?
00:36:55
Speaker
at that point so I mean there's definitely some some I think instances where some of these examples work and some of them don't but I think picking up a book like the science of selling or just doing some research on pricing psychology can go a long way and if you're doing things at scale like you know an increase in three to five percent
00:37:15
Speaker
is in revenue in sales is a huge increase right i mean i don't know about you but looking at paypal and stripe and other bank fees at the end of the year makes me sick it honestly i think about it all the time because it's such a small percentage but just
00:37:34
Speaker
Yeah, no, I do. I've already filed. I mean, I guess most of us have like working on my taxes and just looking at that number. I'm like, wow, like, wish I had that model, you know, just a little bit of money. Wasn't it office space, the movie where they were stealing like tiny little values of money?
00:37:50
Speaker
And that that was going into like a bank account. Do you remember that movie? I do remember the movie that I only remember one scene. So I'll have to go back and watch it. But you know, that's what kills you. I mean, that's subscriptions. That's why there's like literally subscriptions you can purchase that identify subscriptions that you might not have used, right? It's because that's the little, you know, death by 1000 paper cuts.
00:38:10
Speaker
But anyways, pricing psychology I think matters and then too many or too few price points and I think that again, this goes back to the psychology of it. There was a great example. I've included in another podcast episode so I'm not too worried about it here but basically a study done with samples at a grocery store and the idea was the first time around they put out like 20 plus samples
Influence of Pricing Psychology
00:38:34
Speaker
and then see how many of that, let's say it's jams or something like that, how many jams they sold at the end of the day from that sample table. Then they put out something like less than seven or less than six, and then they end up selling more jams. Because when you don't have that many options to choose from, it's not as overwhelming, and so people make a decision more easily. Decision fatigue.
00:39:00
Speaker
I kind of wonder, I don't know if the book talks about this, it just kind of came in my head. Is there a number our brain can only categorize? When I think about the Olympics, we have gold, silver, and bronze. Beyond three, is it really that profitable to come up with more options? I mean, you might need five, for example. Beyond five, I can't imagine your brain can even keep up with all the options.
00:39:22
Speaker
I mean, this book is interesting. It talks about a couple of different scenarios and studies and things like that, but decoy prices. And then the other thing is just having more than one price. We think, oh, well, one price would be super simple, right? That would be the simplest of all. But would the brain actually need something to compare quality against?
00:39:42
Speaker
So by choosing this, what am I missing out on? So by having that second option, you can make that evaluation. So another really fascinating thing when it comes to pricing, I generally tell people like if they're asking for advice around creating collections, like somewhere between three and five is probably good.
Simplifying Complex Services
00:40:01
Speaker
And I think like you, I usually fall into the three different options camp because I think it's easier for people to wrap their heads around.
00:40:09
Speaker
But even places we go where there are a ton of options, like think about Chipotle. There are, you know, at the end of the day, me and you, there are a thousand different options, like our burritos could look very different. Computations, like is the math. Exactly. Yeah, computation. Thank you. See, this is why. Computations, computations, there are a thousand different options, right? But the way they make it, it's just a series of small decisions.
00:40:34
Speaker
So are you doing a burrito bowl or are you doing a burrito, right? Like, so you're only making one or two decisions at a time. And I think that if you have a complex service where there truly are lots of parts, breaking it down in a way where people only have to make one decision at a time, I think it's going to result in a higher conversion rate.
00:40:53
Speaker
Okay. I've never thought about that because you're right. If they said, if you just had to show up at the counter Chipotle and give your whole order at once, it would be so overwhelming. Even if you know, even if you order at the same time or the same thing every time, which is what I would do, but you're right. They give you two options, black or Pinto walk or no. Yeah.
00:41:13
Speaker
So that's such a good point. I assume that's totally like that they looked that up and that that's built in to their business model, but it's brilliant. Yeah, there's so many other like restaurant type, you know, like, I know there's pizza restaurants now that do something similar. So I mean, even where you think you're making, you know, if you think of one of your favorite places to purchase from, my guess is even if it is a relatively complex purchase, they've broke it down in a way that makes it simple.
00:41:37
Speaker
And to me, when I'm thinking about conversion, I'm thinking like, this is what makes upsells so powerful. When somebody's about to buy something and you say, hey, do you want this too? Then all of a sudden you have that reevaluation. Then they have to step back and say, okay, do I? And who knows at that point whether they complete the purchase. However, if somebody purchases something,
00:41:59
Speaker
and then they're met with the upsell, then they've already made the decision to purchase and now they can make the new evaluation of, okay, do I want whatever this add-on is? And that's why things like upsells are so powerful. And that's also why upsells are presented after the purchase is made. If you ever bought anything online, my guess is that you saw some sort of upsell afterwards. I'm like one of those people who I see past the upsells. I'm like,
00:42:24
Speaker
No. So it never works on me. But I do feel like there are a lot of people who are just happy to just keep adding it to their cart, thinking of all those upsells lining the grocery order. One of my favorite examples is now that we've moved to a lot of online shopping for groceries, is when I go to check out, they often send me to a page of, hey, you've ordered all these other things in the past. Are you sure you don't want these as well? So this is another way of getting you to make those impulse buys. Yeah. Or just increase the value of your cart.
00:42:52
Speaker
Oh, for sure. And so all those impulse buys you see at the register, and I would say that in an online setting, you almost take away those choices. Occasionally, you have what's called a bump offer. So you might go to check something out and then you see a special offer that increases the total price, but maybe you get whatever at a discount.
Optimizing Sales Through Upsells
00:43:09
Speaker
So I mean, there's all sorts of ways to increase customer value, but this is why I was saying that it ties into that conversation.
00:43:16
Speaker
having more than one price. For instance, you might think you might put together the perfect wedding collection and think this is the wedding collection that everybody should purchase. No one really wants albums and two duplicate parent albums and 8x10 prints or whatever it might be.
00:43:35
Speaker
But I think what we realize is we're doing a little bit of projecting of maybe what we value. And the truth is, is that some people do want all the bells and whistles. And so coming up with different price points, and maybe you do this with your course, I'm not sure, but I don't know, is there an option of your course having like some one on one time with you or group coaching time with you? So I do like an urgent, like the last launch, I did something during the webinar, if you purchase by this point in the webinar, then you'll get a one on one.
00:44:04
Speaker
Yeah, so I do it more in an urgency way. Yeah, so that is a little bit different. Yeah, a little different. But like, let's say your course is priced at, what's your course priced at during a launch? 347.
00:44:15
Speaker
Okay, so 347. Let's say that you added an option that included an audit, like a personal audit that you screen record of a Pinterest account, and you could get that for $4.99, right? Yeah. Chances are that you might only sell a small percentage of those relative to how many you sell at the 347 price point, but that doesn't matter. I mean, even if only one out of every 10 people
00:44:40
Speaker
I mean, that would still be a huge, like that would be a big conversion rate on an upsell or anything or something like that, even though this isn't technically an upsell. But you don't need very many people to convert at that, right? And the people who do though, they bring more value because that's something they want. Maybe you had another option that was 997, it included the audit, but then it also included a 30 minute phone call from you.
00:44:58
Speaker
Some people want that sort of handholding, whereas other people just want the content and then they'll take care of it on their own. But by just providing that option, it doesn't take any additional time from you. But if only during a launch, three, four, five people out of hundreds if they purchase your course, that's still worth it because you've priced it appropriately to account for your time and all of that.
00:45:20
Speaker
Optimizing customer value, what's my favorite example of industry that optimizes customer value? Car washes. Car washes, you know me so well. By the way, is Jack into the car washing yet? Does he get excited when you go inside one?
00:45:37
Speaker
Okay, so the current car wash that we go to, we typically don't drive through because they also vacuum. You know what I'm saying? And this is because we are a sucker for the upsell, right? Like we go in and they're like, hey, we can just do your exterior for $29, but for $32, you know, we can also
00:45:59
Speaker
I don't know, wipe down your interior windows and – or the interior part of your windows and for $35, we can vacuum for you. And all of a sudden, I've done all these mental – I come in just because the outside of my car is dirty and I leave with a vacuum. It works for you. It does. It fails work. It works on me all the time, right? And I want whatever that coat is that protects my car from whatever it protects it from, right?
00:46:24
Speaker
I sound like it's such a snob here. Really, this is like a $30 experience. Not that $30 is no money at all. And I don't go often. So it's all about that. So do you do the one where you get out of your car and you go inside and they have free popcorn and drinks? This place does have free popcorn. They don't have free drinks, but they do have free popcorn. Okay. Yeah. So I mean, that's providing a great client experience. I usually just drive through. I'm a sucker. I'm like, what is the basic one? If you know Vanessa, I'm so practical. So it never works on me.
00:46:54
Speaker
See, and part of it too is with, I mean, I'm sure you experienced this with kids though, like, and especially, I guess your kids aren't in car seats anymore, are they? They are. I think you're going to go for vacuuming. Yeah, they're all in front facing. Yeah. And they're a little bit older. Like, Jack's at the age where, first of all, he's doing this funny thing now where he gets in his car seat and immediately takes his shoes and socks off. Like, I don't know. Like, I'm like, dude, like, we're going to get out of the car in five minutes. Like,
00:47:20
Speaker
Yeah, that's common and frustrating. Yeah, until it's like raining outside and you're like, ah. But anyways, you know, but his shoes rub up against the seats and leave like that stain and I don't want that there. And then, you know, Cheerios, he has this thing where I think you actually introduced us to this where you stick your hand in and it's supposed to... It's a snap trap.
00:47:38
Speaker
Yeah, exactly. But what he does is he pulls his hand out with such force that Cheerios, like, yeah, I mean, yeah, he has some in his hand, but other Cheerios just go flying everywhere, right? So those are all over the car. So I'm always like, okay, I just need to get this thing vacuumed.
00:47:54
Speaker
To the side note of this conversation, yeah, my car looks like a disaster. But I also drive really old cars. I'm just one of these people who sticks with it. And I always go to the free vacuum. But I make my kids do it because teaching them to earn it. But I do think about that. Our other car is a lot nicer. And my dad's always like, Vanessa, you should run it to the car wash behind your car. It's a nice car. So we take better care of my non-urban car.
00:48:21
Speaker
I think reading between the lines here, if you're listening, you definitely should model your purchasing behavior after Vanessa when it comes to some of these things. And don't get me wrong, I would say that Kristin and I are also Dave Ramsey. We're on the Dave Ramsey train. So don't get me wrong, we're not like luxury spending. But I will say, especially where we're building, we have... Oh, go ahead.
00:48:45
Speaker
you muted yourself. You even took care of it. Look at that, it was quick. I feel like I shouldn't even, if you're wondering what happened, Vanessa just needed a sneeze, which I usually would edit it out, and you didn't hear it because you muted it. I'm impressed with your reaction time there. That was awesome. Thank you. Those are the five mistakes that I wanted to talk about. I hope that if you haven't made these mistakes, that you don't make these mistakes in the future. I think the first one that we talked about is the one that
00:49:11
Speaker
almost everybody will deal with it sometime. Is somebody coming in and saying, hey, if we did this, would it cost this? So be aware of that. Know that you should have a good reason for making deals like that. And yeah, Vanessa, thank you again for spending time on the Brands That Book Show. I love it. Thanks so much for having me. Yup. Until next time.
00:49:36
Speaker
Thanks for tuning in to the Brands That Book Show. If you enjoyed this episode, please consider subscribing and leaving a review in iTunes. For show notes and other resources, head on over to dvandchrista.com.