Do you struggle with what to charge? Are your prices too low or too high? And how can you raise your prices without scaring away your customers? Today we dive into the math and psychology of pricing, and how you can attract your ideal customers with the right pricing strategy with Lori Allen of the Maine Small Business Development Center.
Rich: Our guest today is a Business Advisor with the Maine Small Business Development Center, hosted by the Androscoggin Valley Council of Governments (AVCOG).
She is passionate about building strong communities through entrepreneurship and loves helping people start and grow their businesses.
A native of the Oxford Hills region, she has over 20 years of experience in business and economic development. Prior to joining the MSBDC, she served as the Director of the Central Massachusetts Women’s Business Center at the Center for Women & Enterprise, and the Program Director of the Maine Downtown Center at the Maine Development Foundation. We’re big fans of MDF here.
She lives in Brunswick with her husband and young daughter, with whom she delights in exploring all of the wonders of Maine. Today we’re going to be digging in how to set pricing for your products and services with Lori Allen. Lori, welcome to the podcast.
Lori: Thank you for inviting us.
Yury: Lori, allow me to start this interview by asking a very burning question. And I feel that a lot of today’s answers may begin with, “it depends”, because there are so many different types of companies out there and so many variables. But anyway, with that being said, what are some truisms about pricing that impact all businesses?
Lori: As I was preparing for this, I was literally afraid that this could be easily turned into a drinking game. That every time Lori says, “It depends”, you can take a drink. Universally, I think pricing is a challenge. Every single business, no matter what size, shape, no matter what kind of business you’re doing, it’s hard to do pricing. And I think a lot of times people come in with one idea of this is what I can charge, or this is what I’m going to charge, and it’s not always based in reality. And so a lot of what we do is really helping people figure out what is reality, what can you charge for your products and services. And it’s hard. And if you are a small business owner in particular, and you’re struggling with this, know you’re not alone. And if you’re not struggling, you probably should be.
Yury: So you know, if I hear you correctly, the first advice is, be courageous regardless of the business. And ground yourself in reality.
Lori: And get help. I think, you know, Maine, whether it’s the Small Business Development Centers, or Maine has a great ecosystem for getting help for small businesses. And so don’t be afraid to ask for help, particularly on issues like pricing.
Rich: Lori, you mentioned that it’s hard. And I’m curious, why is pricing products and service so difficult? Is some of this just psychology, like we’re just afraid of putting our prices out there into the universe?
Lori: There’s definitely an element of that. I think a lot of times, like, particularly with startups, there’s this fear that, I have to be careful what I charge because maybe I don’t have enough experience or, I haven’t really tested my product enough.
I think also for startups, it’s really hard because a lot of times when they’re getting down to their costs and really figuring out how much something’s going to cost them, it becomes a challenge because you’re estimating a lot. And so there’s some trial and error that you have to go through.
And then with existing business owners, a lot of times they feel like, okay, I’ve set my prices and I just sort of forget about it. Like, I can just leave it now, I’ve figured that out and now I’m just going to run my business. And then it’s five years later and you haven’t raised your prices and you’re wondering why I’m not making any money now.
So I just think it’s a universally hard thing. And also, you know, the world changes. Whether it’s just simple inflation or mass pandemics, things impact your business as you go along, and you’ve got to be on top of that. And I think a lot of folks, it gets back to that old adage, “You need to work on your business as much as you work in your business.” And I think pricing gets lost in a lot of the weeds sometimes.
Yury: So what are some of the ways pricing impacts our financials and vice versa?
Lori: So a lot of times, I’ll give you an example. I’ll have a client that will come in and say,” I can charge $40 for my services because I’ve done some homework, and this is what other people are charging.” And that’s an important element, an important piece of information that you need to have, but it’s not all pieces. Because what you don’t know is that the guy two towns over is able to charge $40 an hour because he owns the building he inherited from his dad and he doesn’t pay rent. He doesn’t pay a mortgage. He’s just paying a few thousand dollars in taxes. So if you are going to charge $40 an hour, but you’re also looking at taking out a $200,000 commercial mortgage or you’re going to be spending $2,000 a month in rent, you’re not going to be able to charge $40 and make any money.
And so I think at the core of it is making sure that you are covering your costs and making a profit. And I think that’s where a lot of businesses fail. And so that’s why it absolutely impacts your bottom line. But it also impacts your target market, who are you selling to and are you meeting their expectations when it comes to price and when it comes to value, whether that’s implied or very specific values.
Rich: So you talked a little bit, this whole idea of “it depends”, totally get it. But are there different models or approaches to figuring out what you should be pricing your products or services at? And if so, what are they and how do we know which one is right for us?
Lori: Yeah. So I think there’s a triple whammy. So normally if you’re just determining your pricing, there’s the competitors and looking at your competition. What are other people charging, and what I just talked about, you know, your cost. Figuring out what your costs are and what you need to charge to cover your costs as well as to make a profit.
And then the third thing is your target market, sometimes they’re called market acceptance pricing. You know, what is out there in the marketplace that people willing to pay for your goods and services?
And so what I like to do with my clients is look at all three of those pieces. And then you kind of get with your costs, you get your price for this is the least amount of money you can charge without going under. And then you kind of build on that between the competition in the marketplace. So I think all three of those things need to help you come to an informed decision.
Now there’s also pricing strategies, which is a whole other piece of it. And that gets into things like value pricing and bundling products, and things like that to get your market penetration. But so there’s actually determining your prices, and then there’s the pricing strategy.
Rich: So maybe we want to dive into that, too, but before we get there – or maybe that we have you back, we’ll have to see how everything else goes – but I think I mentioned to you that I have a friend of mine who runs a podcast called, Pricing is Positioning. So there’s this whole psychological aspect. And I think I always come back to, I think its Grey Goose vodka, which was like such a higher cost than every other vodka on the market. Or Red Bull, which comes in a smaller container and charges like three times the amount of a Coke or a cup of coffee, where the pricing all of a sudden becomes this psychological thing that kind of really helps differentiate what you are.
And maybe that’s what you’re getting when you talk about the strategy of pricing. Like in those products, the assumption is they’re just making truckloads of money on top of what they could be doing if they just decided to compete on a “me too” level. But now with the pricing, they’re positioning it completely differently and that can be very attractive to a segment of the audience.
Lori: Yeah. And for me, I like to use the analogy, so if I’m going to buy throw pillows for my sofa, I can go to Walmart and pay $8.98 for a throw pillow for my sofa because at Walmart they are pricing for market penetration. They’re going to sell a ton of pillows.
Alternatively, I can go to Erin Flett in Westbrook, she makes hand screen printed, all done here and made by Mainers, creating Maine jobs. Her pillows sell for $125, right? Those are not the same product, they’re not the same target market. And as consumer, what are you valuing and what’s important to you?
And as a business owner, you need to really understand who your target market is. Because if I’m going to be catering to those higher end pricing, I need to be able to tell my story through my marketing, I need to explain to people why is my product that much higher.
And there’s a guy, Simon Sinek, he talks about start with “why”. People don’t buy what you’re selling, they buy why you’re selling it. And it’s the reason my husband will go to REI and spend $200 on a pair of hiking boots and we go hiking twice a year. There’s that implied value, there’s a psychology. We grab onto the things that matter to us. And so it’s not just about what, but it’s about the why.
Rich: No, I think that plays into the psychology aspect of pricing and how we often will use brands to kind of tell the world who we are and what’s important to us. And perhaps there’s an element that certain companies can tap into when it comes to that pricing positioning piece. Wow, that’s a lot of p’s. Where not every brand could. So that’s just another interesting aspect of the whole pricing conundrum.
Lori: Yeah. And I mean, if you’re starting a convenience store, it’s a different story. But you even things like, you know, photographers, for example. I’ve worked with a lot of photographers over the years and how are they determining their value. Are they doing, you know, just churning out the high school portraits, or are they doing really high-end sort of digital photography and things like that, and doing these amazing family portraits. So no matter what industry, there is that continuum, and you just have to make sure you understand where you are in that continuum and where your target market is.
Yury: You know, as a customer experience practitioner, in my role the things that I closely pay attention to, and especially when it comes to pricing your products and services, is the value proposition, what type of issues our product or our solution can solve. And you know, the other element of that is the actual service experience. How fast can you deliver on your promise? How seamless? What are the number of friction points that exist in the kind of like the value exchange flow? So I think those are elements that also should be considered. I’m not a pricing expert, don’t get me wrong. I’m focused on customer experience, that’s where I’m coming from. But I think those two elements may be very beneficial for the business owners who are listening to the podcast to consider as well.
Lori: Yeah. And I think the service pieces really come back into play because of COVID for example. You know, last Easter was right after COVID hit and the state shut down and I was scrambling, I had a three old and I needed to get an Easter basket for her. And there was a local toy store that they were putting together Easter baskets and I called them up and said, “Here’s my budget”. And they put together an Easter basket and three days later it was on my porch. And did I spend way more money than I normally would on an Easter basket? Absolutely. Was I happy as heck to do that? Absolutely. So I think there is an element of people being willing to pay for those services, whether it’s home delivery, whether it’s customized interaction, like you get to – maybe not right now – but you get to sit down and have face-to-face conversations with the person.
How many times do we hear people complaining about calling a customer service line and just getting put on hold or you’re last in the phone tree, and how do you get to talk to an actual person? Those things really do matter, and ultimately at the end of the day can help you justify your increased prices.
Yury: Well, speaking about prices, I wanted to know if there is a way that we can test them to see if we are charging the right amount? I understand that we can look at different markets and different segments and different value proposition and service offerings. But how can we test before we say, “Okay, this is something that we can go to market with”, versus, “This is something that the market is going to accept”.
Lori: Yeah. I mean, there’s lots of different ways. And with the small businesses that I work with, a lot of times – at least in the startup phase – we’ll actually do surveys and we’ll kind of go out. And if they want to open a bakery in a town that’s maybe in a downtown district, for example, they could actually sidewalk sample and interview people and kind of get a sense of what’s going on here.
I think also just testing the market in terms of, you know, you can’t just say, let’s have this group of people and I’m going to charge those people $10, and charge other groups $20. You can’t do that. But once you’re in business, there are ways to kind of tweak things. And I think this goes back to paying attention to your pricing and not just letting it sit. Because for example, knowing what your best sellers are is really important, and having that data. Because that will enable to inform and help you be able to task whether it’s price increases or adding new products kind of thing. So there’s different ways you can test it, but it is really important, especially if you’re going to market with something new. Or if you’re kind of pivoting your business, being able to kind of test it out and say, okay, you know, where am I?
Rich: So we kind of, you already addressed a little bit of taking a look at what your competitors are doing, how they’re pricing their products. Assuming that on some level it’s apples to apples, we can certainly take a look at what our competitors are charging. But should we? When you’re doing this with a client, do your clients always want to just make sure that they’re a little bit cheaper than the competition so they can get that market share, or do you advise them in a different direction? Like how does one make that decision of, should I charge the same, should I go a little bit under, or should I take the Grey Goose route and just overcharge so that I can get a certain type of client who’s willing to pay more to maybe not have to wait in line because I’m not going to have long lines If I’m charging that much money for my vodka or whatever?
Lori: Yeah. And I think we have all of those conversations. Because again, it goes back to, where does the client want to be? Where do they need to be? And what are they actually doing?
So for example, if they’re trying to attract a higher end buyer, then we need to figure out, okay, this is what those folks are willing to pay but how are you going to justify that? And there’s many ways to do that.
You know, in my old job I worked with a lot of women entrepreneurs in their fifties, who they had gotten laid off and they were starting a business. And they’re like, “Well, I can’t charge what these other folks are charging.” And well, sorry, you can. You’ve got 20 or 30 years’ worth of experience and people are going to be paying for that experience. And it was like, “Oh, okay”.
I also had people who were starting consulting businesses and they wanted to compete with really high-end consulting firms. And there they’d be like,” Oh, well, I’m going to charge $500 a day. And of course I’ll get the contract because I’m so cheap.” But there’s a perception there too, because if you’re only charging $500 a day and everybody else is charging $2,000, they’re going to be like, “Well, what’s wrong here? What am I not getting for that $500?” So you really have to have those conversations and kind of look at all the different possibilities to get to that point of saying, “Okay, this is direction I’m going to go in.”
Rich: Well, it reminds me of a story that happened to me, where I had been interviewing outside consultants to help flyte with our financials. And this was maybe 15 years ago. And somebody wanted to charge me like $40,000 for the year, which was like way more than my profit margin, so that didn’t fly. But the next thing that comes in, he wanted to charge me like $50 an hour. And I’m like, I’m charging more than $50 an hour, I don’t trust you to help me if you’re only willing to value your own work at $50 an hour.
Like to me, that right there, that was pricing is positioning. It sent a signal that there wasn’t the value. He could have been amazing, maybe it was the biggest mistake I ever made. And just by the way, he presented himself as being an inexpensive alternative, it turned me off to what he had to say after that.
Lori: Right. On the other hand, sometimes that could work to their advantage depending upon… like I’ve worked with a lot of bookkeepers and they specialize in working with small businesses and they are focused on keeping their prices low and they have lots of different clients and that’s what their model is, and that works for them. But there’s that whole other side, like you just described. So it’s really so much about pricing is knowing your target market.
Yury: I think in addition to everything that was said, I think it’s also important to keep in mind the complexity of the service that is being offered and what is the premium being put on top of, you know, as a business owner, what am I expecting from this service? If I know that it’s going to cost me $1,000 just because I need to keep fixing a couple of digits here and there, okay, that’s fine. But if I’m in the dire needs to really have someone come in and dig into the core of my issues to move things around on a very complex scale, then I probably want to be willing to spend 10x of what I would expect to spend on the basic problem.
Lori: Right. And that’s where the business owner becomes into, “Okay, well, so how am I going to price a project and am I going to charge by the hour? Or am I going to charge by the project? And if I’m going to charge by the project, how are we going to do a scope of work, so you don’t wind up, as the business owner, losing your shirt because you haven’t priced the scope of work appropriately.” Or developing a contract that says I’m going to charge you $10,000 to get this project done, but it doesn’t include travel because maybe you’re expecting me to travel to your site once a month. And then what happens if all of a sudden you need to be there three times a month and you’re flying to Chicago and that racks up costly.
Rich: Well, it’s just interesting because it comes down to what kind of clients you want. So obviously I run an agency and we always, when I first started, charged by the hour. It felt safer to me. I always know that as long as I know what my expenses are per hour, that if I charge a little bit more, I’ll always be making money. And that attracts, in my experience, a low-end client. And I loved my clients back then. I’m not complaining about them at all. We were in the same boat. But as I wanted to spend more time with clients and do deeper work and work with them, not just on a project but over several months or several years, the model had to change.
And so now we’re much more focused on deliverables. Here’s what the cost is for the project or here’s what the cost is per month to work with us. And we don’t get into a discussion on hours. And so that might also be a shift as companies start to grow. And if you’re looking for a higher end client, then you need to start thinking how more affluent people, affluent consumers or bigger companies do, expect you to behave and how to price your products. And that’s a whole other thing, it’s the evolution of your pricing over time.
Lori: Exactly. And you know, it’s also understanding that you’re not just charging for your time, you are charging for your expertise. You know, people like to complain about how much lawyers charge by the hour, but you’re not just paying for their time you’re paying for the fact that they spent three years slogging through law school and they have all this knowledge, and they can help you do something that nobody else can help you do. And that’s, again, it goes back to that value, that premium value. So getting people outside that hourly rate can be really challenging.
But at the same time, if you don’t have an hourly rate, if you don’t really know what you’re doing and you’re starting to price your projects, then you can get into trouble. I’ve been there. I had my own consulting cross practice for a little while where I did a proposal and I thought it was going to take me two weeks and it took me six. And I kind of took a bath on that project and it happens to all of us, it’s just sometimes that happens. But you learn. It happens once and you learn.
Rich: If you’re good at it, it happens once, and you’ll learn. I’ve had it happened a dozen times. It still happens.
Yury: Well I am really interested in learning something a little bit different right now. We know that the internet has impacted the way we conduct business, the way we purchase things, the way we interact. So speaking about the internet and different websites as the business owner, I’m curious, should I list my prices on the website? I know that you’re probably going to say, “It depends”, but if you’re talking about services where I may have a little bit of a discovery and putting my information up front, what should I do? Let me understand products versus services listing versus not listing.
Lori: Yeah. Well so for products, whether it’s retail or wholesale, that makes sense to put your pricing on there. For services, it’s really different. And I think there’s different routes to go.
So for example, again like I said, I’ve worked with a lot of professional photographers over the years and you’ll see in a lot of times on their websites they’ll say, “Investment starts at x. Contact us for more details”. And I think the higher end you go, the more you want to have a good, clear sense of just at least getting an estimate out there so people know, “Okay, there’s no way I can afford this”.
But it also goes back to the target marketplace, too, and how much time do you want to spend of your own time and resources vetting clients. So if I want everybody just to call me and be like, “Hey, how much do you charge?” That’s time on my end. Whereas if I’ve got at least that bottom floor out there, the time I have to spend weeding through clients that I may not want or who can’t afford it.
Rich: Yeah, we do something similar. So we don’t have any pricing on our website per se. It’s funny because somebody in our industry who I have a lot of respect for, a friend of mine Marcus Sheridan, says you should always put your pricing on your website. Even if your pricing is, “it depends”. Because people, if they can’t find it on your site, they’re going to go and look at one of your competitor’s sites and then they’re there.
But it does get tricky. So I think that some of the things that I’ve seen work in the past is you could have an online form that says, “what’s your budget for this project?” And if the lowest price thing is $10,000 to $20,000, you’ve already vetted people because if they can’t choose under $10,000 and their budget was $400, they immediately are not going to waste your time and you’re not going to waste theirs. But even that can have a very big impact on vetting some of those people and getting rid of the tire kickers.
Lori: And I also think the design of your website can speak volumes. Right? So if you’ve just got a landing page and you’ve got your basic contact information, that tells one story. Whereas if you’ve got a fully vetted out website and it has very great, you know what I mean, like you can sort of, here’s a way to tell that story through your website that maybe clues people into, okay, this is not a discount place. Right.
Rich: Absolutely. I think that we send some messages even before they see the price sheet that helps with that.
Lori: Or talking about like, here’s a list of my previous clients. And if your previous clients are all Fortune 500 companies, I might go, Hmm.
Rich: Perhaps not for me. I think one question that every business owner who’s listening to this is going to have is, “Great, but how do I raise my prices?” So if we’re going to establish business and we realize our margins are just not what we want them to be, what do you say to your clients who come to you with that struggle? Like where can we go from here? Because I know that every time we want to raise our rates, I curl up in a little ball and I’m like, all my clients are going to leave me, no one’s going to pay for these services anymore. It never happens. I almost never lose a client over price increase. But what do you suggest when you’re talking to your clients?
Lori: So first of all, it should never be a question of if you’re going to raise your prices. It’s a question of when you’re going to raise your prices. And in particular, how you’re going to communicate those price increases to your clients. So if you just start sending out an invoice and all of a sudden you’ve jacked your prices 20%, that’s how you lose clients, right?
I’m guessing that when you raise your prices Rich, you probably called some of your best clients and said, “Hey, I just want to let you know we’re going to be instituting a price increase”. There are ways to do it. There are also ways to do it incrementally.
So maybe you know that you’ve got some clients right now and they’re on retainer and they’re paying you $2,000 a month. And you know by next year you need to get that to $3,000 a month. There’s way to say, “Okay, we’re raising our prices. Let’s work together so that whether it’s six months or quarterly, we’re going to increase it so that by this time next year, you’re paying what we need you to pay. So a lot of times, it’s just in the communication of how you tell your customers you’re raising your prices.
I also think it’s important not to wait until you need to raise your prices to raise your prices. Ideally, you’re doing this incrementally over time so that people don’t even notice. Or it’s such an incremental thing that they’re just like, oh yeah, cost of doing business, you know, inflation, whatever.
Yury: Lori, you mentioned the right ways to go about a price increase. But if we think about what typical mistakes the businesses make based on your answer, you know, the first one would be that they’re not considering the timing of when they should start increasing their prices and they’re under communicating or not properly interacting with their existing clients or their customers. What are the other mistakes businesses make, or typical mistakes that they make, when it comes down to pricing?
Lori: Well first, not raising their pricing. I think too, that they tend to, a lot of times they will set their prices really high and not understand that that’s not their target market or that’s not the quality of their goods or services and think that’s problematic. And then they learn the hard way because it’s always, if you start high you can raise low, but you don’t want to do that. You want to get it in a pretty good…there’s a feel-good spot. You know what I mean? And you want to get there as fast as you can.
Alternatively it’s people who are just pricing way too low and they’re not pricing to meet their costs. So then six months down the road they’re drowning because they just underestimated their costs and so their pricing isn’t high enough.
Yury: Have you had any clients who had an idea or a service, but instead of going with just one brand, they would just split the brand, have different names, and see if they can kind of like do the A/B split testing and see who bites first?
Lori: I know that people do that. I haven’t had many clients do that. It’s just, I think to some extent, it’s just, I don’t want to say sophistication level, but it’s a resource thing, I think. Definitely I have clients where they may have sort of higher end goods or services and then they might have tiered pricing for different things certainly, and they can test that.
Rich: One other issue that I see with businesses and pricing is when to introduce pricing. Obviously, if we’re driving down the street and we see a gas station, we know the pricing before we even pull over. But for other types of businesses, it might be a little bit more nuanced. Is there a time that’s optimal for introducing your pricing when you’re doing sales, if it’s not a gas station and the prices are up at the side of the road? Do we lead with that, or is that something where we kind of get the client excited and then we start discussing what the price should be?
Lori: Ideally the latter. But again, this is one of those, “it depends” situations. But yeah, I think getting excited people excited about a product and communicating the value that you’re bringing. Because that’s going to help justify your pricing if it’s on the higher end.
But thinking about advertising, too, in marketing and how this all ties into pricing. If I’m going to go buy a dozen donuts, there’s like three places. I could go to a chain and get a dozen donuts for probably $10. I could go to another little local restaurant and I could pay probably $12 for a dozen donuts. Or I could go to a really high end one over here and pay $25. And what’s dictating that? It’s not necessarily the price, they’re all donuts, but they’re all a little bit different now. It just so happens the one I really like is the $12 one. So is price determining that? There’s a certain amount of preference. It’s not about, I can go on their websites and see their pricing’s right there, but some of it’s just my preference.
Rich: Right. And then if you’re entertaining guests at your office and you live in Maine, then you might want to go with a brand like Holy Donut, because it really kind of ties into we’re a Maine-based company, we take pride in the state, we keep the money in the state. So there’s all that aspect of it, too. Right. And therefore you can charge more and hopefully Holy Donut is charging more because they’ve got high quality products, and they’re paying their employees a fair wage, and all that sort of stuff.
Lori: But it also, it’s incumbent upon the business owner to communicate that. Because if you don’t know, you’re like, “Why am I paying six bucks for a donut?” You know, there’s reasons for that. Just like everything else we do.
And I do think we’ve done a really good job here in Maine about promoting the Maine brand and, you know, made in Maine and in supporting Maine workers. So I think it’s a great story to tell, especially as we get our tourism back up and running.
Rich: I believe that whenever you can tell a story, or even better, give your customers the ability to tell a story, you can charge more. And sometimes that’s necessary because you have to charge more because you are locally sourcing or whatever the case may be. And so you have to charge more. I always say it’s like, I’m always going to go to a little custom jeweler when I buy jewelry – if I buy jewelry – rather than the places at the mall. Because I know that I’m going to hear the story of how the local jeweler came up with the idea and how she sourced her material. And I’m going to pass that along when I give the gift. And therefore you can charge more when part of the packaging – you mentioned this briefly earlier – but part of the bundle is the story. So then all of a sudden, it’s like there is higher value, so you can charge more.
Yury: Well, you know, speaking about charging more, clearly branding is important. The story elements are critical, obviously. The value proposition or the other components that help you to achieve to make it more profitable.
But I also wanted to talk a little bit about the context of our current environment. You know, we’re still in a pandemic and we’ve definitely seen some businesses add a COVID charge to their pricing or raise their rates due to extra challenges related to safety or keep the employees still employed. Is there a right way or a wrong way to go about it? What’s your take? What should businesses think about when they add this extra fee?
Lori: I think it goes back to communication. And I’ll tell you, my mom, she went to a store and bought her stuff and gets out of the car and saw on the receipt that she had a $2 COVID charge. And she was like, “What is this?” She didn’t understand. And it’s not that she necessarily was opposed to it, because she gets it, and I think everybody does. We get PPE, it costs more, you’re buying masks for your employees and you have to buy more cleaning supplies. We get that there are added costs to the business owner. But I think a lot of it is how it’s communicated. Because if you put a sign on the door or on your website saying, “because of this, we’re adding this where we’ve had to do this”, people get it. It’s when they’re surprised by it, that they don’t like it.
Rich: Yeah, I think slapping it on to a receipt after you’ve already spent the money, sends the wrong message. As opposed to, “Hey, by entering the store, you’re acknowledging that we’ve added a $2 surcharge so we can make sure that you and our employees are safe”, and let people opt in or opt out. All of a sudden, they’re like, “yes, we’re all in this together”, and it becomes something where you get excited about it,
Lori: Right. Or for example delivery. We love our birds, were we’re bird people, and we buy our bird seed at this place from Freeport. And after COVID they would deliver our bird seed. You know, you had to spend like $50 I think it was, like you had a minimum charge of $50, which normally I would not have spent $50 on bird seed all at once. But hey, you know, I’ll do it and they’ll deliver it to my porch. I was more than happy to buy that extra stuff so that I could get what I needed, and I could support this local business and everybody’s happy. And I was fine with that. So, but again, it was very clearly laid out on their website, this is what we’re doing.
Rich: If there was one piece of advice you would want to give to owners listening to this podcast about their pricing, whether we’ve talked about it before, or we haven’t touched on it, what would that one piece of advice be?
Lori: If you’re an existing business owner and you haven’t looked at your pricing lately, if you haven’t raised your pricing lately, please like this is the time to really dive in now, before summer hits. Start doing some analysis and start pulling together all the data. And you need to make some really informed decisions.
Like if you don’t know what your best sellers are right now, or if you don’t know what products are just lingering on yourselves, like this is the time to do that work so that you can get yourself in a better place. Because our economy is coming back. You know, we’re still being impacted by COVID, but things are slowly improving, and you want to be at the place where when things can open up again, that you’re ready to go.
Yury: Well, that is the great advice to everyone who is listening to this podcast, but I want to ask one thing that you would love to see, not in the business owners how they handle their prices, but what would you like to see change in Maine ecosystem?
Lori: So, you know, being a native Mainer, I know how much people love it when I say, “Let’s do something that Massachusetts is doing”. But one of the things that the state of Massachusetts does is they have what’s called a “supplier diversity initiative”. And so the state will certify businesses that are owned by women, minorities, people of color, veterans, and they also added LGBTQ as a certification thing. And what that enables is a couple of things. One, it enables these businesses to compete for state contracts, where they might not, they get some extra points, It enables those businesses to market themselves. Because we know it’s going back to that target market. There are a lot of women like myself who want to support women owned businesses and how do we find them? And so being able to market themselves is important.
And then third, study after study, after study, after study shows that for me to be able to compete and to grow our economy, we have to embrace diversity. And I think having a supplier diversity program here in the state would help support what we need. We know what needs to happen by supporting diversity offices. I will say, you know, the Maine Department of Transportation does have a little program, their Disadvantaged Business Enterprise program, but it’s mainly because they get a lot of federal money from the state from DLT, and so it’s a federal requirement. But I would love to see a statewide program that really supports supplier diversity here in the state.
Rich: Awesome. Lori. I’m sure a lot of people have more questions on pricing and would love to find out more from you. Is there a place online we can send them?
Lori: Absolutely. So our website is www.mainesbdc.org. And there’s tons of information online. If you do not have an advisor, you can request one, there’s a little ‘request advisor’ button right there. And we are all across the state of Maine, so you would be assigned to whoever’s in your geography. There’s also my coworker, Pete Harriman from the SBDC office in Portland. He has a great video if you want to really get into the math and the nitty gritty, it’s available on YouTube, just search “pricing” and “Maine SBDC” and it comes up. But it’s hard to get into the math in this format, but it is important. And so if you need any help, check that webinar out or reach out to the SBDC for help.
Rich: Awesome. Lori, thank you so much for your time and expertise today.
Yury: It was a delight to have you with us. Have a great day.
Rich: That was awesome. We were super excited before, during, and after that conversation with Lori. Pricing is huge. Pricing is absolutely huge and completely can determine whether your business here in Maine is going to succeed or fail. If you miss out on anything or you just want a refresher, you can find a full transcript of today’s episode over at fastforwardmaine.com/73.
This is the part of the show where we do our ‘fast takes’, our big takeaway from the episode. Yury, what was your ‘fast take’?
Yury: I really hope to make it fast, but I may say a lot. So here it goes. It is very, very, very important to understand not just your market, but particularly your target audience personas. And not in the hypothetical way saying that, “Oh, I think I know who they are”. You need to try to get into their shoes and inside their heads, instead of just sitting in front of your computer and doing the research online. Try to talk to potential customers who you may want to be working with, conduct surveys, conduct, interviews, and observe what makes them tick.
And I think if you do that at least 80% accurately, you’re going to be 100% on point with your sweet spot when you price your products or services. So that is my ‘fast take”, Rich, tell me about yours. What is your ‘fast take’?
Rich: Thanks, Yury. My ‘fast take’ is that there’s a mechanical and a psychological aspect to pricing. So there’s the mechanical side, which is just taking a look at your numbers, and what does it take me to produce this thing I’m going to sell? And you have to make sure that that’s your baseline, that you are charging at least enough to make that time back. And that includes your own time as well, labor, all that sort of stuff.
But then there’s very much a psychological aspect to pricing. And this kind of goes to what you were saying you’re in your ‘fast take’, is that understanding your clients and what they’re looking for will definitely dictate what you are able to charge. And if you’re going after a more affluent audience or you’re going after bigger business, you can charge more. There’s a little bit of a tradeoff there, but your profitability can go sky high. But just be ready to deliver on the expectations to that more affluent consumer or to that bigger business, because they are used to having their desires met. And that’s where you’re going to find your pricing happiness.