Reverse Engineer Your Pricing for Profitability

Reverse Engineer Your Pricing for Profitability

Reverse Engineer your Pricing for Profitability in Business | Brooke Olsen Consulting  - pricing, #pricing, money, profit, revenue, income, profit and loss, business financials, finance

How often does an amazing potential client come to you, and you two just connect! You’ve gone out of your way, articulated your value, then you hear the dreaded words…. “This is more than I can afford” -- and your heart sinks. You immediately run through scenarios to reduce your price in order to work with this dreamy client. But I want you to halt right there.

I want you think of all the time and love you’ve put into your work, and how you’ve just spent 4+ hours of the day to prep and meet with your new prospect, just to have them shell-shocked by your pricing (and it’s even worse when you already sent over a custom proposal!!).

Your price conveys a message, but your demeanor, confidence and process are key in executing your price point. The moment you hesitate and show wiggle room is exactly when and where someone will wiggle right in!

Pricing is such a critical component, and it can be a slippery slope if you’ve set yourself up for failure from the get-go. Your pricing triggers every.other.piece of your business and payroll decisions. By shorting yourself, it can lead to underperforming, overwhelm, losing income (or worse, paying out of your own pocket) to serve a client, or the cash flow pyramid scheme (where you’re using new clients to support existing client operations).


 To set yourself up for success, you need to know what it costs to onboard and work with each client before you pay yourself a dime.

  • What is your physical cost of goods for the product or project (think prints, fresh product, inventory, equipment, etc.)?

  • What are the costs for your internal and external team members based on the project you’re proposing?

  • How about the systems that you love (and don’t forget about those credit card fees!)?

  • What about client gifts?

  • And how much are spending in travel expenses?

  • And finally, don’t forget what you need to set aside for taxes!

 

Once you figure out your direct client expenses, then estimate your hours and calculate how much money you’re making per hour on the project. What does that number look like? Are you rocking it out? Or are you operating on a less than ideal profit margin? Or worse, maybe you’re even making less than minimum wage! No matter the results - If your income is looking a bit less than desired, then keep reading for killer ways to correct this! 

 

  • Understand + Control your Cost of Doing Business. - Figure out the amounts you need:

    1. To operate your business (with zero clients or projects for the month) - this is now your business baseline!

    2. To cover your personal life - Get real with yourself and know what your financial needs are every.single.month to keep your home life in balance with a roof over your head, food on the table, and your bills paid.

    3. To support your long term dreams (including retirement)

    4. To support your stretch goals (travel the world in an RV, buy a house for your family, going on the dream vacation to Europe, etc.)

Then, control the controllable by reassessing, simplifying and reducing your expenses. Side note: Do this in both your business AND your home life. (Yes, both, and stop lying to yourself about that gym membership, or start using it already!) ;)

 

  • Raise your prices to support your changes and growth -> Maybe you’ve already done some of the stuff below, but haven’t actually raised your prices to support these changes. Now’s the perfect time to reassess if you’ve made any of the changes to your service offerings or product lines, but haven’t reviewed your pricing since launch.

    1. Increased demand for your products or services

    2. Faster turnaround times on finished products

    3. Your current or growing operating costs

    4. Expanded your business lines / services

    5. Growing a team

    6. Investing in systems that give you back more time in your life

    7. Some of the Above

    8. All of the Above

 

  • Think in a multi-faceted business model approach

    1. When possible, offer multi-level services, or know how to break up your services into smaller pieces that can be profitable and successful for you, but also allows you to work with clients who have different budgets with strong boundaries for yourself.

    2. Is there a service or product line your clients are asking for all the time? Now is the time to test the waters. Disclaimer: this isn’t for everyone, but creating products with different price points to provide a light, medium or full investment approach can be helpful for you and your client.

    3. Sometimes, to grow we need to curate - so don’t be afraid to remove what isn’t working or what you don’t love. More time away from projects that don’t bring you joy means more focus on the ones that light you up!

 

Pricing isn’t always a simple formula. Sometimes we realize that a portion of our services or products are profitable, while others aren’t! It’s okay if you’re just discovering this - remember, your client today doesn’t need to know what you sent out yesterday. So, you’re always in a perfect position to adjust your pricing for the next project!

And at some point in the negotiation process, it’s likely that you and a potential client won't be able to agree on a number due to resources and expectations, and that’s okay. Bless and release them back to the wild, or support your community and send a referral name!

At the end of the day: you decide your pricing, not your client. Trust your numbers, know your value, and lean into the right changes for you and your business to generate positive and fulfilling results. Put in the work and changes today, so you can support your pricing with confidence at the next negotiation table!

 


Unsure of your next steps? Pop into the shop for easy to use calculators that do the heavy lifting of figuring out your pricing!

Looking for more to read on pricing: My article was first published on the Rising Tide Society Pricing and Negotiation packet! There's lots of other awesome contributors in the packet too!


Brooke Olsen Consulting is a pricing and business strategist team. We specialize in pricing + profitability, financial education and business strategy for creative business owners and entrepreneurs just like you! We're focused on creating an intentional business and life by breaking down the black box of your financials and system processes. Check out our core values for more of the heart behind our corner!

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