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Foreign hello everyone, and welcome to episode 283 of the Kate Show. And today we're talking about something that not a lot of people like to talk about and that is pricing. But I am not a business coach. I am not a business advisor. I am a marketing consultant. So we're not talking about how to like or what your prices should be, but rather how to adopt a pricing strategy, which is actually a huge part of marketing your services in a service based home industry that tends to have higher ticket prices. So if you were hoping for an episode that was all about here's how much you should charge. Unfortunately, that is not it. That is something that you're going to have to figure out. Once you've worked out your pricing with your business advisor, your bookkeeper, or someone else who understands your business financials well, if not better than you do, then this is the next step. The next step is to select a pricing strategy, not merely set a price and call it a day. However, did you know that juxtaposing multiple pricing packages can make one package look better than the other, but it's often causing you to sell something you don't want more of. In other words, people will use this strategy, but they'll use it in the wrong way. And they're like, why am I always getting these little projects? This doesn't make any sense. I've got the two contrasted and clearly the bigger package is a better deal, but I keep selling the small ones. Well, that's a strategy issue. Or did you know that charging a flat rate versus an hourly rate has a certain stigma attached to it? And did you know that you can influence whether people will feel delight at your proposal or utter sticker shock and betrayal just by the pricing strategy that you choose? And the cool thing is, if you've been making mistakes in your pricing strategy, it's not that hard to fix. The right pricing strategy removes the pressure to offer a better deal than your competitors because you're instead able to position yourself as the better fit for your clients, which is a total boss move. So I am excited to dive into this. I had to do quite a bit of research for this episode because again, I'm not a business coach, but I have had to use a lot of pricing strategy in my own business and I can assure you that it works. And I will be pointing out good pricing strategies, bad pricing strategies, and which one I find to be my favorite and. And one that I recommend you consider as well. Now remember, you can stream this podcast wherever you get your podcast. You can also watch it on Spotify or YouTube. And if you happen to be on Spotify or Apple Podcasts, please do leave me a rating and a review. It makes such a difference in helping more people find this show. All right, let's get into pricing strategies and why you need one. All right, well, we should just start at the very beginning. Like, what is a pricing strategy? Well, according to paddle.com, which is a financially focused website, value based, competition based, cost plus, you know, a markup and dynamic pricing are all models that are used frequently, depending on the industry and, and the business model in question. But to put it more clearly from a marketing perspective, and I'm going to quote the house of marketing here, they say pricing is the most underrated marketing tool in terms of profitability. It plays a key role in determining the success or failure of a product or service in the market. Pricing strategy refers to the approach a company takes to determine the price of its products or services. It's a key component of a company's marketing plan and can have significant impact on company's revenue, profitability, and overall success. Pricing strategy takes into consideration various factors such as, such as the prices of competitors, the target market, their willingness to pay the cost of production, and the desired product positioning in the market. And that last part is key, product positioning in the market. And put a pin in that one because we're going to come back to it because you have the ability to position yourself as the target or as the Gucci. And a lot of you are doing exactly what I have done in many years in my business and we've made ourselves the target. And then we've wondered why we're not getting the Gucci clients. So this is why, as much as none of us like to talk about money, we have to. Let's go over, first of all, some bad pricing strategies. I'll start with a few that you've probably heard me talk about before. Number one, saying something is on sale and it's bad because discounts only attract cheap people. So no matter which pricing strategy you use, if you top it off with, oh, running a sale, Black Friday or spring sale, whatever, no, don't do that because you're saying I'm cheaper now. And that attracts people who like cheap things. And also it means people will wait to buy from you until you're running another sale because you're training them to not buy at full price. That's a huge problem. Number two, offering anything for free, like a consult. Free and consult should never go together in the same sentence. Those two words do not belong together. There are some situations where it might be okay if you've highly vetted the lead, but a lot of times what you're really doing is offering a free discovery call, which you should, you should get on the phone or on a video call with a lead and see if you guys are a good fit for each other. But you should not be driving to their house for free, giving them advice for free, and then just hoping they still want to pay you after that. That is setting yourself up for a lot of wasted time and a lot of people who don't value your time as a result. Number three of bad pricing strategies. Saying something's on sale but not actually lowering the price, which is slimy. But you see a lot of retail stores doing this, especially around Black Friday. I believe it. Well, I shouldn't name specific brands, but there were a few well known chains that were notorious for this. So you'd walk into the store, you'd see the Black Friday price, and then you just peel back that pricing label to see the original price and the original price was the same or lower. So it's like so slimy. And please don't fall into that trap because people will quickly learn not to trust you. Number four, offering too many pricing or package options is a bad pricing strategy because it completely overwhelms your lead and they will likely not hire you at all, but they probably won't even contact you at that point. So to figure out if you have too many pricing or package options, multiply the number of services you offer by the number of pricing options available for those services. That resulting total is the number of options that you offer. So if you are offering three packages but you have two different pricing plans for each one, two times three is six. Now you're offering six packages. That's overwhelming. You should offer only three total packages or pricing options. So you could have one package. With three pricing options, you could have three packages each with only one pricing option. And this is helpful not only for you because it shows that you actually know what you're doing and you have a plan. It also helps your lead because now they can better understand and can pick from three items versus 6 or 9 or 12. I see this happen so much. When people are offering different organizing packages or consultation packages. There's really no need for multiple pricing plans. You just need to make it simple for your potential clients. Otherwise they're going to be like, well, if it's this complicated to work with them from the start I don't, I don't really want to work with them. I don't know what I need. And that's the other problem, too. Offering too many packages. Regardless of how, how few or how many pricing options you offer, offering too many packages really confuses the client because they're like, again, I don't know what I need. They're looking to you to tell them what they need. And unless your packages are distinctly different, they're not going to know. So I see this again, a lot, A lot of time with organizers. They'll say, one room and two organizers is this much, two spaces and four organizers is this much. And it's like, I'm already overwhelmed. Like I was overwhelmed when I got to your website because my house is disorganized, but now my brain feels disorganized. So thanks for that. I'm not gonna continue this. Maybe I'll do it a different day. And then they don't. So you need to make sure that your pricing and packages are not too numerous or overwhelming. All right, number five of bad pricing strategies, competitor based pricing. So it's what it sounds like. You base your price on what your competitors are charging and you try to be at their same level or a little bit cheaper or just a smidge more. And the truth is, if our focus is on our competitors instead of on our ideal clients, we're not going to get the clients. We're just going to be stuck in this weird race to the bottom with our competitors and nobody ends up being as profitable as they could be because we're just focused on the wrong things. The sixth bad pricing strategy is dynamic pricing, which again, is what it sounds like. Dynamic changing pricing. That's always changing. According to paddle.com again, dynamic pricing is known as surge pricing or time based costing. Firms use this strategy to assess current market requirements and set adaptable prices for products and services. In a sense, it's a form of pricing discrimination. So you might see the cost of certain things go up when the real estate market is booming. You might see the cost of that same thing go down when it's not because they're saying, well, our ideal clients or ideal customers have more money to spend now, so we're going to raise our prices because we know they're still going to pay for it. That's so wrong. That is so bogus, so don't do that. The seventh bad pricing strategy is a pay what you want or pay what you can after you've set a minimum threshold. The problem with this is quickly Obvious. The accounting side of it, you are going to make nowhere near what you could. And you are allowing your client to decide how much something is worth versus telling them and proving to them how much it's worth. You are giving up control of perceived value at that point. And that is lazy. Really. It might seem cool. I know a lot of different companies are doing that. Pay what you want, pay what you can. No, no, don't do that. Be a business owner. Number eight, predatory pricing. Now that just sounds bad from the start, doesn't it? It's because it is. According to Investopedia, if one company cuts its prices unrealistically low or even below cost, home stagers, you see this all the time, Another staging company will come in, they will charge ridiculously low prices, and you'll start to feel like they're taking all of your clients away because there is just no way you could offer the same service at such a low rate. Well, that's because that other staging company is involved in predatory pricing. So let me just repeat that. If one company cuts its prices unrealistically low or below cost other competitors, you will be forced to abandon the market. At that point, the advantages for consumers quickly evaporate or even reverse. In order to drive all rivals out of a business, the predator must cut prices below manufacturing costs or, you know, below labor cost or whatever it is. Once the initial competitors have been eliminated, the predatory company will raise prices back to normal or above normal. That's gross. It's so gross. But for some reason, I see this happen a lot with staging companies. And the good honest stagers out there are like, what the heck? How are they able to sustain their business and pay their people and cover their overhead and taxes and everything else when they're charging so little? That doesn't make sense. And you're right, it doesn't make sense. It is not a long term strategy. The truth is those companies will not always charge so little. They're just trying to get you out of the picture first. That's so bogus. All right, now let's turn the tables and talk about good pricing strategies. First, one that comes to mind is a flat rate fee. This is amazing because it sets a clear expectation for your ideal client and it's the most transparent. Now, I do use flat rates for pretty much everything. I put my prices out there on my website. My clients can see it, my competitors can see it. I don't really care because I want to make sure I am vetting my leads and if someone comes to me wants to work with me and then sees my price and is like, oh, that's, that's too much. Well, maybe I haven't done a good job showcasing the perceived value of what I'm offering. Or maybe they're just not my client. And if they're not my client, I don't want to waste my time or their time getting on the phone or on a video call. The next good pricing strategy is a starting at price, which establishes your baseline and sets an expectation while being as transparent as possible. Now, I see a lot of designers using a starting at price, and I think that's very smart because you have no way of knowing how much everything is going to cost. Every remodel is different. Every decorating project is different. The only thing you can really give a set price to is the initial consult. After that, it all depends on the client and on the project. But using a starting app price for your projects will again detour the people who thought you could remodel their bathroom for five grand. You don't want that. So sometimes when we're designing websites for interior designers, I will ask them, what is your minimum project investment? Like, not your minimum design fee, but how much does a client need to spend in order for them to make sense working with you, like their total spend? And they'll say, okay, well, 30,000 or 50,000, you know, for just talking about one room. So I really didn't, I don't want to touch a project for less than that. If they, if they can't even spend that much, it's just not going to work. That's really good to know. It sets a precedent. It is so transparent. It also sets a boundary and it also shows the people who do have that expendable income, okay, this person is legit. They understand how much it costs to do a renovation, to do a new build, whatever it is. And they are not a fly by nighter who's trying to do everything on the cheap. Because people who want quality understand things cost money. Yes, there will always be those people who still have sticker shock. I wish there was a cure for that, but there's not. But that's why you have to just take control of what you can control and that is your transparency and setting correct expectations. The third good pricing strategy is value based pricing. So pricing based on its perceived worth. This is a hard one. For example, in my industry, some people will design a website for you for $600. Other people will design a website for a minimum of about $9,000 and they won't even do any of the copywriting or SEO. Yeah, I know. Crazy, right? And that's all value based in perceived value pricing. It all depends on how they present themselves. It might seem like a great deal to get a website for $9,000, even though you know you still have to spend $2,000 more on a copywriter and another 1500 to 3, 500 on an SEO consultant. Oh, my goodness, that's so expensive. But this again is just coming back to how these companies are presenting themselves, the target client they're trying to reach. And that's why value based pricing often comes in when you're setting a rate for your paid consult. How much is your time worth? The price that you put on your paid consultation tells people right away whether or not you value your own knowledge and your own time. And if you're charging $99 for someone to meet with you, is there really going to be any value in it for them at such a low price? They're going to question that. All right, the next good pricing strategy is cost plus markup. Now, if you are a designer and you're selling products, you're very familiar with this one. And that's why so many of you are trying to be more focused on selling products, because the profit margin is there. It's great. You can't create more time in your day, you can't create more billable hours, nor do you really want to, but you can sell more product. Now, some designers make the huge mistake of saying, I'll pass along my trade discount to you. Why? Why are you becoming discount warehouse? That is so foolish, and I say that harshly to make a point. If your business is struggling with profitability, stop letting people use your trade discounts. You are the professional and you have that discount because your vendors want you to make a profit selling their products so that you'll continue selling their products so that your business will be successful, so that you'll get more clients and continue selling more of their products. Okay, this great ecosystem, but you're killing yourself so early in the game. Again, I'm so harsh right now. Being pregnant with a boy makes me so spicy. So, yeah, I guess we'll just have to deal with it. You have to claim that it's okay to be profitable as a business. It's okay to charge what your time is worth. It's okay to charge an appropriate markup on what you're selling. And if you have clients who are asking you for your trade discount, you've probably taught them to do that. And you need to stop. Okay? Because not every designer gets asked for her trade discount or let me see the invoice. It all depends on whether you've trained your people to push you around and ask for discounts and whether your marketing has actually been directed at the cheapos and the tire kickers who will ask to see the invoice and ask for your trade discount. So a lot of this, you know, the onus is on us as business owners to properly market and train and set expectations. We teach people how to treat us. And if you're having these issues, it's really within your control to change. So that's the good thing. All right. The fourth good pricing strategy is, well, this could be good or bad. Hourly. Okay, hourly rates are neutral. They make sense in certain situations, but they're also completely nonsensical in others. So if you have a time and material hourly rate for projects that you know already, well, it's going to cost, you know, this much. And if I can do it in even less time, my profit margin will be larger. Why not use a flat rate? But there will be other times, of course, where hourly makes sense and that's something that you have to determine for yourself. But hourly shouldn't be the answer to everything, because who wants to keep trading hours for dollars? You should be able to set a flat rate on something and then, or, you know, give a flat, not a flat rate. Like every kitchen only costs 150,000. But you should be able to bid out a project, say, this is the price. It's not time and material. This is the price. And then you'll internally estimate, of course, how many hours it's going to take, take you and your team. But if you come in under that estimate, fantastic. You're still getting paid the same amount, but now you've technically made more per hour. So that's pretty great. Now you have to do it right, though, otherwise you could end up severely losing money. Now, out of all the pricing strategies, I prefer the psychological approach, which is a totally different strategy. And HubSpot defines it this way. Psychological pricing is what it sounds like. It targets human psychology to boost your sales. For example, according to the nine digit effect, even though a product that costs 99.99 is essentially a hundred dollars, customers may see this as a good deal simply because of the nine in the price. And a lot of us see this, like every retail store, even online store, is like, it's all something 99. HubSpot goes on to explain this another way to use psychological pricing is would be to place a more expensive item directly next to either in store or online, the one you're more focused on selling. In other words, you want to sell item or service A, but you put a more expensive service B next to it. Now if you ever sell service B, cool, fantastic. But you're actually after selling service A because the cost to deliver it is really low. The value is totally there for the client and having that bigger price next to it makes the price of product or service A look so much more enticing. Okay, mental game. And some people will do a buy one, get one 50% off. That's a retail strategy. You should never use that in your own service based business. But even something as simple as if you're listing prices next to each other on your website, changing the font, the size, the color of pricing information around your services has proven to boost sales in various instances. So that's from HubSpot. And they pinpoint the issue that no one wants to talk about. And they say it's not uncommon for entrepreneurs and business owners to skim overpricing. They often look at the cost of their products or cogs and they consider their competitors rates and they tweak their own selling price by a few dollars. And while your cogs and competitors are important, they shouldn't be at the center of your pricing strategy. Amen. Quit making your pricing all about your competitors. Now here are a few keys that you need to remember as a luxury or mid level, even service provider in the home industry. As a home pro, your services are elastic goods, which means that more or less people will buy based on economic conditions, which is totally different from say groceries, gas, toilet paper. Those things are inelastic because they're still purchased regardless of how much they cost. We need fuel, we need toilet paper, we need to eat. And as the owner of your business, charging too little because you feel timid is not a growth strategy. That is literally called letting your emotions run your business and you will not go anywhere. Now granted, your rates should naturally increase over time, but you don't have to wait until you've been in business for a few years before you can charge the quote unquote big girl rates. You should be able to do that within your first year of business because people will take you seriously a lot faster. You may not feel confident charging those rates. That's more of a you issue. So work on that. If your perceived value exceeds the rate that you're setting, then you should be confident in your product. Don't worry about self Confidence. Self confidence is such a misnomer because we will never find enough within ourselves to truly feel confident about, because those things will always change. There's always someone more successful. There's always someone more attractive. There's always someone wealthier. There's always someone with better connections. Your confidence has to come from somewhere other than you. You. It has to come from a place that never changes. And for me, that's God. You know, just knowing my intrinsic value in God is what never changes. And it also directs the prices I set in my business. You know, I'm. My conscience will not allow me to price gouge. But I can also say with full assurance, I know that my services help people. And I'm sure that you can say the same. And because my services help people people, and because I run a business to support my family, I can charge these rates with confidence and I can deliver on what I am promising. All right, the next thing you need to remember is your ideal client's budget is probably two or three times bigger than your own personal budget. So quit assuming they're going to have sticker shock or think that you are too big for your britches. If you don't believe your services are worth it, neither will they. Half of pricing is simply delivering the proposal with confidence. Speaking of delivering the proposal in one of our recent Mastermind meetings, and maybe I talked about this on a previous episode, I don't really know because pregnancy brain is so real right now. But I had one of my clients share something that I thought was so valuable. She said, you know, as an interior designer, design build firm, whatever it is, if you're delivering a large product proposal, don't send it in an email. Don't let that be the first way people see it. Meet with your client, bring them to your studio or go to their location, have a nice little presentation, make an event out of it, bring snacks, whatever you've got to do, and then say, all right, here are all the things that you want. Here are all the things that we agreed upon. Here's the plan. Walk all the way through it, and then at the end, state the price. Now, this might be uncomfortable, but this allows you to see any sort of negative reaction they might have and address it right then and there. If you send it in an email, they're going to turn to their spouse and be like, this lady is nuts. I can't believe she's going to charge us this much to remodel our kitchen and bathroom. And they'll delete the proposal. And they probably will ghost you. So if you are delivering it in person, even if they end up rejecting the proposal, you're going to learn how to deliver it better and better. And the chances are they'll not reject it because you're going to be right there to explain whatever needs to be explained. The other thing, and this is, oh, it's so hard. But it's so, so important when you state the price, whether it's on a video call, in person, on the phone. Stop talking. Stop talking. Okay, so when someone asks me how much for a custom website and I tell them if I've just raised my rates, you know, at the start of a new year or something, I'm like, like, bite my tongue, hold my. I like, I might even hold my breath because I'm like, ugh, this feels so uncomfortable. But then I just be quiet and I let them say whatever they're going to say. I don't assume they're going to be like, oh, no, that's too much. And it's funny because usually people are like, oh, okay, cool. So do I make that in one payment or two? Like, they're just totally fine with it because I'm totally fine with it. And that's how you need to be as well. And it takes practice. And trust me, it's not. It doesn't get easier overnight. All right, guys, these are the good, bad, and ugly sides of pricing strategies. I hope that you find one that works well for your business. I've already given some strong hints as to which ones would be best. Flat rates are great. Hourly is often appropriate, but be careful with it and always use psychological based pricing. Don't offer too many packages or too many pricing structures. It will confuse the heck out of your audience. And I think that's pretty much enough for one episode. Oh, my goodness. Your brain is hopefully not spinning as much as mine is right now. But I know that I learned a lot from having to research this, and I hope that you did too. All right, guys, until next time, keep your marketing simple, your message clear, and I will talk to you soon.