The Pricing Trap

growth journey pricing scale May 02, 2019
I don't know if you're a music fan, but when I was younger I was into electronic music, and one band I liked was New Order.

In 1983 they released a 12' single called Blue Monday. Great song, which went on to be the best selling 12' of all time.

The only problem was; due to the amazing sleeve design, the cost of production exceeded the sale price.

It nearly sent Tony Wilson, the owner of Factory Records, broke.

Thankfully it didn't. He had a nightclub cash cow to keep him afloat and the band produced many more #1 records.

A lot of firms I speak to, particularly those who are seeking technology to help them become more efficient, are the financial planning practice version of Blue Monday.

They know they have a problem. They can feel it in the long hours they're working, the fact there's not enough profit to enable them to invest in the staff they so clearly need. Their workload has increased, and they're looking to tech as a way to help them do more, with less time and add more value.

The problem is you can't punch your way out of this by looking for efficiency.

When you simplify it, there are only two options.

1. You can continue to do it the way you do it now, but if you do it has to be at the fee levels that your underlying processes are telling you to charge to be commercially successful. In which case, then it's about how to charge that.

2. You can build the process to meet your desired/ current price point, but that means changing the way you do it. In which, case it is about tech, systems and culling inefficiency. However, I've never seen a firm reduce costs by more than 20-30% by seeking efficiency. It's like trying to edit a 5,000-word article down to 2,500. It can't be done unless you fundamentally change the article.

The reality, as Peter Graham of Y Combinator fame once commented, is most firms have got the pricing paradigm the wrong way around. They think the game is to start low and grow high.

It's the opposite. As you're growing you HAVE to charge higher fees. Later, once you've invested right, you can begin to compete on price.
 
You HAVE to find profit in the way you do things now, not at some point in the future once you've got the profit to reinvest in tech that will make you more efficient.

Because if you never achieve the profit to be able to reinvest, then you'll end up stuck in no man's land, never quite achieving orbit. And it's a nasty place to be.

Sometimes you just gotta realise that achieving commercial viability with what you already have is step 1, especially when the world changes around you.
 
 
PS. If pricing is something on your radar for 2019, or you've done it before and cannot say that your profit increased as a result (ie. you didn't do it right), this might be of interest. It's part of our new Journey to Scale coaching framework, which you can read more about here.
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