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Is Your Price Right in the Industry?

Pet Age Staff//December 18, 2019//

Is Your Price Right in the Industry?

Pet Age Staff //December 18, 2019//

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In October, “The Price is Right” aired its 9,000th episode. Guessing has been the name of the game for 47 years and over $250 million in prizes.

Like the show’s contestants, CEOs must get the price right. However, they can’t guess because every dollar counts. On the expense side, a dollar spent poorly is wasted twice due to opportunity cost. Some mistakes are compounded because of fixed costs and debt, which are incurred or the cost of hiring and firing a bad employee. On the revenue side, bad prices can attract clients who are low-profit and high-headache… or lose business because they are outside of a target market’s price range.

CEOs must discover if the price is right. They can do this by developing philosophies and strategies for both sides of the ledger.

Revenue Review

Profit is king for any business—but it starts with revenue. Financial coach and Ortus Academy CEO Aaron Velky said leaders must know the “mechanics” of money when seeking clients and customers: “Money is all about psychology and behavior. Value is in people’s perceptions of what your service or product will do relative to the cost.”

Business pricing “is some science and some art,” Velky said. However, “the quality of customers should be consistent. If you are seeking a new market, you may need to let your price change accordingly.”

Seeking a market doesn’t mean compromising sound prices. Serial entrepreneur Larry Carver said, “Many small businesses believe that they can take a loss on a job and make it up on future work” with that client. “That never happens,” according to Carver, because the low price has already established the nature of the relationship.

Quality and Cost Control

The other side of the ledger is expenses. While it’s often easy to assess the value of a single purchase or see the lost opportunity of a single purchase, there is no easy answer for when to increase one’s strategic outlays. “There are risks in any business investment, and it’s difficult to know who and what is best to invest in,” Bregman Partners CEO and best-selling business author Peter Bregman said. “I have invested a lot [in marketing] over the years, and sometimes I’ve gotten little in return. On the other hand, you have to market a business.”

Carver said that small-business owners should “keep control of overhead expenses” to ensure profitability. “Don’t move into the office space until you need it. Don’t hire office or sales staff until you need them. Know what you can afford and have a budget,” he said.

When it comes to staff, Carver said CEOs should first “find the best person for the job” and then look at the cost of that employee’s pay, benefits, training and oversight. “Low-cost employees” may become senior managers, and some “high-cost employees can do the work of three low-cost employees,” he said. However, sometimes low-cost staff “need to be supervised all the time,” while experienced, high-cost employees can’t “adapt to change or new processes.”

The Money Value of Time

“I think the No. 1 mistake leaders make is they are not clear enough with themselves or their top people about what their priorities are,” said Bregman. “You can invest a lot of money and spread it across 10 different areas and get nothing. Or you can invest the same amount in one area and get a lot out of it.”

Small-business owners must “focus on the outcome you want to achieve” or risk never seeing “the benefits of any opportunities,” Bregman continued. This includes knowing a CEO’s personal goals. Getting bigger requires “capital investments and greater vulnerability,” and while “in the best-case scenario it goes well, it’s not uncommon for me to meet people who are more stressed and don’t enjoy their business as much.”

Velky said that CEOs can avoid overcommitting by “buying back their time earlier rather than later.” He described time as “the ultimate resource,” and thus “getting more of that is the biggest thing to retain.” There are many paths to knowing the time value of money and the money value of time—“it might be delegation, it might be outsourcing, it might just mean having food delivered to the house,” according to Velky—but he said it should be done sooner rather than later.

Are Your Prices Right?

From Day One of your business, it’s critical to know if your prices are right. Are you hitting the sweet spot for your target market, or are you constantly getting the headache customers? Are you investing in your company’s future, or just spending money?

Most importantly: Are you achieving your goals with the right processes? Are you running the business, or is it running you?

As a CEO, you can’t afford to guess your way to success.