Episode Transcript
[00:00:01] Hi, guys. Stephen Edwards from Grow Profit First Accountant. So, in this week of the Profit first podcast, I want to talk about something that's not specifically to do the fundamentals to Profit first, but it ties into the overall principle and philosophy in terms of what we're trying to do and is ultimately to make sure profit is a priority in our businesses. You know that the expression is turnover is vanity, profit is sanity. So this is one of the most powerful techniques outside of Profit first that any business can do that all of you should probably be thinking about. And there's probably going to be a really small minority and exception where this is not relevant for you. And the topic is pricing.
[00:00:45] So, you know, I'm in lots of accountancy communities and you would think, being a bunch of accountants, that everyone is dialed in and they're on top of their pricing, but that's not the truth. The truth is it's such an emotive subject. It's also a topic of your business, a focus of your business that you should be paying a lot of attention to on an ongoing basis, because things can change. You know, I don't like talking too much about the outside environment. So if we're looking at you, Ukraine, and we're looking at all the politics and, you know, all the wars and all that sort of stuff going on and post Covid then.
[00:01:25] But the fact is these things impact our pricing. And we would be pretty naive to think these things don't impact our pricing. Just one thing that impacts our pricing. There's lots of other things. So I'm going to just really, you know, talk about pricing holistically and some give you some tactical, practical things that maybe you should focus on in your business in 2025. So first and foremost, if you've not put your price in up for at least a year, you need to put your pricing up. And I'm sure everyone who's watching this is familiar with inflation, but I'm not quite sure everyone realizes the impact inflation can have in our business. The truth is, if you do not put your pricing up with inflation, you are effectively giving people a discount. And discounting is a race to the bottom for most businesses, unless it's tied to a strategic growth path. So, you know, some people might have certain discounts to get people on board, and it's helping them grow their business. But in terms of an ongoing way of running your business, discounting is not good and it can literally ruin your. Your profitability. So just, you know, on the subject of discounting, and we link it Back into inflation. Let's say, you know, I'll just make up a number and I'm using 100 pounds a month because it's a nice number, because 100 is like 100%, obviously. So if someone's quoting a service and it's 100 pounds per month, you know, you might not have a monthly ongoing service, but let's just say it's £100 per month and a customer wants you to discount it by 10 pounds. So effectively 10% for people that, and I've talked about this in my book, how to build a Business that Runs without you. And on the face of it, it might seem fine. And if you're looking to grow your business, a lot of people do this at the beginning to kind of win the customers and to, to grow our business and ultimately to pay our bills in the early days, however, so it might seem fine, 100 pound to 90 pounds. If I told you the the profitability in that business was 20% originally, that means out of that hundred pounds, the profit was actually 20 pounds. The customer doesn't see that. The customer sees 100 pounds. So if you've discounted it from, you know, 100 to 90, your profit, that that extra 10 pound discount has gone straight off your profit because you've got all the same costs. So your profit is gone from £20 to £10. So that 10% discount means you need double the customers to make the same profit. And I just want you to think about how powerful that is in your business. And the same applies when you increase your pricing.
[00:04:05] You know, you could need half the customers potentially if you get the right strategy with your pricing. And obviously there's lots of other things to think about. We can't just put our pricing up. I completely agree with that. However, inflation is one of those things you should be tracking. If you are not putting your pricing up, you are to do with inflation. You are fooling yourself in terms of what you're really charging your customers. Because if a couple of years ago inflation was pretty much pushing 10%, so that means if you didn't put your pricing up by 10%, you've effectively gave people a 10% discount pretty much. And I've obviously just gave you an example what sort of impact that can have in a business. So, yeah, that's a kind of overview. What other things do we need to think of for pricing? Well, a lot of people get too focused on price and cost and I can't charge this amount because Joe blogs up the road is charging that amount And I need to stay competitive. That is true to some extent, but it's more true if your service is very similar to other people's. If you're providing a commodity, you know, Heinz baked beans, tin tins of hype, baked beans on the shelf, can't really change, fluctuate that much between one shop to another. You know, unless you're the local kind of corner shop, they charge a little bit more because it's convenient. But we're talking about commodity. When we talk about milk, we're talking about bread, although I've got an interesting story on bread. But typically these things are fairly consistent. So when you're in your business, I'd like to think you think this or you believe it's generally true, that there's something you do in your business which is very different to your competitors and it makes you unique. You know, these are the usps, our unique points. But it's not just a marketing gimmick, is genuinely what makes you unique. So when we're, you know, building our business at the beginning, we might want to stack them high. And a lot of people get competitive on price. But you want to get to the point where you're not competing on price, you're competing on value. So your customers value what you're giving them and they can't just compare it to the person at the road, because what you're giving them is very unique. And it's kind of the way you do things in your business. And if you. If you're interested to dive deep into that thinking a lot more. There's something called Blue Ocean Strategy. It's a book. And the overview is a lot of people competing in a red ocean. A red ocean is, you know, a sea effectively. And everyone's competing in the same. In the same. In the same sea. And that's where all the sharks are. And we're all trying to hunt, looking for the same customers. And it's a contested red ocean, and what you want to look for is a blue ocean with no competitors. It sounds too good to be true, but it's the thinking that can inspire you. How can you do something so different? It doesn't really matter what Joe blogs at the Road is charging, because the value you are creating for your customers is incredible. One of the examples used in the book is this Cirque du Soleil. So they, I think their pricing was at least double or if not triple, the normal circuses, because they created something so different, so unique, people were willing to pay the extra money because they saw the value in that. So, you know, pricing can be a deep subject. There's lots of different things to cover. And I would put that down to positioning how you kind of position your value and your services. And obviously you need to deliver that as well. So the final thing I want to talk about in pricing is that it needs to be an ongoing thing. You need to have a system to be monitoring your price and it needs to be cinematic. If you, if you sell something in a Amazon shop or an E commerce shop, you need to constantly be paying attention to your costs. It doesn't mean you can keep on changing your pricing, but you need to understand if that particular thing is still profitable to you. So if you're an online business and you're selling different clothing items, you know, we've got a client that sells coats online and they really know which coats drive those margins in their business and they focused on those particular coats in the future because it can make a huge impact to the profit in their business. And it's just a smarter way of growing a business business. I want you to think about what things do you need to be thinking about on an ongoing basis, whether it's a monthly basis, a quarterly basis, an annual basis in terms of your pricing strategy, what you need to stay on top of, and also how can you kind of innovate in terms of the value you're offering so you're not competing with Joe blogs up the road. So if you find that useful, guys, just drop me a message, drop me a like, and feel free to reach out if you've got any questions to do with pricing or to do with profit first. Thank you everyone.
