UNDERSTANDING PRICE PSYCHOLOGY
Dream Bold, Start Smart
Episode 97 of The Vendor's Daughter
This week we are digging into our conversation with Tatiana Tsoir, CPA and numbers expert with 15+ years of experience helping entrepreneurs and business owners become the boss of their bottom line.
Now you guys, when I edit these interviews I always go through and write show notes. When a guest says something REALLY good, or shares something that really resonates with me (I call these, "now that’ll preach" moments). I put little stars next to the time stamp. My notes from Tatiana’s interview are filled with stars. It’s like looking at a night sky over here so let’s get to it because there’s so much I want to share and so much I want to make sure you took from my conversation with Tatiana.
Tatiana shared three main mistakes that she believes entrepreneurs make when starting a business.
The first mistake was not spending enough time deciding on your entity, meaning are you filing as an LLC, an s-corp etc. I’m not going to spend a lot of time on this because truthfully I made the #1 mistake she warns not to do. Do not go to Google and randomly pick the entity that you think is going to be the best fit for you based on liability alone. I had no idea, but apparently the entity you choose can drastically affect the way you file taxes and increase or decrease the amount of tax breaks available to you. I still don’t really understand the difference in a lot of entities so I’m not going to pretend to be an expert, I’m just going to say, if you have filed for an entity you might want to reach out to Tatiana and make sure you chose wisely.
The second mistake she mentioned was when it comes to pricing. It is Tatiana’s belief that many entrepreneurs, especially creatives, are undervaluing their services, to the point that after a year of business, they’ve exhausted themselves but don’t have any money in the bank to show for it. Can I get an amen! Who has done this? I HAVE done this!
I love podcasting (both creating one and listening to them) for moments like this. The moment when you’re reminded that you aren’t alone. That you’re reminded that other people deal with imposter syndrome and that other people also feel like they can’t charge more for something when they just started.
Tatiana goes on to give some great advice and I want to summarize it for you here:
Step 1: Pick a camp – are you going to pick low cost leadership or are you going to pick high value differentiation. You can’t be in both camps. You can not choose low cost and high value and still show profit and keep your sanity. You have to pick. She says companies get into trouble when they don’t know who they are.
Step 2: Create packages – specifically create three packages (if you only have two, price psychology says the majority of people will choose the cheapest package, and if you have four, people will get overwhelmed and most likely not choose any package. When you have three packages, roughly 60% will choose your middle option. Which means you want to make this option your most appealing package, your most profitable one. To find out more on this make sure you go back and listen to episode 97.
The last thing I want to say on building your packages, is one thing that really impressed me about Tatiana. That woman knows how to guard her time and the packages that she offers her clients shows that. If you want premium access to her time, her most valuable resource, you have to pay for it. Friends, your time is also your most valuable asset. Make sure that you aren’t giving it away at too low of a price.
And remember in most cases you aren’t charging for your time, you’re actually charging for access to your brain. And as Tatiana shares, you can’t really put a price tag on that.
The third mistake Tatiana shares is this: entrepreneurs are mismanaging their cash. To properly manage your cash you need the proper mindset and deliberate action.
And with that you need to have multiple bank accounts, a minimum of three:
1 to cover overhead
1 to cover taxes
1 for profit
One really big star I have on my notes is from this portion of our conversation, where Tatiana says your paycheck is not your profit. Your paycheck is what you get paid in exchange for your efforts (just like you would pay anyone else who works for your business). Your profit is your reward as the actual business owner. Your profit is your reward, and it should be MUCH larger than what you get paid. She also shares that you should always grow your business from profit. So as you build that profit account, that’s what you use to take yourself on a nice vacation or to buy equipment to reinvest into your business and grow more profit.
Alright you guys, there are two final things that really stuck with me from this episode, so much so that I’ve actually made some changes in my own business this week.
The first is this: if you don’t hire and delegate well, you will never be free. If you cannot get out of your own way, if you can’t trust other people to do the required work well, then you will never have freedom in your business. And you guys, isn’t that why anyone wants to be an entrepreneur in the first place. No one says I want to be an entrepreneur to be a slave to my career, to be chained to my laptop, to miss all of my kids soccer games. No way! People say they want freedom to travel, to be there for their families etc. but then growing the business takes over and we start making bad decisions, like believing we are the only ones who can do the job required well.
The last thing is this: set your boundaries early. What will you allow and what won’t you allow. Decide these things as soon as possible and then don’t waiver. Because the moment you let customers call your personal cell at midnight, you can never take that back.
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