On October 14, 2021, I was a speaker at the Crystal Coast Women in Business Conference. I spoke about creating value to maximize profit for your business. Here is a copy of my speech from that event!
Welcome everyone! I am Booth Parker and I am so excited to be here with you today. While I am an accountant, I am going to do my best not to bore you today with accountant talk. Now, when I was asked to speak about a financial topic, I wasn’t sure what I should go with given the large group here and the vast differences in each of your business’s financial needs.
We all have different goals and we are all on different paths and at different stages of our business journey. Some of you have established businesses, some are just beginning, and some are about to take the leap.
But the bottom line is this: We all are focused on the bottom line. Whether you are a single mom supporting your family or you have a hobby type side hustle; we all are in business as a way to make money. Even non-profits have to make money to carry out their purpose.
The bottom line is our net profit. In the simplest of terms you can break down the Income Statement (or P&L Profit and Loss) into a very basic formula:
Total Revenue minus Total Expense = Net Profit
And the goal is to maximize net profit. We do that by minimizing our expenses as much as possible and maximize Revenue.
Total Revenue is simply the number (the volume) times Price. Volume is how you scale. The more volume the more revenue. The other part of that equation is price and you want to maximize that as well! How much should you charge for your product or service?
There is an old saying: something is only worth what someone will pay for it.
That leads us to this: If you want to maximize the Price you charge you have to create Value! You want to ask the highest possible price based on the perceived value. Value has a two-fold perspective especially when applying it to women and their business.
First, we are going to talk about creating value in your product or service. Your business is generally also your name. It may not operate under your name but your business is also your reputation and you want to have a good reputation. Delivering value is how you accomplish that.
So, what is Value? If you Google it you will get “the importance, worth, or usefulness of something.” In economic terms, it is a measure of the benefit provided by a good or service. We are generally passionate about what we go into business for which means our enthusiasm for the product or service is already high. We already see the value because of our passion and excitement. But if we fail to communicate the value we feel then the customer isn’t going to see the value.
Value pricing is an accounting concept, much like cost plus pricing, but value pricing focuses on the customer. Small business must focus on the customer because it’s sustainability is relationship based. Think of places you go to solely for cost: Wal Mart, Dollar General, and places like that. While we have all had “an experience” at these places, that isn’t the kind of experience we are talking about here. When you use value pricing for your business it keeps your focus on the customer and their experience. If you make a product, do you deliver it in beautiful packaging so the unboxing experience is part of the value of the product? Think of a beautiful blue Tiffany box with it’s white bow. Receiving and opening the beautiful box is part of the elevated experience.
So how do you go about creating value to price your product?
Pricing something by just applying a mark-up to it is simple and straightforward. That is cost plus pricing. Even if you have a business where the price of the products is dictated such as a boutique or gift store that buys products at wholesale and sells them at the manufacturer’s retail price, you can still do the Value homework to create value for your store’s personal brand and why people want to shop there. If you are a boutique selling $50 garments then your Value looks different than a boutique selling $300 garments. The value you create for your store diminishes the need for sales and clearance items because it has curated the right customer.
Value pricing takes effort and research but it’s how you maximize price and thus profit.
Step 1: Research! Who is the target audience? Who is the ideal customer? The customer is going to determine the perceived value so you have to get it in front of the right people. For example, my husband needs a lot of towing capacity in his vehicle. He sees value in towing capabilities while I don’t. He sees Value in paying for those towing capabilities because they are how he gets his work done. I would see Value in paying for some other kind of amenity in a vehicle. It isn’t just about the income demographic, it’s about the customer having the need or want for your product or service and how much they are willing to pay for that need or want. You also want to get feedback from customers so you can understand the value they perceive and better that going forward.
Step 2: Research! Who are your competitors? Who are you sharing this space with? What are they charging? You don’t have to be the cheapest if you have more value. Think of a construction project and you get bids for it. You don’t always go with the lowest bid and generally the lowest bid is lower quality work, not as good an overall experience, and someone that doesn’t have an impeccable reputation. People often go with the bid where they will get what they pay for. Maybe the more expensive bid guarantees a time frame for completion. That’s value.
This step is also when you evaluate how your product or service is different and how you can add value by honing in on your differentiation.
Step 3: Determine the value of your differentiation, price, and market. How much more would your target customer be willing to pay over the competitor’s price based on the differences in your product or service? Do you focus on features, the experience, service after the sale? Depending if you are selling a product or service really drives what you focus on here. How is your product or service unique and how does it benefit the customer? People are very focused on experiences these days; how something makes them feel! Feelings create value! But you have to communicate that value to the customer!!
When you not only create value but deliver value then not only do you maximize price but satisfied customers give you organic growth on the volume side of the Total Revenue equation. Testimonials are huge in creating value and they also are great for growth, especially in the social media world.
Know your audience, know your competitors, know how you differentiate and capitalize on that. Deliver the value that commands the higher price.
Let me give you a personal example. As y’all know, Mary Cheatham King is our key note speaker. I am probably not the only person here that has used her services. Almost two years ago (shortly before the pandemic shutdown), I purchased a new home (lucked out before the prices got crazy around here). Mary Cheatham was the listing agent and we also used her as our buyer’s agent. This was the 7th home purchase I have made in my lifetime. And I can tell you that the experience was unlike any other home buying experience I have had. Not just the professionalism, but the prompt communication. Even though she was dealing with numerous clients at the time, her team made me feel like I was the only one. The level of service was above and beyond expectations. This is Value! She has taken a service and elevated her customer’s experience. Remember me mentioning testimonials and growth? Read some of Mary Cheatham’s testimonials. She has 174 Five Star reviews on Google! And I would say being the #14 Keller Williams team in the WORLD is some pretty remarkable growth!
NOW, for the other side of Value we need to discuss. I started with the Value based pricing because I wanted to get you thinking about how you differentiate and the value your product or service brings. I wanted you thinking about YOUR business. But think back to your first job or maybe even a job you are still in. Historically, when we have been offered a job, the employer tells us, or offers us, what they are willing to pay us. They are in essence setting our value to them. And often times, especially in our first jobs right out of school or getting our foot in the door at a big company, we feel undervalued. And those thoughts stick with us in the back of our mind. And while the gender pay gap is improving, it is still an example of women being undervalued in the workplace and in business every day. When I started my career in the automotive industry back in the 90’s (man I feel old saying that), it was a man dominated field. While I was paid pretty well, I didn’t feel respected which in turn made me feel unworthy and not valuable. It took years of perseverance to find my place and my voice. And I can honestly say, that I truly didn’t recognize my Value until I left that part of my career behind and started a new path on my own. The personal growth I have discovered on this new journey empowers my value everyday.
Now, how many of you here are moms? … What do us moms do everyday? We make breakfast, change diapers, pack lunches, do laundry and the list goes on. And we do it all without being paid. It’s part of our giving, nurturing nature. To do things for others and give it. Wanting everyone happy, taken care of, and without conflict. And that’s why, especially when starting out, women have almost a guilty conscious in naming their price. We don’t value ourselves and what we have to offer as much as we should, even when we are confident in the product we’ve made or the service we are offering. Because of that we often undervalue ourselves with a lower price. Women often fear rejection or being told no and we feel that people will say yes to a lower price and we crave that acceptance. Here’s the thing: there will always be rejection in business.
So stay objective and don’t let your emotions takeover. Keep the emotions focused on the relationship building. Your product or service is not something everyone needs or wants. AND THAT’S OKAY! Don’t take it personally. That’s how you find your long term customers. The customer that is only looking for the lowest price isn’t going to be a loyal, long term customer. Those one and done customers are not the ones you are wanting to attract because they aren’t going to grow your business! And, if you want to offer a friends and family discount that is your choice but by all means don’t let family and friends make you feel undervalued by wanting a discount or something for free. If you want to do some pro-bono work or donate product through your business, that’s great, but let that be for people that truly are in need and can’t afford it not someone who is able to pay but isn’t willing.
Do the value based pricing exercises and substantiate your value. People need or want your product or service because it’s something they can’t do for themselves. Substantiate not only it’s value but yours. This is your business! This is your name!
Build value and know your worth and be proud of it. Maximize price through value, grow volume, maximize profits!
Thank you so much for your time today. I wish you all the best with your businesses!