Pricing and the Cost of Living Crisis
In this episode, I discussed the current economic climate of slow wage growth and high inflation leading to the cost of living crisis situation. You will hear how this impacts businesses and why it is essential to understand the situation even if you are in a B2B environment.
I suggested ways to navigate pricing and revenue strategy in a declining economy, such as cost-cutting, reducing waste, and streamlining processes to be more efficient with operations.
Additionally, you will learn to assess the value stack and different pricing points to provide options for price-sensitive buyers. I highlighted the importance of value-based pricing, even during tighter economic times, and suggests an exercise to help businesses understand the value they deliver and how it links to price.
Finally, find out the importance of being transparent with pricing and communicating any price increases to customers or clients.
Overall, this episode provides practical tips and strategies for navigating the cost of living crisis in a business, ensuring profitability, and delivering value to customers and clients.
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Pricing and the Cost of Living Crisis: Understanding the Impact and Solutions
Hello everyone. Welcome. Just teaching all my live sections. There we go. It is, of course Training Tuesday today. Thank you for joining me, thank you for tuning in. Today I'm speaking about pricing and the cost of living crisis and the things that you might want to think about and consider when you're running a business in the current environment that we are currently living in.
So we are live today on Instagram, on Facebook on my page and my profile within our Facebook group on LinkedIn, in YouTube and Twitter. So do give me a hello, wherever you happen to be tuning in today, I would love if you are able to say hello, in the comments, let me know that you are here.
Also give us some thumbs up some likes or shares some love it helps that algorithm do its work and helps other people find the session today as well. And that is always a good thing, and helping and supporting other small business owners too. So if you're new to me, you don't know who I am. And you've stumbled across this session. Thank you so much for checking me out.
My name is Annette Ferguson. I am CEO of Annette and Co,UK based accounting firm. I am a chartered accountant, certified profit first professional and small business growth strategist. Fundamentally I help small business owners take home more money from their business for them and their families to enjoy. Because, after all, that is in the most part, why many of us are running businesses? Yes, absolutely. There can be bigger reasons than that too. But unless we are able to make good money taking home from our business, then it is likely that our business won't be in business for very long. So I do appreciate, as I say you tuning in today.
And today's topic, like I said, is pricing and the cost of living prices.
Current economic climate: high inflation and slow wage growth
So as we know, the current climate in the economy is one where we have primarily high inflation at this point in time and slow wage growth as well. We've seen that from the strikes that are currently happening yesterday, of course, my kids were off school due to teacher strikes. And so we are seeing slow wage growth and high inflation. And that is causing, in part the cost of living crisis situation that we are seeing at the moment.
What it means is that we're seeing the increase of basic goods and services for the consumer primarily. And even if you are in a b2c environment, it's important to understand what's happening because in a b2b environment, those other businesses that you are doing business with, they have humans in them. And those humans personally are experiencing these things. And they will naturally take that into their business.
This is not something that you can say, Oh, I'm b2b, this won't affect me, you're still dealing human to human, and therefore these things will still impact you and your business. So, of course, with a recession, there's a little bit that we're not technically in a recession just now, because last quarter, wasn't another decrease. But we're teetering on the edge of it, there's some kind of technicalities happening there, we're certainly at least teetering on the edge of a recession.
And that typically usually impacts businesses, by decreasing consumer spending, whether that's an individual or business are decreasing spending, and therefore, typically putting pressure on the profits of many business. And if business why has having profit pressure and they buy from business x, then they may decide not to do that putting pressure on business x as well. So there's a little bit of a snowball that can happen there that you have to be aware of.
Impact on consumers and businesses
Now, I am not saying that everything is doom and gloom, and we should all be taking shelter running for cover or shutting down our businesses not in the slightest. recessions are a normal part of an economic cycle in a country and in the world. And therefore they do happen periodically. And actually, we are quite late into this recession, because recessions typically happen every eight years.
We have had a much longer period since our previous one. And therefore this shouldn't really come as a shock to to our economy as a whole. Although it may feel a bit of a shock to individuals as we're kind of in it. But what you'll typically see and maybe you've felt some of this already, particularly if you're a bricks and mortar business and you're having to deal with rising utility costs, you may start to experience rising costs. flowing into your business.
Effects of a Recession on Businesses
So businesses that are already seeing rising costs are like I mentioned, those that have a bricks and mortar business and are therefore their cost of utilities have increased, they're not on a fixed tariff, or businesses that are in retail, seeing imports, costing more businesses that are in hospitality, costs of food and drink having increased and therefore being squeezed. On that side, some businesses won't really have felt the effect too much yet, of rising costs. But we will expect to see things like software costs potentially increasing over time.
If you're running an online business, you may have a delay in cost increases at this point in time, you might not be feeling it quite as much. But the likelihood is that actually, you'll start to get some pressure on your spending happening as well.
Maintaining profitability in a business
So of course, in order to maintain profitability in a business, we which in itself is needed, so that you can take home money from your business so you can support your family and you can still live the life that you want to live.
The natural thing to then understand is okay, what needs to happen with pricing? What is happening with our own demand for our own services? How do we weigh all this up in our business, because of course, there are knock on effects to everything. So, of course, we need to factor in examining our costs. As always making sure there are not money leaks in our business.
Importance of examining costs and eliminating money leaks
That is always key when you are running a business is to make sure that you are finding and eliminating money leaks. For those of you that have not heard me speak about money leaks before a money leak is where the spending in your business is either one not necessary to keep the proverbial lights on not 100% necessary to keep the proverbial lights on or two is not delivering you a positive return in terms of money, or time, all your spending in your business needs to fall into these categories.
Otherwise, you need to assess what is the purpose of that is this a money leak. So that is the first thing to make sure that actually you've got your costs under control. But once you're in that situation, then of course, naturally, we go up to revenue, because revenue minus your costs gives you the cash that you have available in your business to give to yourself, Okay, so that is where pricing and revenue strategy, then come in.
Strategies to maintain profitability
And you may need to start assessing how your business can compete and challenge in an economy that is declining. So we've spoken about the importance of cost cutting, reducing waste, but there's also things like streamlining processes, in order to be more efficient with operations, that is also part of examining the cost side of things. But then we need to also think about diversifying your services, your product lines, your pricing points that people can come in, in your business.
By the way, if this is making sense to people, please do give me a thumbs up heart likes, shares, whatever those things are on the platform that you are watching, I want to make sure that I'm not losing anyone and that everything makes sense here. So please do give me some reactions on whichever platform you happen to be tuning in on today. So that I know that things are making sense to you.
So like I said, we need to then look at the income lines of your business. Now typically, I will always say to somebody that if their business is not generating over 100,000 pounds in revenue from per income stream from a single income stream, you should only really focus on that one income stream until it gets there. And that is because if you start introducing a ton of different income streams into your business, then what happens is you diversify your message, you dilute your message, you dilute what you're selling, and people can get confused, your clients can get confused with what you're actually offering.
It can mean that actually you're not giving the dedication and focus to any one revenue stream that you need to in order to actually get it to thrive. So this next part I say with that as a backdrop to it, because it may be worth exploring in your business, if you can introduce any other streams of revenue streams of income in to your business. Perhaps at the moment you have one to one services, perhaps it might be worth thinking about whether you introduce a course in there so that buyers who are big humming more price sensitive as a result of external factors have a another lower price option to purchase from you. So thinking about the value stack that you provide, and the different tiers that you offer is a good first step in understanding revenue.
Importance of providing value
At this point in time, perhaps you want a low price option as an introductory option for people who would then ascend once they see the great stuff that you do. And they get value from your initial offering if you don't already have something like that. But what you also need to make sure is that each of the things you offer now are still profitable. And that involves looking at the price point of the things you offer now.
Now, it may very well be that your current price point is spot on for value. And that is essentially what we need to make sure is that it is spot on for value because people still buy in a recession. But they are more focused on value than they are out of a recession. And therefore making sure that you have value in what you're selling is going to be key, people are not typically going to suddenly flock away from your business unless the value is not there. So making sure that that is key in your pricing strategy is really important.
The double double exercise for understanding value and price link
One thing that I like to think of with this is an exercise that I really should come up with a much cooler name for but I call the double double exercise. And if anyone has any suggestions after this on a cool name, I could give this I am open to hearing them. But what I recommend you do is you write down your current price point. And you write down every single thing that you offer at that price point, every piece of value that goes in there everything you do for your customers or clients, even the things that you don't really tell them about, but you actually do do anyway.
And then I want you to imagine that by some decree, you've had to double your prices, you've been forced to double your prices. With that doubled price, I want you to put in all the value that you would deliver for that doubled price.
You may add some more stuff in you might move stuff around. But what would that be? And then I want you to double your price again. And if you did double the doubled price, what value would you have to deliver for that. And then once you've got all that down on a piece of paper, I want you to ask yourself, is there any way that you can deliver the doubled at the doubled price for the quadrupled value, it may not work completely in your business because of increased costs or things like that.
But is there a way that you can do that. And this is how you start understanding value in your business and value and how it links to price. Because that is going to be key and not only key to deliver value, but also at the prospective stage to communicate what value you do provide so that you still get quality leads coming in to your business.
Why lowering prices is not always the best solution in a recession
So in no ways today am I going to tell you to lower your prices, as a result of the cost of living crisis, I'm going to tell you to load in value, always load in value. And it may be right now that your prices are actually too low, because you may be attracting the wrong person, they may not see the value as a result of your price point. So do not assume that as a result of increasing economic pressures, that you naturally have to decrease your prices, because that is not necessarily the case at all. And in many cases, it really just isn't even close to it.
Now, you might decide that your pricing needs to increase just for new people coming in in order to stay profitable. Or you might decide that you actually have to apply a price increase to your current customers and clients as well. There is no right or wrong there. You can do either of those things depending on your own numbers when you train them and work them out. Because remember, you want to be reviewing the costs associated with delivery to your customers and clients as well because those costs are going up. And you need to ensure that you are still profitable on that basis.
But when you do that, if you do decide to increase your prices for your current customers or clients, then it's really important to be transparent with the pricing and opening the communications about what's happening, why it's happening. That way your bill, you know you're building and keeping trust with your existing customer and client base. So if you're going to increase prices for your current people, give them advanced warning, give them plenty of notice so that they know what's happening and they know why it's happening.
You know, make sure that your pricing is of course still fair and still has a huge amount of value layered into it. But when you're examining your pricing, I'll go back to your point I mentioned before and making sure that each of your offerings is profitable. You need to ensure that every single offer you have it is profitable to your business. So how you do that is you need to examine the costs of delivering each product program or service in a silo to itself.
What is the cost of you delivering program a, product b, and servicing?
And actually making sure that you include your own time and that of your team in there as well, making sure that you include things like Stripe or bank fees as part of that, and seeing Okay, how much does it cost me to service one customer or client for each of these things? And with a price increase, or with us our cost increase? Is this still profitable? What I also think you should do in that modeling in that's what we would call it in that calculation, that modeling is actually increase all your costs by 10%. Because that's roughly our current inflation rate. So if all my costs increased by 10%, would I still be profitable?
Would this still work for me, because we probably have some increase in costs coming down the line. And what you don't want to do is have a price increase now and have one in two months. So you need to future proof this a little bit without being completely crazy, and you know, losing most of your people. But doing that calculation will help you do that. And you can explain to your customers and clients that your costs have increased.
Most people will get that because their own costs have increased. And you can take it from there as to what decision that they decide to make as a result. So I hope this is making sense to anyone, everyone. If you do have any questions, queries, please, please do ask me in the comments. Please let me know if there's anything you're curious about anything you're wondering about or anything that does not make sense.
Final thoughts on pricing and cost of living crisis
The big takeaway from this session is that pricing based on value is a win, particularly when there is tighter economic times harder economic times, always always value based pricing is, in my opinion, the way to go with a business because that is how people buy, whether it's b2b or b2c, people buy on value. And the reason that both buy on value is because ultimately your business is human to human, if you're a b2b is still a human making that ultimate decision. And therefore every business is working with another human being. And therefore somebody with those thoughts, those value based thoughts, because they personally are experiencing the cost of living crisis in their home, etc, etc.
So, hope that makes sense to everybody. I am back again. Of course next week for another episode of Training Tuesday. Let me check my notes to see what my my topic next week is my favorite motto. I'm going to share that with you and share why it's important. And I will look forward to you joining so do make sure you mark in your diaries 11am Tuesdays is when Training Tuesday happens each week on whichever platform you happen to be watching on today is exactly where you're you'll find me next week.
So do mark that in your diaries. I hope that you have got value from today's session. I hope it has been useful. I can see a number of you on so I very much appreciate you tuning in live. If you are watching on the replay, do give me a hashtag replay in the comments so that I know that you have tuned in and I will speak to you all very very soon. Same time, same place next week. Thanks again. Take care everyone.