In this episode, Michelle breaks down why pricing isn’t a standalone decision at all.
Why does pricing feel so hard when the real problem usually starts way before the number? In this episode, Michelle breaks down why pricing isn’t a standalone decision at all. It’s the result of how well your offer, your messaging, and your audience actually line up. She walks through how to tell whether you’re getting genuine market feedback or just reacting from insecurity, and explains how to find a price that fits without guessing, forcing it, or pulling numbers out of thin air.
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Hi, I'm Michelle Warner and I'm a business designer strategist. And in the 15 plus years I've done this work, I've noticed the same trend everywhere. Business owners are falling into the trap of centering strategies first, when they need to be centering sequence.
Because the reality is, the steps you take in your business and the order in which you take them is more important than how well you implement any single strategy. So on this show, my goal is to fix that by helping you find and trust your own sequence of actions rather than blindly following someone else's strategy. Welcome to Sequence Over Strategy.
As you know on this show, we tackle questions by real entrepreneurs who are facing real challenges. And today I thought I would address a big one that I don't think I've addressed on this show before, but that comes up in various forms all the time. And that's pricing.
So I get more questions about pricing than, gosh, like almost anything else, right? And I totally get it. It feels like there should be like this clean, simple answer.
And here I am, I'm telling you to ask better questions. I'm telling you to get these things right and to go in the right sequence. So I get it when people say, hey, Michelle, like, how do I know what to charge?
Like, what's the equation? I talk in terms of formulas and equations a lot. So just ask, well, how do I figure this out?
Like, what is the black and white answer? Here's the thing. Pricing is not a black and white question.
And the reason it's not a black and white question is because pricing, it's not a question that you can just ask on its own. This is sequence over strategy situation. And pricing is actually one of the last questions you ask, or maybe I should say one of the last things that you figure out.
Because when you start with pricing, again, like you're out of sequence. And when you're out of sequence, no answer, I give you no equation that we're going to use. None of it is going to stick.
It's going to be like nonsense. It's not going to feel like it's grounded in anything because the foundation isn't there yet. And that's why there's not just this perfect equation that we can apply to it.
So today I want to talk you through what a foundation actually looks like, where if all that foundation is in place and it's in correct alignment, right, we're going to use that word over and over again, even though it's overused, it just applies. Because when all that is in place, pricing doesn't feel like a hard question to answer. It just kind of slides right in.
In the same way I say like if you relationship market in the same way, the sale just kind of happens. By the time you get to the sales stage, and that's oversimplifying it, but by the time you get to the sales stage, right, you're no longer proving yourself. Like it's just a thing that slides in at the end, even if you have to get through some bureaucracy and get through a process.
It's the same thing with pricing. It just kind of slides in when we ask the right questions and deal with the right things in the right order. So, again, let's get into it.
Understanding the Foundation Behind Pricing
Before we talk about how to find your price and before we talk about the sequence over strategy, let's talk a little theory at first and be really clear what I'm talking about here. Because when everything else I'm going to say in this episode and when I'm talking about pricing, I am talking specifically to service-based business owners when you are pricing your services. And I am talking about pricing them under a value model, not an hourly model.
So, meaning I want you thinking about the overall value you're providing instead of counting hours. So, get the counting hours out of your head right now. That is generally not a place we want to live in as service providers.
We want to be thinking about what is the overall value that you're providing. And while some of this definitely applies to course creators or to, you know, more products, I am thinking very specifically about service-based entrepreneurs when we're talking about that. Okay, so with that said, with that said that we are talking about, you know, when you are pricing your services as, you know, a small business owner, pricing, it's always going to be a song and dance between two different things.
There's like a fundamental tension here that we're dealing with and that is what you think the value is and what you want to charge and what the market can actually handle. Like, your job is to find the balancing line between those two things. What do you want?
What can the market handle? And this is where the sequence piece comes in. As I talk a lot on this show, obviously about the alignment between the three levers in your business.
If you have listened to any of my basic business design episodes or heard me talk about this, your business is essentially an alignment exercise between who your customer segment is, what your marketing is, and what your product is. Those three things can either be working together and if they are, things are running smoothly. If they are not working together, things aren't going to run it very smoothly.
Meaning that if you are trying to sell a product to the wrong customer segment, we got problems. Like, we need to be in alignment, right, with what product are you selling to what customer? We know this.
We've talked about this over and over again. But pricing is no different. Pricing falls into the same alignment series because when you think you know what you want to charge, your customer segment has to agree with that number, right?
We need to be in alignment because, again, we're dancing a little line between what you want to value and what the market can actually handle. So to get your customer to agree with that number, like your product has to live up to the promise that justifies the price, right? And your marketing has to attract the right customers and it has to describe the product in the right way or the service in the right way, I should say, right?
The customers have to see the marketing. They have to believe the marketing and then the product has to actually live up to that. That's what we need.
Those are the building blocks of being able to set up a pricing strategy. And so when someone comes to me and says, what should I charge? My first question is not about pricing at all, right?
It's who are you selling to? What are you selling? And is there genuine alignment between those things?
Because if you want to increase your pricing, and let's be real, like, that's what we're generally talking about when someone comes to me asking about pricing, they feel like they're leaving money on the table or they're actively trying to increase their price. And when someone is in that situation, one of two things is usually going on. Number one, there's a misalignment like the ones I described above, right?
You want to make more money, but the customers you're marketing to aren't in a position to pay more or your product doesn't prove out the price that you want to charge or maybe your messaging doesn't fully communicate things so that your customers are confused. Number two, there's a mindset issue, right? You're undercharging.
The market would actually support a higher price, but you feel weird about it. So fundamentally, one of those two things is going on when you are looking to increase your price, right? Is there a misalignment that's getting in the way of doing that?
Or is there a mindset issue that's getting in the way of you being able to do it? We're going to focus more here on the misalignment side of things because I'm a strategist, that's how I think. But we're going to nod to the mindset stuff so that if you're in this position of wondering what you should do about your pricing, you can kind of self-diagnose yourself and say, oh, which one of these is really getting in my way of charging what I want to charge?
Because they're very different problems and they require different solutions.
Diagnosing Market Pushback
So how do you figure out which situation you're actually in? Well, you pay attention to the cues that you are getting from the market, from your customers when they hear the price.
So let's start with the first scenario. And the first scenario would be that maybe you're getting pushback. You want to charge something, but the market is pushing back and saying, mm, I don't see it.
So if people, if clients are balking at your price, if they're uncomfortable, if they're saying it's too much, it's not like a productive uncomfortable where they just have to think about it for a minute, but instead it's like an unproductive uncomfortable where they're maybe shocked or it's totally out of their budget or they just don't see the value at all. You know, if they're disappearing after they hear the number, that's data. That is data that can tell you something.
And what that usually means is that there's misalignment in the three levers of your business model, right? And again, we just talked about this, but those three levers are customer segment, product mix, marketing mix. And again, when those things work together, things are smooth, there's alignment, people are not going to object to the price because it's probably going to be an alignment.
But if they're not, things get rocky, including the price you can charge. So here's how a misalignment in your model can cause pricing issues and pushback against what you think the value is, right? So again, if you think that you have pretty solid pricing and you want to increase the price, but customers are pushing back on your price and you don't understand why, things to consider.
You're marketing the right product to the right people, but the marketing message is off, right? Is the marketing message, so the marketing lever of your alignment, does not adequately communicate what the product is? Or are you marketing the right product to the wrong people?
This happens often. You have a product that you love and maybe you make it a little bit better, you make it a little bit more advanced, but you're still marketing it to less advanced people. Maybe you used to market to beginners and then you got really excited and you made your product better, but now it's over the head of your beginners and you don't realize that, so you continue to market to them.
They're going to push back because they're not going to be able to invest in a more advanced product or they're not going to understand the value of a more advanced product, right? So it's very common as we grow up as business owners to market the right product. And by right product, I mean like right product to you.
You know that it can get results, but you're marketing it to the wrong people. This can also happen in the opposite way in B2B. And I see this all the time where you are marketing a product that needs to be sold to the C-suite, but you're trying to sell it to like division leaders, right?
Or directors or even frontline managers. And you're frustrated because they don't have budget approval and they're not able to make the buying decision. And so things take a long time.
Or you could be marketing the wrong product to the right people. So again, you know who your customer is and you really like them, but this is another version of what we just talked about. You're offering them the wrong product.
And so if they're putting up a flag at pricing, it could be that, you know, you're giving the wrong product to the right people. And so they're not seeing the appropriate value in some way. So now that I've described those, hopefully you can see if you feel like you're in this situation, which one of those might be impacting you, right?
So if you are getting a lot of pushback when you talk about your pricing, or if things are kind of moving along and then everybody goes, I would consider that pushback. Then one of these three things is probably happening in terms of your alignment. And so before you can fix a pricing issue, right, you have to fix this misalignment and then the pricing is going to fall into place.
When No One Pushes Back on Your Price
Now let's flip it and let's talk about where you're getting zero pushback. So this is another common scenario that I hear. When nobody is blinking at your price, and I do actually hear this often, you know, if they're just paying, no questions asked kind of every single time, that is also a signal that's just as much of like a pricing danger sign as the other one.
Like these are two extremes, right, that can both negatively impact your business. Because obviously in the previous scenario, if people aren't understanding the value, you have to go back and look at your alignments. But if you're actually somebody who is converting at like 90, 95, or 100%, or like even 80% sometimes, that's a red flag to me.
If I get customers coming to me and they're like bragging about a sky-high conversion number, red flag. And it's not because it's bad to sell well, obviously, like conversion numbers that high are exciting, but because it usually means that the decision is too easy. And when the decision is too easy, that tells me that you're underpricing.
And that tells me that it may be a little bit more of a mindset thing. Like maybe you're not understanding the different alignments and what the market is actually telling you. So sometimes it's simple, but more often than not, if we're converting at that high of a note, it means that you are leaving money on the table.
Because when you're going through a sales process, I don't want you still having to prove your value at the sales stage, right? That's not what we do in relationship marketing. But I do want your client, again, especially in a service-based industry, like they should have to pause for a second and just make sure that this is the right investment.
This should not be a weeks-long debate, again, where they're going back and forth and it feels like there's really huge risk to them. But they should pause for half a second, right? And they should just have a moment of making sure.
And in that moment of making sure, maybe you lose a few. And that's actually normal. Again, when we're kind of in service-based.
So when I hear that high conversion, I was like, oh, probably underpricing. Because again, that song and dance we're doing between what you want to charge and what the market can bear, we're not finding the right line there. Because you're coming to me and you're telling me, oh, I want to charge more, while you're also telling me you have really high conversion.
So that tells me like there's something intimidating in you that you're not certain you can charge more.
The Stair-Step Method for Finding the Right Price
So what do we do about that? This one isn't so much about strategy.
It tends to be, again, that combination of strategy and mindset. And so when we're in this situation where you're converting too high, what I want you to do is think about a stair step. And what does that mean?
It means that you're going to slowly increase your price until the market tells you that you found your current limit. So we're going to allow the sales process to actually find that line that we're trying to skirt between what you want to charge and what the customer can bear. So what does that look like?
Like, let's just take a totally hypothetical world where you're charging $5,000 and you're closing almost everyone. But you suspect that the market rate might be closer to 10,000. Or I shouldn't even say you suspect the market rate.
I'll say like in your gut, gosh, like I wish I could charge $10,000 for that. So great, we have like identified a gap that you want to see if you can close. That's kind of the strategy part of it is that you know you're undercharging.
And so we've kind of identified a gap that your gut says something, but you don't actually know because pricing is not black and white. We can't like throw it into a calculator. We can't even really know this by looking at market competition.
Like the market has to tell us. But in these cases, I don't want you to jump to $10,000 right out of the gate. I don't want you to wake up the next morning and be like, fine, like I've decided I've been undercharging.
We're going to jump right to 10,000. The reason for this is because this is a mixture of mindset and strategy or tends to be. Because first, like that's a really big mental leap for you to stand behind confidently, right?
If you're talking about doubling your price, your brain and your nervous system has to catch up with that. And you might not be able to say that number out loud and confidently if overnight you just decide to double the number. And your customers will catch that energy.
And so instead, like that's the first reason. We want your mind to be settled when you quote the price. And often your mind can't be settled when we quote the price if overnight you double the price.
But second, and I would argue kind of, well, it's not more importantly, but it's a missed opportunity if you don't do this. From a sequence over strategy perspective, it doesn't actually help you find where that actual pressure point is in the market, right? Again, we want to find, like our sequence over strategy goal is to find the moment that the market starts to put a little pressure against the price because that tells you that you have found the place where you can maximize what you're charging versus what the market can bear.
So again, if you jump from 5K to 10K overnight and customers immediately balk, you have missed an opportunity to kind of gain data and you're going to have to go back and fix that and try to find it in reverse, which is not the easiest thing to do. Because now all the data you have is that 5K is too little, 10K is too much. Okay, well, how do I find the middle?
And now you have to wrestle with that question. Instead, the more upfront way to do this is that every two sales, every three sales, even every one sale if you want to, you're going to increase your price by an incremental amount that you can feel good about saying out loud. So in this scenario, maybe it's $1,000.
So you're going to say, okay, I know that 5,000 is too easy. So my next two sales, until I make two more sales, I'm going to charge $6,000. And you're going to watch the reaction of the market.
When you quote those $6,000, does the conversion still stay relatively easy? Do your next two quality leads both say yes? If that happens, then you're saying to yourself, okay, not the limit, right?
Because it was still relatively easy to close. So now my next two sales, I'm going for 7,000. And then 8,000.
And you continue doing that until you start finding that moment of productive pushback. Again, like not horrified pushback where they are looking at you and saying, I have no idea how you can justify charging this. This is ridiculous.
That's not the place we're looking for. We are looking for the moment when you start to hear some, what I would call productive pushback. People are asking good questions, having real conversations about whether this is the right investment for them, maybe wanting to ask you some more specifics and particulars before they're comfortable moving forward.
That's when you know you've hit your pricing ceiling for your current customer base. And maybe you get to 8,000, right? Maybe our hypothesis at the beginning was maybe we can get to 10K, but we don't actually know that.
So maybe you get to 8,000 and that's the spot. Great, that's your number. Like at least for now with these people and with this product and this messaging, that tells you that you have hit that fine line of dancing between what you want to charge and what the market can bear.
That's a win. That is a pricing win. That's how you find that out.
Checking the Math After You Find the Price
And then, you know, here's kind of the last piece of the puzzle. Once you've found that sweet spot, you can do the math. And this is an either scenario, right?
When you find that sweet spot, do the math and say over the course of the year, does that price that you just found get you where you want to be revenue wise, assuming you are sold out and have a full roster? So assuming the marketing is doing its job and you have a full sold out roster, are you making enough of what you need to make based on your sold out price and the price you just found? If the answer is yes, then fantastic.
That tells me you're in alignment and that you've maximized the price to the point that you can based on what the market can bear. And you're kind of done and you double down on that for now. This is like your next growth iteration, right?
In 18 months to two years, that might change. You're gonna do something with your product, right? We're gonna mess with the levers again, but for now you're done and your job is just to double down on that and maximize it and get to that sold out place.
But if your answer is no, if even your ceiling price, that sold out price, still doesn't produce the revenue you need, then my friends, we're back to the question of alignment. And you go back to the beginning and you take a look at that alignment again and you say, okay, what combination of customer segment, marketing and product would get me to what I need, right? Do I need to increase the quality of my customer segment so that I can charge a little bit more for the product?
Or do I need to increase the quality of my product so the customer is willing to pay more? Do I need to increase the quality of my marketing because I didn't feel like people really understood the full value of what I was asking, right? So when you're in this situation, if you do that math with your pricing and it's not getting you to where you wanna be, the answer is not like, oh gosh, how can I just add more pressure and add more sales hype to try to force people who probably aren't great fits to buy it.
The answer instead is to go back to your levers and say, what does my aligned model look like? And that might mean a different customer type, a higher level product, a different way of reaching people and communicating with them. Likely means a little bit of a combination of all three of those things.
And that's a really natural evolution of a small business. That might feel like a hard thing for me to say, but it's just the natural evolution of how business works, right? Every time you wanna reach a different revenue level, that's gonna require something different from you.
And so as you've seen throughout this conversation, pricing starts with that alignment, not with the number that you wanna charge. And then when you're starting with alignment, this is when I said at the beginning, the pricing just kinda slides in there, right? Because if you are in alignment and you're getting what you want, well then that's what you want.
And if you have to go through a little bit of a stair step, well then the market is telling you what the pricing is. So it's not some equation you have to do. Like, we just let the market tell us that.
So the pricing question becomes not that hard. It becomes just laid out right in front of you. And that's where I say, if you start by saying, what should I be charging?
That's where I'm gonna push back and get you into one of these processes and say kind of like, well, let the market tell us what your current business model, the alignment levers we currently have in place. Let the market tell us what it can bear. And then let's decide whether that's good enough for you or not.
And if it's not good enough, then let's look at what we can change about the model so that it can return what you want.
Key Takeaways on Pricing and Alignment
So here's what I want you to take from today. Pricing is not the first question, it's the last question.
Because before you can land on the right number, again, you need alignment between who you're marketing to, how you're marketing to them, what you're saying, what you're selling. When those three things are in sync, pricing stops feeling like a guess and it's just like this natural conclusion. But then you have to watch what happens when people hear the number, right?
Is there pushback? If there's pushback, we look at the alignment. If there's no pushback, then that's probably another message that we need to stair-step things and you need to move into a place that's a little uncomfortable in terms of asking for more, but not making huge leaps there, like stair-step that so that you can find the market spot.
And then once you've found it, you check the math. If it works, you're done, at least for this iteration of your business. And if it doesn't, you go back to the alignment and you figure out what needs to shift in order to meet the market at a price they're willing to pay that will actually get you to your goals.
Pricing isn't complicated and it's also not black and white. It just like isn't first. You know, when we talk even about the five whys, you know, it's a first or second level why question.
We got to go down to the root and let pricing just slip in as it slips in. And once you understand that, rest gets a lot clearer. As always, thank you for being here today.
If this episode helped you, I would be so grateful if you shared it with someone else that it might help or if you left a review because that helps others find the show. And I also welcome you. If you want to stay in touch, I would absolutely love that.
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And if you're ready to take a look at these questions and if you're curious about how to think about your business model or maybe how to realign it, this is work I do every single day. So always you are welcome to reach out to me. I work one-on-one with clients all the time on these types of questions and I would love to have that conversation if it is one that matches with what you're interested in.
With that, my friends, I will see you back here in two weeks.