How Small Businesses Can Rethink Pricing, Reduce Complexity, and Charge What They're Worth

Welcome back to another episode of Bought the Biz. Today we talk about something that makes both of us, and maybe everybody, just a little bit uncomfortable: pricing. And how do you raise your prices? Ooh, just gives us the heebie-jeebies just thinking about it. So hard to ask a customer for more for maybe the same thing. But here we dive into tactics that we use to change our prices, some things that I did in my first year and that made it feel easy for me to ask for higher fees for my services. And hopefully you can learn something from it too, so you're not going to want to miss it. Bought the Biz is a for ETA entrepreneurs who've gone from searching for a business to actually running one. It tells the real story of what happens after the deal closes. The day-to-day operational, emotional, strategic, and leadership challenges that just don't show up in the highlight reels.

The show is story-driven and practical, sharing real experiences from operators along with clear, actionable takeaways you can use in your own business today.

I'm Garth Fossano.

I'm Christi Loucks. Welcome to Bought the Biz.

Welcome back to another episode of Bought the Biz. Today we're talking all about pricing. As a small business owner, how do you raise prices? When is it time to change prices? How do you even think about this? How do you communicate it to customers? It is a really scary thing to do. Um, Christi and I have both been through this and are going through it in our own ways. In fact, we're launching our AI platform you know, right now. And we're, depending on when this airs, right in the middle of it. And our prices are changing a whole bunch, uh, our service offerings are a little bit different. And, you know, amazingly, pretty much all of our customers are on board with these shifts. So there are definitely good ways to do it, there are bad ways to do it, and we're all learning together. I think that this is also one of the biggest differences in small business between going down a franchise route and more of an independent route. You're in a franchise or, you know, a larger— like, for the W-2 folks out there, corporate entity— you're gonna have a lot more process around this and guardrails. When you're a small business owner, you can do pretty much anything. So I think, Christi, you've been through a couple of these shifts in your time as an owner and operator. Tell me a little bit about, uh, what you've seen and done in your world.

Oh, pricing. This is like— you can see me squirming. I get like uncomfortable with pricing.

All right, well, first of all, why is it— why is it uncomfortable? Why does he— why do you even that reaction? Tell me why.

I don't know. I think because— okay, so I think I have that reaction because it's such a sensitive part of like a closing, like a sale, right? Like, sometimes you get—

why is it a big deal? I get an email from one of our vendors like every 3 months. Hey, you know, the market has changed. Your prices are going up 5% on your next bill. And like, they don't give a shit what I say about that. Yeah, it's happening. And there's nothing I can do. I swear. So like, why is it a big deal? Why did they do that and it's not a big deal yet you and I are like, oh, how can we tell our customers that?

I don't, I think there, I think it's two-part. So one for me, I think it's a personality flaw. Like I'm just, I'm nice and I would rather take some revenue and shave off maybe what my normal pricing would be to like discount it just to have a new client because I want to help and you know, whatever. So personality flaw. The other part of it too though is I think with small business, like, every dollar counts so much more. And so when you're looking at growth and you're looking at margins and you're looking at all those factors, you know, like, I, I didn't acquire a $10 million business, right? It was a— it was doing a million in revenue. So every single client is important. It's, it, it's just a bigger factor maybe than some of these bigger vendors that are like, I don't really care if you leave, right? There's just a lot more at stake.

So I think there's, there's a lot more noise in the data when you don't have 1,000 clients, when you've got 5 or 10 clients and you're like, hey, a 5% price increase, you know, 2% of our customers are going to churn, and we factor that in and we do the math and we make more revenue overall, so it's fine. Whereas in a small business, if you have those 5 or 10 clients, if you churn 3 or 4, and there's just so much more noise in that smaller dataset that, you know, you can't really just spreadsheet it like we probably would have when we were more in our corporate analytical careers with massive datasets. I think that's one thing.

Yeah, exactly. So my pricing, my pricing journey, when I came into the business that we acquired, pricing was on a It was on a retainer basis, a monthly retainer basis primarily, but there were a few different components to packages where it was like some was consumption-based and some was flat fee, like platform kind of retainer. What ended up happening was we started, you know, we kind of saw a trend where we started losing on deals because of the quote complexity of our pricing. Now there's two ways to interpret that. One, I'm not communicating it well as a seller, or the market is shifting based on other trends or perceptions. I, after quite a few conversations, my takeaway really was that the market was shifting and we were primarily in cold outbound in, you know, sales and marketing campaigns. People just had a lot less tolerance for that like nickel and diming on consumption on top of a retainer model because they, you had these agencies out there that were either doing like pay-per-meeting, uh, no, $0 other than you pay when you get a, you know, booked call, like really, really cheap alternatives that were just skewing the market entirely. Now, one could argue, well, if you're a good salesperson, you know, you never lose on price. Well, again, when you have a 19% interest rate and you have to keep growing to meet your debt payments and, you know, you're still a small business, like, it wasn't a risk I was willing to take to just keep losing and losing and losing on these deals. So we ended up changing our model just to be flat retainer and kind of foregoing some of that consumption component. And we did— it definitely helped our sales conversations, and we were able to much like more easily close those opportunities. But we did have to shave off some of the kind of upside, uh, to our pricing. So it was—

I think you, you just hit something that's so important. I mean, we see it because we help so many small businesses with their sales, and then this sort of like logical question that they often ask us through our professional services team is like, what should my pricing be? Should I change my prices, like how should I do my packaging? And especially for like a small home services business, their pricing needs to be incredibly simple and easy to communicate over the phone. They typically don't have it on their website. They probably have different packages, different essentially flavors, and they don't really describe them well. So it's all over the phone. And we have had people come in with these crazy complex prices and they sell terribly. And so we actually can give them some advice on how to adjust that into a way that sells more easily. So what you just said, that like outcome-based is incredibly confusing to explain, risky for you as the business owner and hard to sell. But like having a simple pricing model I think is super, super important and God makes billing so much better. I mean, the outcome-based, like the business I stepped into had this outcome-based model when I stepped into it and the billing was completely insane.

Was it? How so?

Like every 2 weeks we would have to pull all of the essentially appointments delivered, the prices of those appointments, take a commission on it, put those in invoices in QuickBooks, uh, send that out to 100+ clients every 2 weeks. Then they would let us know sometimes there was like no-shows or something like that, or like the prices were changed and they would give us feedback on that. We would update the invoice. And then they would pay them like after 10 days. And then there was sort of like this handshake agreement that was not in the contracts, but was sort of observed like, oh, if their refunds were good to our clients and we sort of like give them credits back if something cancels or is charged back, you know, for a period of time. I mean, it was, it was wild the amount of billing that went through that. And like, we are switching now to a flat fee model in our platform and it is So simple, so beautiful, so clean. And you can manage your COGS and your whole P&L in a much better way, which is like a whole nother discussion that we'll need to have at some point. Like, as a small business owner, how do you manage the ups and downs of cash flow? But I think one of the interesting things though, in across our 100 clients, when I stepped in, there were some pretty big variations in pricing. And one of the things that I, I can't believe I didn't even go back to this for so long. I mean, now it's 3 years later and while we're doing this entire other shift, but like thinking back has reminded me that early on I was like, huh, this is pretty weird. There's a pretty big difference in some of these contracts with our customers. And some of it's just because this customer signed a contract literally with this company I acquired in like 2010 and it's 2022 when I bought the business and they re-signed it and updated the paper when I took over, but they left the rate the same. And We had other customers that were, you know, with the same level of service that had signed a more recent contract and were at a totally different rate. It's like, how do we bring all of these together? And that was something that I should have had no problem asking for, but just never really did.

Yeah. Mm-hmm. Yeah. I think that, I mean, at least the, what I had to balance or the trade-off was our price, like our original pricing that I sort of inherited, right? Like I didn't design that and it worked really well for the seller when he ran the business, you know, for the first 7 years of the company, it was actually a great model and he made a lot of money off of it, which is awesome. But I think I had to look at the, the math and say, okay, based on our model, we had very similar like per meeting charge for like a qualified sales meeting that we helped get booked. We had a data fee based on the number of people we were reaching out to, and we had a platform fee. So 3 different layers. We also billed multiple times because we had the like retainer plus the how many meetings, are they qualified? I mean, same pain point, right? Now the per-meeting kind of fee and the, the contact data that we were charging for actually was like candy, like, what was the phrase, cherry on top for us. Like, and that's where a lot of upside was because if we could perform really well, we not only got our kind of base pay, but we got that, that upside, that call it commission, right? So really, like, you know, enticing to keep that around. But, and the pricing was complex and I did want to simplify. And the other thing too is with that like pay-per-meeting, what I did find too was that it set expectations around performance that I could not always control because as a, like our service was helping people get sales opportunities. We could only influence what we could influence though. I didn't own their brand. I didn't own their messaging. I didn't own their value proposition. I didn't own so many factors. That went into whether or not this was going to be successful. So if we weren't performing as well as we wanted to for a client and they weren't paying those per-meeting fees, it ultimately like created a waste of your time. Yeah, it created this— well, and it created this negative perception where they're like, you're failing us, which in reality is like, well, there are a lot of factors to unpack here, like, Mr. Client, like I know you're always right, but you're not. So, you know, like it just, it was like trying to find the trade-offs between all of these dynamics to say, what's going to get me revenue, like decent recurring revenue, not put me at a loss in any way, like still keep growing the company, set the right expectations with clients, which is not just pricing, right? But that was like a factor. And yeah, it was a lot to consider in all of that.

Yeah. You had a very similar business model and I think, you know, what you just described, like if you don't control their website, their brand, their landing pages, their advertising and the types of leads you're getting, I think you might've been doing some of the lead gen component for them. Right. I'm not 100% sure, but we didn't. So we would sort of get leads and then get paid per booking.

Mm-hmm.

And you know, we were so dependent on the brands that we work for and so I think that that's a really important thing to consider. And probably, although I think a lot of searchers are probably not in our position or stepping into businesses like this where it's like so out, where there's very clear outcome-based models and sort of spiky revenue outcomes, um, over enough clients, it definitely sort of flattens a little bit. But I think, you know, something that may help any type of searcher is that we did do one sort of pretty meaningful pricing adjustment in sort of the first year of running the business. And we introduced a new service that increased our fees. And so I think that that was a very comfortable way to go about having a price change conversation was layering in another service. And you might be like, hey, Garth, that's a total cop-out. That's not a price change. Like, that's an add-on. But I think that that is actually a way that for people probably like you and me that are a little bit more uncomfortable with that, it maybe makes it easier to go about that conversation. There's the, there's like the copier study where, you know, people ask to cut the line in front of the copying machine or the printing machine. And if you just use the word because in it, the success rate goes up massively because there's a reason. And so, I mean, I think we had a very good reason. The service we provided created another $200,000 of revenue a month across that client group that participated in it. And so I think it was really good, but also we were doing more, so we did increase our fees for that. So I think that was, that was a, I think a very appropriate and comfortable way for a lot of people. And as a searcher, you're gonna step into these businesses and probably see opportunities like that to create value for your clients. So yeah, I would say don't just give it away for free. Make sure you're charging for it because that is the value that you bring.

Mm-hmm. Yeah. And I think that it's, you know, and that's where I, I joked about like personality flaw. I think that there's like, I think it does take, at least for me, some self-reassurance and like grounding myself in the confidence that what I am offering is worth paying for. And there are a lot of people that are going to try to, you know, swindle you down to the lowest number that they can get because that's what they do. And I think that there's, there is something to be said for really sticking to like, no, this is what we're doing. It's really valuable. This is what it's worth. And I'm not going to budge to that degree.

Absolutely. I mean, we're in the middle of this right now and completely agree. We, we've rolled out our AI platform product and we signed up 26 out of 25 available spots for early adopters, which is awesome. Awesome. And we gave them some of the best prices we're ever gonna give. And then we, uh, are giving the next best set of pricing with like a pretty reasonable discount to any of our legacy customers that convert. And amazingly, the vast majority are, which is so cool. And then we put our prices on the website and like, that just is what it is. Yeah, there is no negotiation on that. Um, and, but we're enabling our sales team now with very specific battle cards. These is the value proposition, this is what it is. And I I fundamentally believe in the value. Not only is it an amazing service, but like, I know what the cost is to go do this independently, and it's so much more. So I think like that's also part of it. Like, you gotta build up the value of what you're doing, and sometimes that's really hard when you're the owner, the seller, and wearing all those hats. Yeah, day to day.

Yeah. There's one thing I did want to mention too, and, um, I think that also like not only just I guess there's a lot that goes into pricing strategy too, and not just what are we going to charge, uh, like all the time, but how can we get creative to continue to get the same dollar amount or more but like positioned in a different way. And I do think that that's really important to start thinking through even ahead of time, like just getting comfortable with pricing strategies and like upsell, um, like quote downsell, but you still end up getting the same amount in your pocket. Like, there's so many different ways to— sounds awful— there's so many different ways to get people's money. But like, it's all about positioning. I haven't actually read it. I don't know if you have. Somebody recommended it, the Hormozy book.

Yeah, okay, it's really good.

I skimmed it, like I did like a quick like review. Um, somebody recommended it to me and I was like, oh, I am not reading that book. He isn't like— I'm just I was not going there, but then I, yeah, I skimmed it. I was like, all right, it's kind of cool.

I think it's his recent book, the $100 Million Money Models or something like that. I think it's really good. It shows a lot of things. I mean, one of the things that you brought him up, he says over and over to small business owners is you've got to raise your prices. And I think that that's a little bit out of touch with the way this really works. And he does get called out for that sometimes in the Q&A sessions on it. And I don't think he gives us a totally good answer, but he's very right that the way in which you sell things is really important. And in $100 Million Money Offers, he's got like, here's this crazy complex 9-step methodology on how to sell certain things. And I think it's really, really good. And actually our team on behalf of our clients uses many of those tactics. And I don't think they're sleazy. I don't think they're bad. I think they're just really good in finding a path forward with the client. But the reality is that so few people can actually execute that complex structure because it walks through so many nuanced steps. And so often it's really only in a small business, the actual business owner that has the authority to make those kinds of decisions about how to price, that it's very difficult to roll that out at scale. And so what I actually— and, you know, not to talk too much about Rainmaker, but you are kind of teeing me up— is like, this is what we're really trying to solve for, for small businesses. Is that we know exactly how hard this sales process is. And there's so many nuances to it. We actually had a negotiation facilitator come meet with our team and it looks like he might be joining our board, which is super cool. And he helped facilitate negotiation between 192 countries and like, I think it was 460-something delegates from those countries. And he talked about the specific tactics that he used to help them create this agreement. And he has so many nuances on specific word choice and how you ask questions or how you use your tone or your sequencing to put people in certain parts of their brain, in certain areas of their memory so that you can trigger different outcomes. And this is not to be manipulative. This is to educate consumers. And we actually published an AI Constitution on our website about like what we believe is the right way to sell and what we stand for, because there are definitely ways ways you could do this in the wrong way, and that's not what I'm advocating. But I think what small businesses really struggle with is meeting people where they're at in the buying journey and giving them the right information at that time.

Yeah.

All right, sorry, you totally teed me up.

I didn't mean to tee you up, but I'm glad that— yeah, I'm glad that we had that little chat because, yeah, I think it's important. And I think I've even learned a few things. Like, you know, I remember once I was like, we were at the end of the— we were at the end of the year We had a client that wanted to sign a year-long contract with us. Um, she wanted to go ahead and sign it, but she was like, I can't, I don't have budget for this last month to give you. And, you know, maybe like a former me would have been like, oh, well, that's a bummer. We'll just wait to sign it in January. I was like, sign it now. I'll just prorate the month of December across the remaining 12 months and I'll get my money. Um, but you don't have to worry about finding that budget today. So if you can afford $100 extra, you know, dollars a month or whatever it equated to be, right, then we're good and we can go ahead and sign it, get started, and I feel fine about that. So it's stuff like that where you just, you know, like get creative, think a little bit outside the box. Like, you don't want to get too crazy, but having those kind of levers to pull and knowing what those levers are, I think that's really important for managing small businesses.

Absolutely. And then I think that the trick is, as you're scaling, how do you give your team a rule set so they can do that without pulling you in when it's appropriate and pull you in when it is appropriate? Because I think the real thing we're all trying to do here as ETA entrepreneurs is build scalable business systems, not just ourselves. And so I think it's really, it's pretty easy to do as a single owner-operator and make those kinds of decisions. But how do you enable your team to do that is really important.

All right, everybody raise your prices!

Raise your prices! Do it!

Yeah.