What most service business owners get wrong about pricing

Most service business owners aren't doing market research when they set prices. They're doing competitor comparison ... and the competitors they're comparing themselves to didn't do the math either. Real pricing comes from understanding your own numbers: what the business costs to run, what the founder needs to pay themself, what margin keeps the lights on long-term. Until those numbers are on the table, every price decision is a guess wearing a market-research costume.

That matters more right now than it has in years. Costs are climbing, AI is reshaping what clients expect to pay for, and the businesses that look successful from the outside are often the ones quietly running the closest to the line. Pricing advice that says "charge your worth" or "see what the market will bear" leaves the founder right where they started ... copying the businesses next to them, hoping somebody in the chain ran the numbers.

What most businesses do instead of pricing math

The default move is to look at three or four competitors, average their prices, and land somewhere in the middle. That's the part that gets called "market research" in a lot of business advice. Erin Haag, the pricing strategist on this episode, named it for what it actually is: "Your competitors did the same crappy version of market research that you're doing. And they copied their competitors, who copied their competitors, who copied their competitors. And nobody did the math."

Once the chain is named, it gets hard to unsee. The price most businesses are working from is an inheritance of guesses passed down from businesses that were never profitable to begin with. Erin's reminder is the one that does the work: "The vast majority of small businesses out there are not profitable." Copying their prices is copying their problem.

What real pricing math looks like

Erin walks through a three-step process in the episode. The structure is simple, and most business owners have never sat down with it.

Step one is profit analysis paired with a revenue source and offer analysis. What does the business actually cost to run? What is each offer producing in revenue, and what is the margin once delivery is factored in? Most founders skip this step because they're afraid of what the numbers will say. The numbers usually say something they already suspected.

Step two is dreaming up the ideal business scenario. What does life look like if the business is running the way it should? What income does the founder need to draw? What capacity do they actually want? This step is the one that gets dismissed as "manifesting" by business owners who would rather not name what they want. It's not manifesting. It's the target the math has to hit.

Step three is calculating the ideal monthly client value per offer ... what each client needs to be worth, per month, for the business to actually deliver on step two. The gap between current client value and ideal client value is the pricing answer. Sometimes it means raising prices. Sometimes it means restructuring offers. Sometimes it means firing offers that aren't doing the work. Erin's line on the way out of the chain: "Create a market of one, and you're not competing with anybody else."

The permission piece

In particular, most women in business and impact-driven business owners have built an identity around not really being in it for the money, and that identity is the second obstacle to pricing well. The math is one problem. The performance around the math is the other one. The work is meaningful, the clients are wonderful, the calling matters ... and pricing is somewhere down near the bottom of the list of things they're allowed to care about openly.

Erin's challenge to that is direct: "This notion that people aren't really doing it for the money is complete and total BS." Wanting money is not a moral failure. Pretending it doesn't matter is how the math stays unspoken, which is how the prices stay wrong, which is how the founder ends up working harder every year for less of the result. Erin’s passion reminded Amanda of her coach’s simple and frequent reminder: "Goals make demands." A real income goal makes real demands on the founder to choose pricing that makes sense.

Freedom is on the other side of courageously challenging the status quo

Bad pricing is one of the fastest ways a business ends up on “the treadmill of doom” ... working harder every quarter to pay everyone else, with less and less left over for the founder. The team gets fed first. The tools get fed first. The contractor invoices get fed first. The founder gets what's left, which is usually less than the day job they walked away from. Real profit doesn't come from the brand or the messaging or the next pivot. It comes from a price that was set against the actual math.

Resources to help with new pricing

Erin generously shared a free sample of her book “Give Yourself A Raise: The Mindset and Math You Need To Get To Your First Million”

Grab your free copy here: https://pricingoverhaul.mykajabi.com/freebooksample2024

The Quiet Part is the weekly newsletter where Amanda goes one layer deeper on what shows up on the blog ... the angle that's too direct or too personal for the public version. Subscribe at clairvenu.com/the-quiet-part.

Meet Erin Haag

This was Erin’s first appearance on The Amanda Kaufman Show. Erin B. Haag is the creator of Pricing Overhaul® , a proven method helping entrepreneurs shift their money mindset, restructure pricing for profitability, and pay themselves abundantly. With over 20 years of pricing strategy experience, she works with global corporations and small businesses to increase profit with ease. Erin founded Pricing Overhaul® Academy, certifying coaches to use her method with their clients, and she is also the bestselling author of Give Yourself a Raise: The Mindset and Math You Need to Get to Your First Million. Off the clock, Erin is a mom of 2 who enjoys travel, wine, and cheese.

Jump to Erin's website to learn more about her here: https://pricingoverhaul.com/

Show Notes

In this episode, Amanda sits down with pricing strategist Erin Haag to talk about what most business owners get wrong about pricing ... and the three-step process that fixes it. They cover the difference between real market research and dressed-up competitor comparison, what it actually means to "create a market of one," and the permission piece most pricing conversations never name.

We covered:

• What most businesses do instead of pricing math

• What real market research actually looks like

• Erin's three-step process for setting prices that hold up

• The "I'm not really doing it for the money" performance and what it costs

• Why a real income goal makes real demands on the pricing

Chapters

00:00 Introduction to Pricing Overhaul
01:20 The Misconception of Market Research
02:48 Understanding True Market Research
04:08 Creating a Market of One
08:18 Steps to Overcome Comparisonitis in Pricing
09:16 Conducting a Profit Analysis
11:03 The Importance of Money in Business
12:17 Finding Erin Haag and Pricing Overhaul

Grab Your Free Copy of Give Yourself A Raise: https://pricingoverhaul.mykajabi.com/freebooksample2024

Learn more about Erin and Pricing Overhaul: https://pricingoverhaul.com/

The Amanda Kaufman Show is brought to you by Clairvenu: https://clairvenu.com/ ... Stop Pivoting, Start Profiting.

Get Amanda's weekly share "The Quiet Part" straight to your inbox every Wednesday: https://clairvenu.com/the-quiet-part

Transcript

Episode 320 - Erin Haag - The 3-Step Pricing Overhaul to Boost Profitability - Transcript.txt

Erin B. Haag (00:00)

what they don't realize is your competitors did the same crappy version of market research that you're doing. And they copied their competitors, who copied their competitors, who copied their competitors. And nobody did the math. And it really doesn't matter because the math in your business, your revenue needs, are different from every other business out there.

Amanda Kaufman (00:20)

Well, hey, hey, welcome back to the Amanda Kaufman show. And this episode, I'm super excited to introduce you to Erin Haag, who is the creator of Pricing Overhaul, a proven method helping entrepreneurs shift their money mindset, yay, restructure pricing for profitability, critical, and pay themselves abundantly. With over 20 years of pricing strategy experience, she works with global corporations and small businesses.

to increase profit with ease. She founded the Pricing Overhaul Academy certifying coaches to use her method And she's also the bestselling offer of give yourself a raise, the mindset and math you need to get to your first million. Off the clock, Erin is a mom of two who enjoys travel, wine and cheese. Erin, welcome to the show.

Erin B. Haag (01:09)

thank you so much for having me.

Amanda Kaufman (01:12)

What is something that you wish that more business owners and founders knew about pricing that you find that they often don't, they don't realize?

Erin B. Haag (01:20)

Yeah, I mean, the biggest one is that their competitors mean less than we believe that they do. And I think that...

Amanda Kaufman (01:26)

less than we believe that they do. That's so

interesting. right. So we often will look at who's charging for what, and that has less to do with it. Ooh, we're going to unpack that. ⁓

Erin B. Haag (01:37)

Yeah, yeah, I would say

most entrepreneurs, do, you know, one of two things. Primarily they do what they believe is market research and the market research really isn't true market research. It's just price comparison and then they are looking at what everybody else is charging. They're assuming, they look like they're successful. They must be charging the right amount. I have to charge that amount or I have to charge less for a competitive advantage.

But what they don't realize is your competitors did the same crappy version of market research that you're doing. And they copied their competitors, who copied their competitors, who copied their competitors. And nobody did the math. And it really doesn't matter because the math in your business, your revenue needs, are different from every other business out there. And I just think that we put way too much importance and weight.

in our competitors and what our competitors are doing and charging.

Amanda Kaufman (02:34)

This is so interesting. let's unpack just for a second. I noticed you hovered a bit about, you know, they think they're doing market research. So what would real market research look like?

Erin B. Haag (02:48)

Yeah, real market research is actually not doing it at all. And I know that there are going to be a lot of people who are like, what? Don't do market research. And I'm like, the market research that you have to do is actually the financials. What it's going to cost you in this so-called market to run this business, how much it's going to cost you to hire the team, how much you have to pay yourself, and then how much you need to generate

in order to have a healthy profit margin.

Amanda Kaufman (03:20)

talk to us a little bit more about that.

Erin B. Haag (03:20)

mean, OK.

mean, sure, market research. Look at what your competitors are charging. Look at what your competitors are selling. Look at who your competitors are selling to. But don't let that make decisions for you. Do not make decisions based on that. It's OK to know if for any other reason than to know how you're different from the rest of the market. And so when you're.

Amanda Kaufman (03:44)

That I

can totally get behind. Yes, absolutely. Yeah, yeah, yeah.

Erin B. Haag (03:47)

OK, thank you. I knew I was really in somehow. But it's really so that you

can just see and you can speak intelligently to, the other places charge this. They offer this. We do things differently. And when you do that, you create a market of one. And when you create a market of one, you're not competing with anybody else.

Amanda Kaufman (04:08)

That's so true and so good. mean, you know, when I...

was starting out as a brand new entrepreneur and a coach. And I was looking left and right at what people were comparing to. I think you really do have a very strong point about like, so careful about what you're calling market research, because it could be just comparison. I remember being in the coaching certifications and everybody was kind of throwing numbers around and they were like, I'm gonna charge 50 bucks, I'm gonna charge 150 bucks. And I was the girl with the red glasses and I was just like, well, maybe not at the time, but I was bold.

said,

you know, I'm going to do 500. And I thought about that. And I was just like, man, that was just, you know, a silly conversation because it had nothing to do with who the market is. It had nothing to do with what I was offering. It had nothing to do with any of that. But, you know, making the decision to outperform made a huge difference because I ultimately ended up selling coaching packages on the order of tens of thousands of dollars as opposed to hundreds.

Erin B. Haag (04:47)

Well, that's just it. It's like based on what?

Yeah, you know, when people just arbitrarily throw out prices, a lot of people will say within initial conversations with me, do you think that this is the good price for it? And I'm always like, I don't know. I don't know your numbers. Like, I can't say if this is a good price for you to charge because I don't know how much it costs you to run your business. I don't know what you have to pay yourself. I don't know what your profit targets are. Like, there are so many things.

And it's really easy for business owners to just throw out these arbitrary numbers and especially tie that to, well, the market right now only, right, exactly. The market right now only justifies this price point. And I'm like, okay, but if you were to look at the P &L statements for your competitors, I can guarantee that you're gonna find that they have zero.

to no profit. Well, zero to no, zero to no, zero is no profit.

Amanda Kaufman (06:02)

Yeah, or like negative, you know, and then negative positive story.

And I think that's the thing too, is when you look at your finances, you can't just look, well I mean you can and people do, but it's problematic to look at just a point in time. So I used to manage my money by my bank account, right? Because I didn't know better and I didn't have better tools, but you can have up months, you can have down months, you can have investment months or quarters or years,

Erin B. Haag (06:30)

Yeah.

Amanda Kaufman (06:31)

And being able to not just look at things in a snapshot, but also over time. And the thing is, is like, you're not privy to a lot of that information. know, a lot of the publicly available financial information for businesses, those are for publicly traded companies, which is a very unrelatable experience for a small business owner.

Erin B. Haag (06:45)

I'm panegas.

Right. Yeah, it's so true. It's so

true. And I happen to have that like backstage peek into what's really going on because I have seen under the hood of thousands of businesses and I've looked at their PNLs and I've looked at their their margins and I'm going to tell you right now the vast majority of small businesses out there are not profitable.

are not making money. And it just blows my mind when somebody says, well, I can only charge this because of that person. And I'm like, do you know if they're making any money?

Amanda Kaufman (07:31)

Yeah, yeah, it's like that old adage of just be careful of who you take your advice from. Like, would you trade places with them? And you're right. mean, I think that profit is one of those conversations. In fact, I'm thinking about the Profit First book that Mike McCallowitz wrote. So dear reader, if you're checking it out, that's, in my opinion, required reading for entrepreneurs. But like the first chapter, he talks about how when we go networking, it's not like we're comparing panels.

Erin B. Haag (07:36)

Yes.

I love that. Yes.

Amanda Kaufman (07:57)

about it and they don't talk about how they have like time poverty and they have financial poverty and this business that starts out as a great idea and a great vision ends up being like this little monster that eats itself and the owner.

Erin B. Haag (08:10)

Yeah, it's like a ball and chain. They've

literally enslaved themselves to a job that they can't get out of.

Amanda Kaufman (08:17)

Yeah, rough.

Super rough. Okay, so what do we do about it? You've got a whole process. I know we probably don't have time to unpack everything, but like in three big moves, like what can someone do if they suspect that they've fallen into the comparisonitis trap on pricing and they want to get out of it and maybe they have like existing clients, maybe they're wanting to start out the right way. But you know, I think this pricing conversation is especially hard if you've been doing one thing and now you want to do something new.

Erin B. Haag (08:19)

Yeah, yeah.

Thanks. It's okay.

Yeah.

Yeah, so first you have to do a profit analysis, and you have to see where you actually are. It's like, anytime if you're like, I want to lose weight, well, you have to step on the scale for the first time to see what you're measuring up against, OK? So it's the same thing. You have to do the profit analysis first. You also, not just the profit analysis, but you actually have to analyze your revenue sources and your offers. Like, how much revenue, what percentage of revenue is coming from each offer? How profitable is each offer?

Amanda Kaufman (09:07)

you're ready.

Erin B. Haag (09:16)

How many clients do you have in each offer? Which clients are worth the most? So you need to know your monthly client values within each offer. Like you need to do those basic measurements and then you have to put that aside and you have to dream up your ideal business scenario. In my dream world, I want X, Y and Z, which tells you how much money you need to generate every single month. And then based on how your business is performing with clients,

Amanda Kaufman (09:34)

Mm.

Erin B. Haag (09:45)

We have these calculations that determine your ideal monthly client value, how much each client must be worth to you within each of your offers. And when you know that, then you're able to see, man, my clients are only worth this amount to me, but I need it to be here. Where's that discrepancy and what is now the strategy to increasing my monthly client value?

Amanda Kaufman (10:08)

This is so good, so good. My coach always reminds me, Amanda, goals make demands. And I'm like, dang, yeah, that's super true. And so if you have a business that, let's just say, you want a lifestyle supporting business, I encounter so many entrepreneurs who justify a poor performing business on the basis that money is not that important to them, or that they don't need it, or that they're dependent on their spouse, or what the bleep ever. And I'm like,

you realize like if you had a well optimized profitable company, you get to hire help to do the things you don't want to do. You get to impact more people. You get to impact people in a deeper way. And, you know, speaking from personal experience, but everything that you're talking about of like walking through all of these details, it's really quite nutty what will end up putting a lot of energy towards that's not serving the goal. And then when you're thinking about the overall

goal, you're realizing like, my gosh, my capacity is completely, you know, occupied by these decisions that were emotional and not really, you know, calculated in black and white. It's calculatable.

Erin B. Haag (11:13)

Yeah. Well, and I always think

this idea, this notion that people aren't really doing it for the money is complete and total bull. Am I allowed to curse? BS. Because we are all literally doing it for the money. We all need money. Most of us desire money, and it doesn't make us morally deficient, if we do. And if we weren't doing it for the money,

Most people wouldn't be doing what they're doing at all. If everybody who says, I'm not doing it for the money, we're sitting on some trust fund worth billions, chances are they're not going to be doing what they're doing right now. They're going to be doing something else. And so we really don't.

Amanda Kaufman (11:52)

Absolutely. It's the system in which we operate. mean, like,

it is the system in which we operate.

What do you think is gonna happen when you don't have the same energy in your old age? Right, like people say in jobs that they hate to pay for that possible future and I think like as an entrepreneur you have so much opportunity to do something that you Genuinely enjoy, you know at least in large

Erin B. Haag (12:04)

Right.

Amanda Kaufman (12:16)

You have so much freedom, but you know, people don't activate that. ⁓ So good. Well, Erin, what is the best way for people to follow you and find out more about your pricing strategies and yeah, raise their prices with confidence?

Erin B. Haag (12:17)

Yeah.

it down.

You

Well, yes,

yes. So a couple of different ways. The easiest is to find me at pricingoverhaul.com. And I actually have a gift for your listeners. If they go to my website, they can download a free sample of my book, which they can do. And that outlines my entire pricing overhaul method. Like you could read the book and implement a pricing overhaul.

in your own business on your own if that is what you want to do.

Amanda Kaufman (13:04)

Love it, Erin. Listener, if you didn't memorize all that, don't worry. We've got it in the show notes below. Erin, thank you so much for spending some time with us today.

Erin B. Haag (13:07)

you

Thanks so much for having me.

Amanda Kaufman (13:15)

Goodness, what a great conversation. listener, I'm sure you've got friends who you know they're undervaluing their effort, they're over delivering and not getting compensated fairly. Grab the link to this episode, like right now, and send it to them on text or send it over email, however you guys communicate. Send it to at least three of your friends. And I'm just gonna go ahead and say it, especially if they're female entrepreneurs, because they need to hear what we talked about today.

and they need to really examine owning their worth, right? So do share this with some of your friends. And by the way, you don't want to miss another episode, so make sure you hit subscribe wherever you love listening to us. That also tells us if you particularly like this episode. And finally, if you really do love the show, a 30-second review is absolutely priceless. We really, really value that. So just take a moment to share with us what you love about the show, and it'll help future listeners decide if they want want to spend time and learn cool things. All right, my friend, we'll be back with another episode super soon. And until then, do what matters.