Secrets to Profitably Pricing Recurring Revenue
5:30PM Jun 22, 2022
Gonna be a great talk today we're just about
to get the transcript up and going. As you pop open the chat window, say hi, tell us where you're logging in from today
All right, Jeff Harris is with us. He's going to be talking about profitably pricing your recurring revenue services. We'd love to hear from you in the chat. What's your biggest challenge when it comes to recurring revenue? That's some good shares on that already. Also, as you're just joining us in zoom, pop up in that chat window and tell us where you're logging in from today. It's great to see folks from logging in from all around the world today. Welcome, Doug from Toronto. Doug's is raising prices. Now that is tough, isn't it raising prices and how to do that? Well?
Yes, and we will we will talk about that. All right. All right.
Now, I will tell you it's interesting. We this is a subject that comes up frequently, as I'm doing coaching for WordPress business owners. And what I've learned over the years and nav, I don't know what you think about this, but the the biggest challenge in pricing is right here. It's between our own ears. And every single time I have raised prices I literally just did this last week I sent out an email to clients to raise WordPress management plan prices. I've gotten zero pushback. I've heard back from four or five of my clients but they're all like great, we you know, we understand everything's going up in price. We appreciate what you do for us. It's crazy how that works.
Yeah, yeah. I mean, it's just it's, it stays up here until it goes down here. And then we don't want bad because then we can, then that really hurts. Yeah,
for sure. For sure. Yeah, Ben
says pricing is hard in general. And it really is. He really is. Let's see. Welcome. Miriam from Houston. Welcome Derek from New York. Tammy says her the biggest challenge is what are some recurring revenue ideas just coming up with ideas for recurring revenue. Derek says his biggest challenge is convincing the client they need the services that he's offering. Yeah. So Neville is going to be talking all about profitably pricing services for recurring revenue today. We're less than a minute to go before we get started. If you're just joining us in the chat area, say hi and tell us where you're logging in from today. We are just about to get started with nev Harris. Right. Everybody's here with us today. It's gonna be a great topic. Ben says finding new customers is a challenge. Yeah, it certainly can be
so nev otter, the transcripts thinks your name is Neville. So I'm gonna have to pronounce that V nev. And see there it goes. It's got it's got it now. That's got an F that's
awesome. When When I was my ex girlfriend still really good friend of mine. This that's her nickname for me because we were at a bar one night and I nev slash Neville might have had a couple of drink and so we met this guy and he kept going he had much more than a couple of drinks and he kept on calling me never will all night long. And I just answered I just go with it. So um so so it from there on and she she would go especially when she was mad at me. She's like Neville.
That's better than some other things she could have called you, right?
All right on top of where she thought in my head, that's why we're no longer together.
That sounds like a completely different webinar. Alright folks, it's three minutes after so I'm gonna get our recording started and we'll get going here with Neff.
Good afternoon, everybody
and welcome to another night live i iThemes Training event. My name is Nathan Ingram. I'm the host of your die iThemes Training and today I'm joined by my friend nev Harris nev shows WordPress agency owners where profit is hiding in their businesses. He believes that money talk doesn't need to be scary or boring. That's certainly the case anytime you hear from them. It's also not something you have to do behind closed doors with an accountant that speaks a completely different language. And today, NAB is gonna be talking to us about the secrets to profitably pricing recurring revenue net I'm really glad to have you back how you doing?
I am fantastic love and life. All right.
So this is a this is a subject that you talked about at WordCamp Europe a
few weeks ago, right? Yes, yes, yes. Yes, I did. And that was telling
me in the pre show that they actually lost his luggage including the computer that had your presentation on it like when you're headed that way.
I finally had the computer but I didn't have any of the parts took the computer up to their system. So it was like you know, it was like having a bowl of soup but what no spoon
nothing like trying to give a presentation without the thing to present with that. So yeah, no technical difficulties today. NAV is ready to go here. So nav give us a quick overview of what we're going to cover over the next hour.
Okay, we're going to talk about how to be sure we make a profit with our recurring revenue and just don't make recurring revenue. Because the whole goal with this game is to make a profit and then we're gonna talk about how it's so much more important heading into the economic times that we're in now and that we might be in or near the future. And we're going to come up with strategies and systems to alleviate some of the pain around this and then have things to put in place the future proof our recurring revenue.
Awesome. So this is gonna be a great talk today, a lot of value here. I'm going to drop a couple of links in the chat room, versus today's slides if you'd like to follow along. Also, there's a replay link which in about an hour after we wrap up will contain the replay video of this event, as well as the transcript and the chat log. So if anybody shares resources or whatnot in the chat, that will be available to you after about an hour after we wrap up today. If you have questions throughout we encourage that we'll have a great time of q&a with nev when he wraps up, just click the q&a button at the bottom of the zoom window that will allow you too I ask your questions and upvote the questions of others. So if somebody has a question you'd like to see answered, be sure to upvote that one. And we'll ask the questions in order of up votes when we get to that time of Q and A. So with that nav, let's get started. I'm looking forward to this. All right.
So I need to share the presentation here.
We're going to share screen share this one then we're going to play this one. Slideshow before we start all right.
We'll be talking about strategies for profitably pricing, recurring revenue we need that on the desk. So we will go to the startup site now. This slide you're seeing is it full screen?
Yeah, you're ready to go. Looks good.
Okay, great. Fantastic. So
this, this is Nicole, but this is not. Michael J. Fox.
Shocking me. I am not Michael J. Fox. Although some people have said I look like Michael J. Fox, which I guess is better than Neville. It's closer but I don't know if that was always a compliment. But there's two things that we neither of us have a time traveling delorey Okay. So in we don't have I forget the guy's name. No stick my head. You know, the guy that was the mad scientist that came up with all of it. But this is actually a picture of Nicole at the end of the year. And Nicole, she she's she's perplexed. She's sad. And she's just not as profitable because she looks she's looks looks at her numbers. She's having a fantastic year. You know, and she can't believe how much money she's brought into the business and how little of it she's actually been able to keep so this is what this presentation if you listen this presentation and just apply parts of it, you will prevent this future Cool. Alright, so to get started here, let's talk a little bit about nav here. So and so this is the part of the presentation here where you guys start scrolling through your email, Instagram, everything like that. Because honestly, listen to people drone drone on about themselves. It's really boring when this is what you want to hear. You want to hear who the hell are you and why should I listen to you? And the reason is, because my name was on the presentation. Next slide. No kidding kidding. Kidding. Take Nathan something that up a little bit, but I'll just add a couple of things. I was a agency owner for eight years. So just recently, I shot my agency down actually I gave it to my sister and I had all sorts of friends and that I would help over the years with these type of problems. And a couple years ago, I started a business around this at the urging of my friends. So even though I do have on the jacket, I came up just like you guys, okay? The difference is I'm not really techie with the word president of it. I was more business finance independent. I just had a really great designer. So, you know, I've been in the trenches. You're in okay. So have a little credibility there. So this right, this right here. So, this the slot I want, so, alright, so, two minutes on a timer, and in two minutes here, I'm going to get you to turn down me giving you $100 Okay, you're gonna say now I don't want your $100 All right. So give me two minutes. All right, so here's the $100. Now, I will give you this $100 Right now, today, I'll send it to you. I'll Venmo it to your habit in five minutes. So but before that, we're going to play I think let's make a deal version. Okay. I'm gonna give you some options. So, you can have this money today, right now, or the first offer is, I will give it to you a year from now. So in June, I'll give it to you on June 4 2023. Okay, and then same $100 So anybody take that? Put in the chat if you were to set $100 in a year from now, or you put a or you want $100 Right now, so would you take deal one or two? All right. Pretty easy decision. I'm guessing Nobody said yes. But what if I gave you $100 and $5. So Benjamin ended AYP and a year from now. So and you take hers and you take her start in the chat if you take this.
So what if
I increase that to $125? A year from now? So you get Jackson ame and Ben. So you got like three wisemen there. So and you any takers during the chat if you take that. Alright, now, the fifth and final offer I will give you $225 A year from now or $100 today. So who will take that off?
For in the chat if you would.
Now my guess is I can't see the chat right now. But my guess is all of you would take this offer and what does that prove? One? I talked you out of $100 in two minutes. But what else did I proved? I proved that money has a time value. And all that means is every delay getting money. We want a lot more money for it. Okay? We'd rather have money today than the same amount of money in the future. That means money has a time value. So time affects the value of money. Okay. Then what is recurring revenue? recurring revenue is letting people pay us over time.
Okay. So what does that mean that
that means that we need to charge extra for letting them keep our money longer because if they're gonna pay us over time, they have our money for a longer period of time. So we want to charge them for that privilege. Okay, just like you would turn down $100 today for $225 Or maybe $125 in the future. So and that is called a time premium. I used to have a clicker but I think I lost it in Europe. So yeah, that's called our time premium because we're saying, if you want to hold our money for time, we're going to charge you a premium to hold that hold our money for time let us pay overtime. So all right, and then, um, let me tell you this. So I had a client that would go to Vegas, and travel all over the world all the time. He would come home then. And he would cancel his credit cards every time he got home from traveling. And so we would go to Bill him at the end of the month, and he would travel like every six, eight weeks, and we bail him anyone go through and we were expecting that money to be there. And it wasn't there. So we had to chase him down. Okay, so it took us time to call him up, get the get the new expiration date on his card, get the new card numbers paying a buck, and then, you know, so invoices, you know, we always have clients that we send them an invoice and we got to chase them down for the invoice. So what's this taking up? It's taking up our time, okay. It takes us longer than to collect our money it takes us in time has a cost to it. So it takes us more time and we're without our money for longer. So that's a hassle. And then, you know, what, if somebody doesn't pay us, okay, we could sue them right? You know, especially in America that's like the American way. But the reality of suing people is
it costs money. All right.
You got a win. And you're like, whenever they sign a contract. They owe me this much. They didn't pay. I could win. Verizon, I win. And you're right. You're gonna win that real easy. Here's the kicker. Normally, you have to win. You have to collect and the easier it is to win in that situation. If they're determined not to pay you. It's going to be pretty easy for them not to pay you. So that makes like lawsuits a lot a waste of time and money. So threatening lawsuits is another thing but I will diverge. So what we need to do then is we need to charge extra for those who don't pay or our slow pace. Okay? And we call this a default premium. Because Default means you don't live up to your obligations. Premium means an extra amount so that's where we're at a time premium. You know, it's time, you know, an extra amount for that, for them holding on money over time and default, to make up for those people who are going to have to chase down, spend our time shows down and the people that are not going to pay us altogether. So let me let me show you the usual way that we price recurring revenue or reprice just when we tried to break our services productize our services and then charge over time for them. We say the price of something is $10,000 Okay, and we're like great. $10,000. And then, you know, we say that's $833 a month for 12 months. Okay? 833 times 12 10,000. So we get our 10,000 right, over the next year we get our 10,000 Let me show you the Neverwet and you might be you after hearing that you might be like ah, like I see where this is going. We're gonna charge $10,000 But we're going to charge a 15% time premium, because we want $1,500 For them to pay us $10,000 over time. So $1,500 And then the Neverwet also continues doesn't end there. So $10,000 is a price and we want a 5% risk premium. Okay, that's the default premium. So for $500 Now, that's to say, if 5% of people aren't going to pay us are going to slow pay, that makes up so we charge everybody else $500 You know, and it makes up for if somebody doesn't pay us we still end up with the same amount of money to law of big numbers. I don't want to really get into all the math because that gets confusing in a presentation. But so here we go. The Neverwet is $1,500 for time $500 For risk. So we charged $12,000 So we charge $1,000 A month instead of 833. So here's the variation. Put down, say, you know we want to if there's gonna cost us $4,000 We're gonna have to hire contractors. We're gonna have to buy software, we're gonna, we have to do something to make this project happen. Okay, and those are costs that we're only going to incur because of this project. So we asked them for 4000 down
we turned 6000 into recurring revenue. So 915% 300 is 5%. So now we asked for 7200 Over the next year, and that gives us 600 loss. We got 4000 up front, and we've got 600 A month that's it. That's just variation. There's a million ways you could break this down. But that's just a just an idea to show you that kind of thing. Alright, so what numbers are right for me is the question. Everybody always says. So. It all really depends 20% is a good rule of thumb, you could go with 20% it's not, you probably won't get yourself into trouble. But if you have a lot of slow paying people or you have a lot of people that don't pay you, like sign up to buy your product, and then you know it's for payments and then they stop every month. A lot of people start making that third or fourth payment, you know, you want to maybe raise that 5% So if you really, really really value your money right now. You maybe want to charge a much higher amount to let them pay over time. Like it's a personal preference, but 20% Pretty good. So now, back to our $100 and back to the idea that it's really important right now, that money has a time value. And like we showed it work for us so we can make more money over time. But the big ugly word inflation that we're hearing a lot makes money in the future. worth less. So and this is I'm going to talk a little bit about this in the talk and show you some things and so that you know you don't end up like Nicole, future Nicole and I want to if we had $100 in 1968 All right, that $100 by 1982 would buy 35 cents worth of stuff. Yes, $100 or 35 cents and inflation. You know, it was around where it's at right now. And I got a little higher and got significantly higher at one point in the 70s. But it never never got that much higher. But it ate away. Year after year after year in 14 years. It turned 100 into a third of its value. So we want to pay attention to this and I'm going to show you some things here. So in stories and things how to counteract that to so we could protect our profit or our current revenue. So I want to tell you a story. So and I have a we're gonna go into a framework here where I'm going to tell you a couple of stories. And then I'm going to give you the lesson the key takeaway of the stories. Okay, so you remember back in the day with commercials, you know, before we watched everything on Netflix, which Funny enough, you know, all these streaming companies are now the streaming thing where we just drop everything and people cancel after two months not working for us. You know because you know that really hurts our current revenue we have a lot of churn anyway so but aside from that, I love talking about that kind of stuff. But aside from that, so let's go to you know, when we had three minutes of commercials, but we had a VCR or we had a DVR that we could fast forward. And you know, you could press that fast forward button once and it would do double the speed. So it would get to three minutes to commercials in a minute and a half or 90 seconds. Okay. And then but that was slow, you know, because 90 seconds was still a long time. You know? And we pressed it twice, got it through 45 seconds. And that's kind of you know, what, what the average person did you know, maybe you got really ballsy at one time and you hit it three times. This is before they had the button that would jump back a little bit too. But there were some times that we got a patient and we weren't paying attention. We hit that button the fourth time. And what happens. We got through that three minutes worth of commercials in cuz at four times it went 16 times faster. So we got through our three minutes of commercials and 11 minutes and 25 seconds before we got done. Like hitting that fourth time and we even thought about it hitting play on our show. We will already a couple minutes into our show. So the speed increased dramatically. So anybody with me on that, you know, you're like two minutes into the show and especially at the end, you're like God dammit, no, I know his children. So
and I want to tell you this
because of the economic commercial economic conditions going on right now. The speed of business, just want him on the fast forward button. You don't want hand means It means it just worked really hard on that fast for by its mash that the four times. Okay. And so the lesson The takeaway here is we need to stop putting our profits on autopilot. Because, you know, we've lived in conditions. So the last time we had any noticeable inflation was 40 some years ago. And here's the thing you have to be to have to really appreciate that. So you had to be in your least your mid 20s You would be in your late 60s right now. But you know, the last time you remember last time we had really inflation like this. So it's not it's nothing normal, because we want to talk about raising prices and everything like that, you know, when when inflation was when when the services that we offered people never changed in price or maybe went up a little bit. You know, we didn't change our price. We didn't feel we had to change our price. It was all in here. Like Nathan said, we could have shut off, but we did. And now we can't do that. We can't be that passive. Because all of a sudden, you know, you end up like Nicole with, you know, an absolutely great top top and revenue. You made a lot of sales, but you made a lot less profit because your costs went up so much.
And my next story is about a lovely deer. So
but this story has a sad ending. Not so much for the deer but for my car. So I was going down the road, and I maybe was looking at my phone. Don't tell him my bad to do. And then a deer jerked out in front of me. Well, thankfully, my car could have wrecked, but I have this autonomous braking system that you know has all sorts of sensors and everything like that and it's looking out into the future and looking out there and scanning everything LIDAR sensors, all the sudden sensors, and it detected that deer quicker than my eyes could even if I was paying super close attention and it realized the speed of my car at the position of the deer I couldn't react fast enough. So it slammed on the brakes and stopped me from hitting the deer. Okay. My phone went fine. And Nick my dashboard but wasn't that good, but you know I shouldn't be using it. So and that's the thing about an autonomous braking system. It's easy, because you don't have to do anybody. It's super fast that reacts faster than a human can. But it's deep. Okay. I mean, it's using all those sensors and all this information is and it's taking that in real quickly and making split second decisions. So the takeaway here is your profit needs an autonomous braking system. Your profit needs a safety system that's going to alert you when costs are when costs start getting out of control. Okay, when things are rising when out of the ordinary is gonna say, Whoa, this isn't normal, you know, something is happening, you know, we should react to this. So, just like the car saved me from killing a deer and you know $10,000 repair bill. So now I want to talk to you about something a little different. So it's when you hand a pro, a proposal to a customer and you're happy, you're smiling, and you're like yes customer really wants what I have. I really liked this customer it's a really good price. This is gonna be fantastic.
And then but yeah, ask Kennedy discount. And you know, what's our reaction? Contact personal. Like stop No, just stop. You know? So
I want you to be like this. When somebody asks you for a discount.
I want you to say, Yeah, smile, like,
Of course I can give you a discount. You know, I'm gonna give you I'm gonna give you a big discount I'm gonna give you $2,000 off. Okay. And what does that do? That drops your price to $10,000 If you pay upfront, because remember, we increased it by 2000 to let them pay over time, we it was our we needed to charge $10,000 That was our price. We increased it 2000 Because they were going to have our money over time. But we drop it back to 10,000 but they gotta pay up front. What what does this do? So it prevents us from saying the word no. And it's because no can be confrontational. Everything's going great. You love the customer. The customer loves you. They want what you have. And then and then they say the question that they just are trained to stay and you you say no. And then there are no so it's can be offsetting.
So what I want you to say is yes. And because that's disarming, you're saying Sure, I'd love to give you discount $2,000 discount and you have to pay upfront.
So, you know, what are they left with? They're left thinking to themselves, you know? Oh, yeah, I asked for a discount. He's given me a discount. I'm not quite sure I could pay up front. You know, so, you know, where are they gonna go from there? You know, so now, you you, you handle that question very tactfully. And now let me show you why this works so well. Because normal is you're going to charge 10 You want to charge $10,000 And you know a lot of times you're like just for whatever reason people ask for 50%. I could debate the validity of a 50% deposit, you know, through running some numbers, but we'll just say most people asked for 50% You know, and then maybe they asked for 25% later than 25% when it's done or maybe they just asked for 5000 You know, months later when the project is done. You know, once the customer jerked you around with not getting your content and, you know, then kinda goes to sleep because he gets other things going on. He's not as concerned about his website. And so a month months down the road, you get your 5000 you know, and five, that and that 5000 That's your profit, you've probably spent that other 5000 and more to get to that point. So but that's how we normally do it. So recurring revenue, the way I'm selling you do it you get 10,000 plus 2000. So you get 12,000 over time, okay.
The discount, your price is 10,000.
You get 10,000 immediately. So you're giving a discount, but you're better off then the normal situation where you weren't giving a discount you were saying no, and they were all happy, fluffy. You know? And this way, you get your 10,000 upfront. So there's no waiting a couple months for it to be finished. So a lot of times they you know, can agree to that because maybe they don't have money. Maybe they don't want to do it that way. But it's very it's a very good way to you know, address this problem. So now, either way, in this situation, you're better off I just showed you. I mean, you could feel free to ask a question if you don't think you're better off and we could talk about it, but you're better off. So and what you did is you transformed the adversarial to the advantaged you you took a situation that could have like separated you. And instead, you're like, here, and that would have made you here, but instead, now you're on the same side of each other. Now you're now your friends and everything like that you've turned out to your advantage by giving them a discount now they love you. They love the discount and you love the fact that they took the discount. So so I don't want you to feel this way. When they say I want a discount and I have some other slides but we're just gonna go right through them. Yes, and some. I love Monty Python, you know, it's, I will say the thing about discount I will tell you this one thing is like the reason we get so sensitive about discounts is because we look at it as a referendum on their on our work. We think they're valuing us less. Okay, we think they, they don't respect us. They think that you know, there's always people say, Well, you know, you don't ask for a discount to a grocery store. Well, um, and that's true. But let me put it this way. Have you gone into a clothing store and or any other store and you've gone in to buy something with the intent of buying something that you need, that you don't know where it is in this store? And somebody comes up to you and says, Can I help you? And what's your response without even thinking? No, just looking. Not looking. You're actually looking for something that you need that you want to buy, but you don't know where it is? And here's a person that can answer all those questions. And you tell them no, because we're trained to give these responses. And that's what clients are trying to they're trying to ask people for discounts. You know, they've taken a whole bunch of bad negotiation courses, and a whole bunch of bad blog posts, you know, and that's why and that's why they do it. It has nothing to do with how much they value you that's in our head. That's the little man that screaming impostor syndrome in her head, interprets them like that. So moving on, to tips to profit more in stress less in stressful times. Okay, so, um, so meet Jenny here. So, Jenny, see if you see if you've ever had a real life experience, like Jenny has, so she's laying in bed and it's the fifth of the month. And she's super happy because she's absolutely killing it. It's the fifth of the month, and she's already made three great sales. And she's like, yes. And then she's drifting off to sleep. And all of a sudden she wakes up in terror, you know, and she thinks it's to 50 a month. 50 a month. In eight days. I have a big 1000 10,000 are hosting dough coming do I have in a couple days after that? I have another huge bill coming, do I and she's like, where am I gonna get the money? And she thinks this is impossible. I'm having a great month. I've never done so well. The thing with that situation is cash. is king and queen.
So what sets big businesses apart from small businesses, is cashflow management. Big businesses have all sorts of ways to manage cashflow, and bridge that gap. Okay. If you think that when they have 10s of millions of dollars of payroll coming to that they're just because you're just able to make it like that. You're not. So they use all sorts of tactics to manage cash flow. How about you know, do you ever prepay for an airline ticket that you're not going to fly for six months, or Walmart sets 90 day terms? Or there's a I don't even get into the whole overnight lending market that you businesses use? But I'm gonna I'm gonna teach you some tips here on how to how to manage our cash flow. So because in order to be profitable in the future, we need to be able to pay our bills today. So some of you might have heard story, I love this story. So you know, it's Thanksgiving, the grandma, the mom and the daughter are all around and the mom rips off the legs of the turkey breast. What's the turkey into the roasting van and puts the legs in there? And the daughter says Why do you always rip off the legs of the turkey breast when you cook it? And the mom says because that's how grandma does it. And Grandma turns around and says, I only did it that way because my roasting pan was too small to fit the legs in. So and I think that this applies to a lot of things in life, where we think to ourselves, where we don't think to ourselves we just act, you know, and what if we did think to ourselves, we would think, why did why do i Why do i Why why why? You know, and now there is another one that I want to really talk about right now and it's called the first of the month. I mean, we even wrote songs about the first in the mind. That's how important it is in our head that it's been ingrained in music. Like, you know, hundreds and hundreds of years ago the Bards used to tell us stories. The first one on this is what doesn't work we've done with the first of the month even so, um, so, you know, a lot of us and I like the suggestion of getting recurring revenue in on the first okay, but then we do something else. We re skipped slide we pay we pay our bills on the first okay. So we get our money and repair where we get our current revenue in the first we have our bills on the first because as far as you know, our people need pay our rent needs paid if we have rent or all these bills be paid on the first. So I'm going to say that it doesn't really make much sense to do that. And here's my here's my suggestion to you. So get your current revenue on the first
but pay your bills on the fifth.
Preposterous you can't do that. And I'm gonna say why turkey legs, turkey legs. You know, it's just like guys, I did this with my company for years, you know, with my team and I still the people on my team still, we've scaled down drastically. But, you know, I still pay on Fifth. You know, the first month they might grumble a little bit, but then they get used to it. So you tell if you have rent you tell your landlord I'm gonna pay you on the fifth he's and all you have to pay him on the first what he's gonna evict you. Because, like you've paid on time for years, and it's hard to find people to fill commercial space. I mean, if a commercial space goes empty for two months, that's their profit for the year basically, you know, so and you're gonna pay him five days later, he might grumble but you start paying him on the fifth and he's gonna take it. And so, in a lot of states, you can even charge a late fee. So and then once you can it has to be more than that, but I won't get into that but um, because what does this do for us? It creates wiggle room. And I love wiggle room. Okay. What room allows us to adjust to situations? So what happens is, you get to your current revenue on the first and you pay your bills on the first. What if a lot of that money doesn't come in? And everybody still wants paid? And you're like, you can't go to them to your employees and say, Well, you know what, John? Smith, you know, his credit card didn't go through. And, and Sally Jones, she's, she's a little bit late on paying, you know, they're like, full I don't care, you know, but in this situation, it creates wriggle room. Because you have five days to figure it out. Five days ago on the phone selling that i Hey, hey me, hey, give me your updated credit card number. And instead of getting all those bullets, right in the chest, you're able to dodge them like Neo is so that is why giving you five days to solve these problems is great instead of giving you five minutes. So another good way to do to go about this is is having a reserve account. Okay? And how much should be in the reserve account? is a question I always get to, and I'm going to tell you six months, so six months of expenses in a reserve account, you know, could provide a lot of cushion for things. Going forward. So I'm actually writing an article for Business Insider about how to conduct a business stress test. And you can look that up or I have it on my website, but we're gonna go through that but it's it's a really good way to figure out the runway that you have for your business, like if you stop getting new sales in how long could you run your business if you don't know new sales, and how long can you run your business for how many months could you run your business for it and just a really comforting number to know especially if things go start getting a little bit rough or maybe a big client backs out on you, you know, and you should set a goal, you know, great to set six months, you know, at least so that you could you could do that recurring revenue and the cash you have in a reserve account are the two features that help you continue. Anyway.
So now I want to tell you an interesting story about peanut butter. handler especially reduced fat peanut butter, you know, is is reduced fat peanut butter like the biggest joke ever. Like at first I was gonna tell my designer does this size I was gonna say man don't put reduce fat peanut butter in your birthing is funny because reduce fat peanut butter is just high sugar peanut butter. So the fat in peanut butter is actually healthy and the sugar that they the high fructose corn syrup on the other crap they put in is unhealthy. So reduce bad peanut butter is actually really unhealthy. But that's not the reason why I want to share your peanut butter. Peanut butter is very interesting in the fact that Coke and Pepsi are huge competitors. Okay, and when you deal with a consulting company when you're sharing, like really proprietary information you a consulting company can't work with both companies can't work with with arch competitors. So for a comp for a consulting company to work for Pepsi and Coke, it's unheard of, but they both work for the same German consulting company and it was because of peanut butter. Okay, and because what peanut butter decided to do was specific brand of peanut butter was when prices were going up. You know, they had two choices, they could raise their price or they could lower the amount of peanut butter in the drawer. Okay, and raising their price. They figured people would buy cheaper peanut butter, they wouldn't buy a brand new by cheaper peanut butter. decreasing the amount and keeping the price the same. They you know, they might say hey, I want a bigger jar of peanut butter or it's the same price I get more for this one. So what did peanut butter do? And they put a dimple in the bottom of the jar. And that kept the size of the jar the same but included less peanut butter. Okay. And that works so successfully. With that brand of peanut butter. You know, outsold all the competition and really build up market share because they either raise their price or lower the size of their jar and this one just looked the same. So people bought it up in droves and switched to this peanut butter. So what does that tell us? So I said you know, there's some shady business practices out there. So um, that tells us that rising costs to kill profit, but so can rising prices. Because if you increase the if your costs are rising, you have to deliver less the keep the price the same or you know if prices are right, if you raise your price, you might price peak well. So I'm not telling you to get kind of shady like peanut butter and everything like that. But what I want you to keep in mind is to keep prices the same. Just remove the parts that are driving up the up the price. So for example, if you like what we all did in our care plans, like you know, even when we go to websites, we throw in stuff that was a little little cost but high value, okay. And it worked great, because we could pack things in and people would think they're getting a whole ton of value. And it wasn't costing us much. But we need to keep an eye on those prices because some of those things have really gone up in price, especially if it's a SAS or something like that or a license or something like that. We were just throwing in. Maybe we remove those parts and we make that you know an upgrade. So and, you know, maybe you know people thought it was a nice house, but they didn't really want you know, and they would rather buy you know that without it. So we need to keep an eye on how all our costs are increasing. To know which ones that maybe we want to cut back on offering you know, so that could be an easy way to deliver pretty much the same product at pretty much the same price. Okay, but here's a way to keep here's the formula quick formula to keep an eye on your profit okay? Now, what you do is you take your overall sales,
and you divide that by your profit. So a money you make after all your expenses divided by just all the money you bring in, and we multiply it by 100 and we get what's called our net profit margin and in and of itself, you're like, great, I know my net profit margin. You know, you think, Oh, I know I know the profit margin, but then you think what do I do with it? You know, well, what do you do with it is you track it over time. So if your net profit margin is like 40% 41% 39% 40% 40% and all of a sudden it drops to 32%. Then you're like, Whoa, whoa, whoa, whoa, whoa, whoa, there's something going on here. And, you know, this is a way to have an advanced safety system for your profit. You know, by knowing like some of this is called a KPI key performance indicator. It's easy. It's fast, but it's deep. You know, it tells us a lot about the state of our business really quickly. So next story, I want to tell you one of the last stories I want to tell you here is about a creepy gas station from a horror movie. So I love these pictures mine I say find a picture of a gas station and you know in terms of the craziest shit. I just I just get a kick out of it. But anyway, so here's the thing about gas stations and I want to gas stations because all of us you know, gas is crazy. You know, it's I have to put high test gas in my car. It's damn near $6 A gallon in Pennsylvania. It's insane. And and if I don't my car knocks I've tried it. But the thing about a gas station is no matter what the price of gas is. The gas station makes 2% profit margin. Okay, so when we see gas prices changing every day, it's because especially in an environment where gas is gas prices are fluctuating so much if they didn't change their prices every day. They can lose money your super quickly because they have such a low margin. Their profit margin is miniscule. It's 2%. So if they don't change it by a penny, they can make half the money, you know, so or they can make no money. And what does that tell us? So that tells that low product, low margin products, you need to change the like the price really fast or you need to sell in really massive quantities. So because if you don't if you're not changing your prices constantly and you're not selling a ton of gas or a ton of anything, like you could really be in trouble. And in the past, you know, we could have, you know, a low margin product, that things weren't costs weren't changing, and we didn't realize it was a low margin product. And it made us money and we didn't think much of it. So in today's day and age, we could get crushed with the way costs are increasing. Okay, so here's the key takeaway on this one. You are not a gas station. Do not price like one. So here's some key takeaways. So time and money are related. So price profitably if people have your money for longer, increase your prices in the current inflationary environment, it magnifies mistakes. Okay, so in the past you know, we had a lot of room it's like when you're playing those video games, and you know, maybe you're trying to get done Marvel down that pathway and the pathway is like, you know, a couple inches big but you didn't get to advanced levels and it's like a half an inch. If you go like a little bit off to the left, you're done. So you know those mistakes are really magnified when pret when costs are going up. So controlling costs is absolutely key to profitable pricing. And you need a system to monitor your profits. And I like key performance indicators like net profit margin, because it's a number that you could spend a couple of seconds looking at and know exactly where you stand. You know, because we, as agency owners should not want to be CFOs we shouldn't try to be CFOs we shouldn't try to be experts at finance, but we should really understand our numbers. But we should be able to have a system that understand that teaches our numbers very quickly. So I have another thing like I ended the presentation, it's an aside, but I'm going to cut it off right there because of time.
I will tell you though, that I was going to offer some discount on one of my courses I have courses on all this that have courses on KPIs courses on the questions you should be asking yourself ebooks, and all sorts of stuff, but I figured what might be more helpful for people going forward is and I've never done this and to actually talk with me. It's $1,000 for me to do something for you, but it's $6,000 for the high end persona program. What but uh, here's what I'm gonna do for you guys. I'll talk to you for a half hour if you want to book appointment with me. Scheduling I don't have a slide for this because I just decided this this morning. If it's me.me/neff Harris, and you throw in a half hour thing I'll do it for free for you. We could talk about anything want to talk about this stuff in the rotation. I could talk to you about pricing I could talk to you about you know, the is what I'm seeing in the future. I just think that it we need, you know, we need to give we need to be aware of this stuff and I want to give back in that kind of way. So kind of off the cuff do this like in the next two days, because I'm not gonna because I got to stay on top of my schedule. I can't have people years from now watching this video and be like, hey, but um yeah. So that that is that is my talk. So. All right,
thank you now. Let's see is my video working? There we go. All right. Thanks. Now, interesting information today. So just just so I get folks the right link, it's this is it. book.net harris.com is that right?
I think I think book.me/neff Harris,
or book me that name slash Neff Harris. Yeah, that's it. All right. So that redirects here. So the link is in the chat. To get that booking. There's a 30 minute option and that is a really generous offer nav so if you are interested in getting a little more personal attention to the numbers in your business, take note of up on this. This is a this is a great, great offer. Appreciate that Neff,
right if you don't like $50 Off course or something along those lines. But I figured in this environment, I think some one on one kind of advice because I just want a strong community. Like I want a strong WordPress community I in my next part of my presentation was going to be about that and how you know anyway, so but yeah, I really feel passionate about that. So yes, for sure.
So yeah, I'd encourage everybody to take him up on that. Do book as he suggested book it soon. So he's not doing these things six months ahead, six months out, but in the next couple of weeks, grab a slot there. I'm looking at the calendar. Now there are several slots available if you'd like to take advantage of that. All right. So a few things if you have a question, by the way that you'd like to ask now of anything that's ruminating in your head after listening to some of the things never shared with us drop a question in there and we'll get that over to NAV net. One of the things you said that I found really interesting is discounts are not a referendum on our value. I really liked that and I think you're spot on. And I think a lot of the the you know just like you describe when somebody asked for a discount, we're almost conditioned to snap back that Oh, no, you know, you're trying to lowball me and whatever. And you get a lot of that from you know, social media groups where there's a lot of us web developers around and everybody, you know, bad talks clients and you know, all clients are bad and they're all trying to take advantage of me and so forth. And certainly the art some that do, but maybe just just elaborate a bit on a little bit more on discounts are not a referendum on our value. So
yeah, you get the Facebook groups and you get the you get the people in there. And they always, you know, they're there. They're always like, Oh, don't give them a discount. You know, they don't appreciate you. You know, so what you're worth, you know, and you know, know what you're worth and everybody can but it's just like, I think we have to have like I think what we lack in a lot in the world right now is you know, we might have sympathy for people we have a lot of sympathy for people in Ukraine and for people homeless people or something like that. But what we don't lack is a lot of empathy, for our, for our fellow person for our fellow business or for for just people in the world. And this isn't like, I can't say these are like, this is an original thought on this line. What I'm going to say what Seth Godin talks a lot about you know, how you sell and how you communicate and how you is through empathy, through understanding putting your person in that other person's shoes and saying what is their worldview? Where are they coming from? And and I think we, I think if we applied that when we're when we're dealing with clients, and we say, why are they why are they coming at me like this, instead of getting defensive? If we take a step back and say, you know, okay, let me understand why they're asking me this question. And then you could, then we could address it better and a lot of times with this concept, because what they're trained to do, you know, and if we, if we push back, you know, like I said, it's cursed confrontation, and that nobody wins when it becomes confrontational.
Absolutely, I mean, we're all I mean, like in our businesses, we want the best deal we can get right? And so asking for a discount is not necessarily bad. But I love what you said about you know, the way that you can offer a discount is to have some strategy behind your pricing. And you know, if you want a discount, you have to pay up front and but that's already factored into your regular pricing right and praying over time. So there's a lot of wisdom there, folks. And yeah, great
negotiating discounts is great. So yeah, you want to negotiate price, you know, a lot of times in a lot of situations, but you know, sometimes things just aren't negotiable. You know, and you could try and I don't think I'm not saying go don't go out and try to negotiate, but when somebody tries it and go You know, so yeah, but don't when somebody's trying to negotiate with you don't take it as you know, you know, that's our imposter syndrome saying they just don't value you.
Yeah for sure. So Beth says over here in the chat I bumped my estimate and offer a discount if you meet the agreed upon dates throughout the project. What do you think about that? So
I bought my estimate and offer a discount if you meet all of the agreed upon dates. So content delivery and I mean, yeah, I mean, that's that's his you know, pretty smart with with that kind of stuff. I would not, I would not argue that. I mean, there's, it's like, yeah, it's the same kind of same kind of thinking, you know, you're baking in all these things. Like somebody in Facebook, just and I commented on a post somebody that hadn't heard Facebook she was complaining about all the time she spends with prospects who don't mind all the time she spends communicating with prospects. Well, you just can't like, if you will, if we look at our weeks, you know, we might spend 20 hours a week working on client products, you know, and if we set an hourly rate based on our time we're working on client products for projects, you know, we're gonna get crushed because we're only doing 20 hours a week and there's 20 hours a week, we have to do other stuff. And so our prices have to reflect our overall time and not just our project time. So and then that's just, that's just the cost of doing business and the people that sign up with you paid that cost.
Yeah, for sure. Now, this has been great, a lot of a lot of really insightful things to consider, and some great takeaways at the end here. I would encourage everybody to check out nav and everything he offers at Nev harris.com And then I'm going to drop the link in for the booking offer that he provided. Do that soon. And take advantage of that generous offer that nev has given to spend little time with you and talk about the specifics of your situation. All right, you have any final words as we're wrapping up.
So I just won't make a difference. So when I say you know, like, make a difference for your team, your clients, your family, you know, and our businesses are the way to do that. So, you know, it's, you know, we all don't have to be like, you know, the, you know, the greedy Scrooge McDuck type we could use our businesses for good like, Warren Buffett gives away I mean, he's given away 50 I just read he's given away about 40 some billion dollars of stock, you know, in the last 14 years, so to charities and stuff like that. I mean, that that that that makes a difference still worth $100 million. But both
you absolutely can you know, and so tightening up your numbers creates margin in your business and you as a as a human being get to decide what to do with that margin. Whether that's you know, make more money and give that money away or have more time for your family your you know, the things that you feel are important in life. Yeah, we have a great opportunity as business owners to build a business that prioritizes the things that we feel most passionate about. So
100% and we can have it both we can make a lot of money. You know have a lot of a lot of security have everything we want in life by helping others get what they want in life. So I mean, it's just like we don't have to be it's not it doesn't have to be a zero sum game. It can be a game that just rises, rising tide lifts, all boats kind of thing.
Absolutely. Well, thanks again for spending an hour with us. Thank you all for being with us. As well hopefully picked up some some good practical tips to start to use in your business. I'm going to drop in one more time the link to today's slides as well as the replay link. That replay will be up in about an hour that will have the chat log and the transcript of the closed captioning transcript here as well. For members of iThemes Training or Chilkat members, I'm back tomorrow for office hours at one o'clock Central. We'll see you then next time here on iThemes Training where we go further together.