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Setting Pricing and Sales Goals

Lesson 26 from: Value Pricing & Business Models for Creative Entrepreneurs

Tara McMullin

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Lesson Info

26. Setting Pricing and Sales Goals

Lesson Info

Setting Pricing and Sales Goals

All right, so, as promised, we are gonna talk specifically about setting pricing goals and setting sales goals for your business model. Because this whole business model that we've come up with here, it only works if it actually gets you to that revenue goal that you have. This business model only works if it gets you out of the micro business earning plateau and up to the mountaintop of your revenue goal. So, let's review that a little bit first, shall we? So, on day one, we explored how you want to live, which was a pretty interesting question I think for a lot of you. Could you plan your business to support the way you want to live? Not just the time that you want to live or the way that you want to work, but also, you know, the things that you want to purchase. The experiences that you want to invest in. The way, you know, you build your lifestyle. What if you started from where you want to be and created a model that supported that? That's really the entrepreneurial money mindset.

That's the difference between, you know, that paycheck to paycheck kind of thing that goes on when we work for someone else. When we know how much we're starting with and then we build a life based on that. Entrepreneurs, business owners, you guys get to do things the opposite way. You get to figure out how you want to live and then build a business that supports that. So, that's my invitation to all of you today is to figure that out and to make sure this business model that we've created and the experimentation and the tweaking that it'll go through over the next few weeks actually does that for you. On day one, we also explored, how do you wanna help your business grow? What growth activities do you need to make room for in your schedule? What growth activities do you need to make a time investment in? Do you need to do more PR work? Do you need to do more media work? Do you need to do more, you know, promotion? Do you need to spend more time on the other parts of marketing? Do you need to spend more time crafting a story that hits your right people in the right way? Do you need to devote more time to your sales process? What is it that's gonna help your business grow? Is it a new product? Is it a new approach? Is it a new brand? And how are you gonna make time in your schedule to make that happen? So, what growth activities do you wanna invest in? How do you want to help your business grow? Hopefully, you've got some ideas on that now, and you're thinking about how you're going to work them into your business model. Then finally, how much do you need to earn to get there? You know how you wanna live. You know how you wanna help your business grow. You know what business expenses you wanna make in the future, what investments you wanna make in the future. What's the number that comes out of that? What's the number that comes out of that? So, before we go any further, we're gonna have another share, and I wanna know exactly the answer to that question. What's your revenue goal? Hit us up on Twitter @creativeLIVE, #taraLIVE. Hit me up @taragentile. Hit the guys up in the chatroom. Let us know what's your revenue goal. I'm gonna go through all seven of the people in the audience here. I wanna know what their revenue goals are. Let's start with Brianna. So, this is the revenue goal overall, not necessarily what you're getting paid? Sure. Just to clarify. Yeah, let's go with... Yes, let's go with your gross revenue goal for the business. Okay, I'd say probably around 150,000-200,000. Great! Yeah. Now, I want you to say that again without the question mark at the end. 200,000. Thank you. Tiffany. Mine is 100,000 this year. Excellent. Bridgette. $100,000 would be good. To start. To start, okay. Clarifying is also good. Excellent, Susan. Sure, 100,000. I've never thought about it. I mean, I've never set- This is my problem is I never set goals and then work backwards. It's so important, so... Absolutely. Yeah, I mean, 100- to me, $100,000 in my first year of business sounds amazing. Okay. Yeah. Excellent. Let's build it up that way. Sasha. 120,000. 120. Do I hear 130? No. Shana. I feel mine's a lot less. 50,000. Fantastic. Yeah. This is not a game for how high we can go, by the way. Robin. Shooting for 400. Excellent. 400,000. Yes. Let's clarify. Right, not $400. 400,000. Absolutely. Awesome. Awesome. Going for 100k seems to be the popular number here. Yeah, 100k is a great milestone. Sunshine2 100k, Pag says 80k. Yeah, and Erica says 125,000. Fantastic. I think the thing, just as an aside, the thing to keep in mind about 100, is that this is not a magical number. It's actually a really difficult place to be. Yeah. It stinks tax-wise. It stinks capital wise in terms of making investments in your own business because so much is tied up in taxes. So, while 100,000 is a great milestone, you know, in terms of, you know, your growth and your goal setting. One, make sure that number actually makes sense for you. Make sure it answers those first three questions, and two, keep in mind you do not want to stay there. I mean, I know that may sound, it may sound very flippant if you are struggling to get there. That you would just, you know, love to just be at that 100,000 mark, but it's a really hard place to be in business. Trust me. Okay? So, just that little side. Let's take a look. I wanna say this one more time, but we're probably gonna take a look at this again later so, this is our little diagram of the micro business earning plateau. Remember, you guys, maybe your revenue goals that you've had before have been somewhere on this upward incline, where your wins are coming fast and furious. I can remember that from my first couple years in business. Oh, man, I, my goals were in here, and I blew them out of the water so fast once I got going. And man, that was incredible. And I felt so good. And I would just set higher and higher goals, and I'd work up and up and up and up this incline. And then, yes, just like you, inevitably, I hit this plateau. And I hustled and I hustled, and I stressed and I stressed, and I put more and more energy into my business. And I started to burn out. And that is where I decided to make fundamental changes in how my business model worked. So that, not only I was able to reach my revenue goal, but I was able to work 20 hours a week. I could take off whenever I wanted to. I could fly around the country if I wanted to. And I did. So, that's what this is all about, right? If your revenue goal is to this point, have been in this area, I guarantee you you will hit this plateau. You may even hit this plateau right around $100,000. So, how do you turn that 100,000 into 200, or into 400,000. All right? You build the model that makes that happen. You build the model that makes that happen. So, here's our little guide. We've got all our little questions. What's this gonna help our customer accomplish? Who are we designing this for? How much is it gonna cost? What's it gonna look like? We've torn all the layers of this business model apart. Now it's time to look at each of those layers. So this is, you might have this on the spreadsheets in the middle of your workbook or you might have this on a separate piece of paper. Maybe it's still just in your mind, although I highly encourage you to write this down. This should be a document that you are working with in your business. Look at all the different layers. Look at all the different systems. You know, remember I said, your body, on the outside, looks like one thing. You know, your body looks like one thing. You're covered in skin. You look like a solid human being. But on the inside, there are lots of systems at work. There's your nervous system, your circulatory system, your digestive system, your hormonal system. All of those systems have to work together to make you a healthy human being. Now, you've got a business model that has all those different systems in them. Each product, each offering, each way you offer it, constitutes a different system in the healthy body that is your business. Or that can be your business. So, right now, I want you to take a look at all those different layers, and I want you to begin this segment by putting a price, a preliminary price on each product. This is allowed to be a guess. If you don't know exactly yet, if you haven't done all the research, if you don't have all the information yet, I will still want you to set a guess price. This, note the word preliminary. It's really important. You need a starting off point, and I'm going to invite you, I'm going to challenge you to get that starting off point today. Now. Right now. Here's some things to consider when you're pricing. First, is this price reflective of my cost? Remember, there's more than just financial cost. There's energetic cost. There's relational cost. There's temporal costs. Is this price reflective of the cost of creating this product, of delivering this value? Is this price reflective of my cost? Is this price reflective of the value of this product to my customer? You tuned in this morning for the value is right with our host, Greg, then you know that you can't just say this is my experience. This is what I've done. You need to be able to verbalize. You need to be able to explain to your customer, this is what this product means to you. For Greg, it was getting the best answers out of tough interviews. It was creating immediate relationships between him as a host, or him as an interviewer, and the person that the network wanted to get interviewed. That's big value for them. What is the value that your product is delivering to your service? Earlier, we heard about Tiffany's earrings and how the cost is fairly high for her to create these earrings. But, clearly, the value is also very high to your customers. They probably see those earrings as, like, the new go-to piece. This is what I'm gonna wear every day. This is my new signature look. That is the biggest comment I get. There you go. That's the value to your customer. I wear them every day. They can't, yeah, it's adorable, yeah. So, you need to be able to know what that is to be able to set an appropriate price on that. What is that worth to a woman? To have those earrings that are your go-to earrings? That make you feel awesome. What would value comparable to this cost? What would value comparable to this cost? So, in other words, if your customer were to go out and try and solve this problem another way, or achieve this desire another way, what else might she be paying for that? We talked a little about this earlier with Shana. Doula services, individual doula services can be quite expensive. And they might also, so, instead of getting a doula, her customers might also try and get this value by reading a book like "What to Expect When You're Expecting". And so, you need to know what the full range of the market is, right? So, consider the full range of what it is that people are buying to try and get this value. Whether you make jewelry, whether you make quilts, whether you do web design, whether you do copywriting, whether you're a life coach or you're a teacher. There's all different ways that people seek out the same value we provide, and you need to know what all those different costs are. Does this price make sense with my other products? So, for each line of your business model, you're coming up with a new price. Or you're coming up with a price. Once you've got those prices down, you need to pull back and say, do these prices, as a whole, make sense? Do these prices, as a whole, make sense? You can't charge the same thing for a one-on-one service that you charge for a group service. Unless those things are vastly different offerings. You have to ask yourself, does this make sense as a system? Does this make sense relative to everything else? And then, finally, where do I want this product to fall in the spread of the market? Where do I want this product to fall in the spread of the market? So, this is your opportunity to, not just know what the full spread of the market is, but to intentionally place your product within it. To position your product within the full spread of the market and to be able to tell a story through that price about the value of what it is that you're offering. And the values you're imbuing that solution with. Where do I want this product to fall in the market? So, as I've been saying, I know, broken record, but this is super, super, super important, while you can price with confidence, and I hope that you feel like, at this point, you've got the tools that you need to price with confidence, your price will always be, always be an experiment. We're always experimenting with our prices. You'll see big companies do this. You'll see little companies do this. This is just the way it is, folks. So, don't be too hard on yourself. Create systems. Create little experiments for yourself. All right? Now that we've done that, I'm gonna walk you through some steps. And you will find the new spreadsheet on page 37. So, whether you've been using the old spreadsheet or you need to move to this new one, page 37. Page 37 in your workbook has a spreadsheet that is exactly what I'm gonna walk you through. You may need to copy some numbers over if you've been working in the old spreadsheet. Okay? Make sense? Cool, page 37. That's where we're at. I'm gonna walk you through this, and then I'm gonna bring up at least Tiffany, and, perhaps, maybe, one other person to walk through at least a couple examples up here on the board. Okay? So, first, now that we've determined our initial price or preliminary price, we need to determine an initial number sales goal for each product in your market. So, this is, how many pieces you wanna sell. How many packages you wanna sell. How many sessions you wanna sell. This is not a dollar figure. This is a per unit figure. Does that make sense? So, product, price, unit goal. All right? You can think of this in two ways. All right? I encourage you to think about this in two ways. You can think about it overall for the year or you can think of it per month. All right? Sometimes numbers work out more easily per month. In other businesses, sometimes they'll work out more easily per year. What I would suggest, though, is that you stick with one. That you decide which one makes the most sense for you, and you stick with that. So, if you sell a lot of the same stuff all throughout the year, probably per month might work better 'cause it's easier to get your head around those numbers, if you are launching, say, things are only available at certain times per year. You've got a program that runs January, February. And then it doesn't run again until September, October. Then it's easier to figure it on the year. Make sense? So, Robin, I'm thinking of you immediately. Per year makes a ton of sense for you. Tiffany and Susan, per month probably makes more sense for you. Or in my case, a collection might only be for half the year. Yeah, right. So, I could do, would I do six months? Or would I do... I wouldn't do six months just 'cause that's gonna make your math harder. Okay. We wanna make the math easy Nobody wants that, yes. As possible. I even asked for a calculator before we got started. All right, so, we're gonna determine the initial sales goal. So, what to consider when you're setting these goals. First, what's the size of the audience you have access to? Let's be realistic. What's the size of the audience you have access to? You're not gonna sell a thousand of something if your audience is 500. So, don't try. Make sure this makes sense for where you're at. Now, I could give you all sorts of guidelines, and the answer is it always depends on what kind of business you have. But, you know, if you haven't been in business for a while, start small. If you have been in business for a while, you've got some information here. Set realistic sales goals. 'Cause it'll serve you better in the end. You'll be able to see more where you need to tweak your business model. All right. Is my audience used to buying this type of product? In other words, is this something that's brand new to them? Is it something that's brand new to my business? Is it something that's brand new to the market? Or is this old hat? Is this really comfortable? Is this really just normal for them? It's much harder to sell a brand new kind of product. Like, Shana's launching this post natal coaching, not post natal, pre-natal coaching, that is a fairly new kind of service. She's not very aware of a lot of other people doing, you know, similar offers. And so, you need to pick a sales goal that makes sense in terms of this being a new product. You gotta do a lot more marketing to make this make sense. Okay? How much time and hustle, speaking of which, am I willing to devote to its sales process? How much time and hustle am I willing to devote to this product's sales process? You know, maybe this is a product that it's evergreen, you're glad you have it in the collection. You know, maybe it's something that you've created a limited edition of or, you know, it's just something you've got sitting around and you're happy to sell it. But you don't wanna put a lot of time and energy into it. That's fine. Make sure you're realistic about that with yourself too. Do a gut check. Or maybe this is your end all, be all product. This is your dream collection. This is your, this is, you know, the commission to end all commissions. And so, you're willing to put tons of time and energy and hustle into selling that product. All right? So, consider that as well. What's a reasonable conversion rate for this kind of product? What's a reasonable conversion rate for this kind of product? Look at your own numbers first. Don't ask me what you should expect. If you don't have your own numbers, this is something that you'll learn over time. All right? Every business is different. Conversion rate simply means, how many people have to look at this product before it gets bought. All right? So, for instance, a really common information marketing conversion rate is about 3%, which means that if a hundred people look at a sales page for a product, three people are going to buy it. All right? So, your experience may be different. You may have a much higher conversion rate than that. I really, I shoot for seven, for instance. So, if I get a 7% conversion rate, I need to get a hundred people to look at the product to get seven people to buy it. Your conversion rate might be 1%. It might be 50%, depending on the kind of business you have and the kind of people that are looking at that sales page or looking at that product description. So, use your own data. You can find this kind of stuff in, you know, in your Google Analytics system. And there's lots of different places, lots of different resources you can find online to help you figure this out. If it's not something that you know off the top of your head. But use your own data, and figure out what a reasonable conversion rate is that you can expect for this type of product. Because that's gonna help you turn your audience into a sales goal. Your audience number into a sales goal. And how many can I sell without going crazy? That's what we were talking about with Tiffany earlier. How many of these earrings, how many of these quilts, how many of these hand knitted scarves, how many of these coaching sessions, how many of these mastermind packages can I sell without going crazy? Goes back to energetic cost as well. So, don't set a sales goal. Like, Tiffany doesn't wanna sell a thousand earrings if it would make her go crazy to sell five hundred. Right? Yeah. So, be realistic in that way when you're setting your per unit goals as well. Now, we're still on the spreadsheet. Multiply the price by the sales goal for each product. So, you take this column. You multiply it by this column. And you get this column. That's your sales goal dollar amount. All right? So, if your price is $ and your sales goal is to sell a hundred of them, you make $1,000. That's your sales goal in dollar form. All right? Next is easy. No more multiplication, now we're doing subtraction. You wanna subtract your hard costs. Subtract your hard costs. So, are your hard costs labor? Labor, materials, overhead, other amounts that you need to invest. So, you can figure out what your hard costs are even for a service by considering how many, what your sales goal is, and how much it would cost you to deliver that much of that service. All right? So, if you need to, if you need to get five calls transcribed because your goal is to sell five of these calls, then you know, all right, that's gonna be x dollar amount because that's how much it costs to get five calls transcribed. Make sense? Brianna. Yeah, so, in the costs, do you include... Okay, so, I understand net cost. That's more of, like, a marketing cost, right? Like, your time to market the service and then how much of that turns into a sale. But what about, like, your own salary cost? Is that also... So, for your business, because you're gonna be drawing a salary, you definitely wanna consider that. Okay. So, and you may need to consider that more on an overall aspect than on a... Program. Program by program basis. But, inevitably, you would have costs that are involved with different kinds of programs. So, like, yesterday we were talking about online video. So, there's a production cost for that online video. Or maybe for the small groups, there's rental fees. Like, you need to rent a room in a school to do that small group. And so, that would be a fee that you'd associate with that line item in your business model. And then, you would also, as you start to figure out that big number, which is, you know, your gross revenue, then you can subtract those other hard costs that you can't really assign to individual line items. Okay. Okay? All right. Now, when you do that, you get your net revenue. Oh, I'm sorry. You get your net revenue. So, you enter your costs in this column and subtract that from your sales goal to get your net revenue. All right? Now, we're going vertical. All right? We've been going horizontal. Now we're going vertical. You wanna add up all of your sales goals together or all of your net revenue together. And the question is, have you reached your total revenue goal? Either per month or per year. All right? So, it's cost per piece times the sales goal numbers. The costs column. Yes, I think so. It depends on how you've done it. But that sounds right.

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