The formula for profit is simple: make more than your costs. It's not hard to think about. Just like losing weight is pretty simple to think about: eat less than the calories you burn. Right? The math on both of these things is pretty simple.
The formulas aren't the hard part
When you look at companies that fail, and when you read articles that sum up all the reasons that they fail, you often see one item on every list. Sure, there are tons of reasons, but the underlying dynamic is all the same.
- Whether the market wasn't big enough.
- Or if the pricing was wrong.
- Or if they're marketing approach failed.
- Or whatever.
The simple reality was that they cost more than they made.
But let's be honest, it's not the fault of a fundamental misunderstanding of a formula. We get the formula. It's not the hard part.
The hard part is tracking data. Understanding it. And then reacting—even when it's emotionally hard to make certain decisions.
Pricing is where our insecurities show up
If you are insecure at all, even if you're mostly not insecure, the place where it will mess with you the most is when you're setting a price.
I don't care if you're selling your own services, or trying to price a product you've created. The bottom line is that we know our faults and failures, even when no one else does.
And that knowledge often gets in our way of determining a price.
There's always some jerk out there who will tell us our product or service is too expensive. They'll make the case, either by picking on you, or by explaining that they don't have enough money. They may even tell you how you should make your money (like, “You should make your revenue from mass sales. Not by charging me so much.”)
And we believe them.
Even if we hear other people tell us that we should raise our prices. We ignore those voices. Because they don't echo as strongly as our internal insecurities.
So as a result, we price too low.
Everyone does it. Or at least, anyone who has an ounce of insecurity.
Because pricing is where our insecurities show up.
There's a story…
There's a story that I heard when I was a kid, and have heard it several times since.
A man is heading on a path that is known to be kind of dangerous. He falls prey to folks who attack and take all his stuff, and he's left on the side of the road—injured and bloody. One man walks past him, and then another. And these are upstanding folks who you might have thought would stop to help. Finally, some dude who looks and sounds like he won't stop, not the kind of guy you hear as a hero in any story, that guy stops. And puts him on his horse and takes him to an inn close by. He pays for the guy's stay, and for food and any additional meds he needs until he returns from his trip.
When you hear the story, because it's one about generosity, the person telling it normally says, “will you be like that last guy?”
I'm a huge fan of generosity. It is a core value of mine. It is part of our family's code of conduct. Lemas are generous: You can ask my wife, my kids, or people who know us.
But when I hear the story, and if I tell the story, I don't inquire as to whether you'll be like the last guy. I think that's the wrong question. I don't even pick on the first two folks who don't stop to help.
No, my question is more core. More elemental.
How would the third guy have helped if he didn't have the excess in his pocket to pay for all those things?
What could he have done if his schedule couldn't accommodate the time it took for him to do those things?
You won't help anyone if you're broke
We all want to help. In the WordPress community, where I spend a lot of time, we talk about giving back.
The community is incredibly generous. But the truth is, not everyone can afford to be generous.
You can't be generous if you have no excess.
I'm not just talking about money.
You need to have free time. You need to have some extra money if you want to invest. You need to have the resources if you plan to share.
If you don't have it, you can't share it.
I know it's simple and silly.
But the simple truth is really simple: you can't help anyone if you're broke.
Even if you want to. Even if you hope to. Even if you know to.
So what can you do?
I can't give you a formula. It is never as simple as writing some quick phrase down.
- Spend less.
- Raise your rates.
- Save some money.
- Create margin in your life.
All of these are true. They're all useful. But the reality is that it's easy for our insecurities to challenge us when we're pricing our products and services, and so we don't push the price up to have a bit of margin.
I get that.
So let me simply say this. Because it's helped me. And maybe it will help you.
When I stress about pricing, it's normally because my eyes are focused on me. That's when the insecurity hits. I'm aware of my issues. I'm looking at me and my situation.
But when I want to be generous, I'm looking at others. How I can help them. How I can serve them. How I can have an impact. I'm not looking at me.
Insecurities hit me hardest when my focus is on myself.
So because I know this to be true, when it comes to pricing, I gather some folks to help me, to get their insights, and I listen to their take, so that my focus gets off of myself.
That's all I know and all I can share, and I hope it helps.
Because, and you know where I'm going, you can't help anyone if you're broke.