SPEAKER_00 0:00

But they usually understand, okay, yeah, I'm getting a good value from this service or this person or this product. So the increase is warranted. That makes sense, right? Um, I feel like you have the most issues usually with the your with your clients that are typically a little cheaper anyway. Um some of your small jet hero business handout. Let's get into it.

SPEAKER_01 0:26

Let's get into it, guys. Let's get into it.

SPEAKER_00 0:28

Okay, so welcome to uh part two of episode four in our sixth series of Soulpreneur to Enterprise.

SPEAKER_01 0:37

Yes, I'm ready. I'm ready. I know last time we were not able to finish.

SPEAKER_00 0:42

We were not. So we we step we shoved a lot of stuff into um the revenue that scales, which is episode four of this series. So let's get into part two of that, and I guess we'll go ahead and recap. We talked about like trading time for money and the importance of stopping that as a business owner to get to the enterprise level.

SPEAKER_01 1:04

Yeah.

SPEAKER_00 1:05

We also touched on packaging and pricing, but I think that's one area where we probably could give a little extra value in this segment in the part two and kind of deep dive on that.

SPEAKER_01 1:18

I think we can probably pick it up from there, right? From packaging and pricing, because we kind of left it there, and then we can talk about everything else.

SPEAKER_00 1:27

So then let's talk about pricing and packaging and get into the details of that and why that's important. I think in part one, I briefly briefly mentioned how we are helping one of our CFO clients right now with their pricing and packaging. We actually just finished the big project for that, and we did it on a couple different levels because they have different types of clients, right? Different types of customers. Some of those are larger companies, so they're buying at a larger scale. So for those, we have very big discounts for. So that's one pricing package that we did. So we did an analysis, we made sure we still had profitability while also still providing the pricing in range with competitors, so we're not pricing ourselves out of the market. So that was step one. And when we went through, we realized some of the most popular services on that larger scale that we were actually losing money from, right? So I would much rather lose the contract in general than continue losing 5%. Right. Because even though the contract was massive for some of these, um, I guess, retail, what what is that called? When not retail, but the wholesale.

SPEAKER_01 2:38

Yes.

SPEAKER_00 2:39

Wholesale or some of those wholesale deals were really large and merchant deals. And some, yeah, some of those larger, some of those deals were larger and it provided a higher revenue as a whole look of the business, but it's it still was taking away from profit. So even though those packages were increasing our revenue by maybe half a million a year, that could have been decreasing our profit by about 5,000 or 10,000 a year. So ultimately, we would rather give up that 500,000 in revenue if it's going to save us money in our pocket, right?

SPEAKER_01 3:13

That makes sense. Uh I know you on the advisory side of it, you do a lot of advisory CFO sites. And we work with a lot of business that do that they do retail business versus commercial wholesale business like big account. How important is separating those two kind of lines of the business and breaking them apart? And how important is that?

SPEAKER_00 3:43

It's a good question. It's very important, and here's why. One, it's important to kind of analyze the profitability on your retail versus wholesale side because sometimes you may find, okay, look, I'm not being profitable in this area. And then that gives you a chance to revamp and give new prices. Because obviously your wholesale and your retail clients are not going to pay the same price. The wholesale to stay competitive in that industry, in that area, you have to make sure you have competitive pricing, right? Because usually places are going to give them a bulk discount, um, some kind of deal with them. But that being said, you have to also be profitable. Like I was saying, you know, you would rather not add half a million in revenue if it's going to take away 10,000 from your profit.

SPEAKER_01 4:29

That makes sense. I kind of feel a lot of businesses or a lot of clients, sometimes they get the first big commercial client or commercial contract, and they love that thing because they know like that's a lot of money that comes in.

SPEAKER_00 4:43

However, are you keeping that money?

SPEAKER_01 4:46

That's a good point.

SPEAKER_00 4:47

Or are you having to pay such high commissions or such high cost of goods? You know, and you have to think about opportunity costs with that as well. Yeah. So if your retail is like 60% profitability and then your wholesale is like a 15% profitability ratio, then does it make sense for you to continue taking on wholesale clients? Probably not. It should probably focus on the retail. Or you can revamp your pricing, which is why having uh accurate pricing and understanding of your pricing is so important.

SPEAKER_01 5:15

That's my sense. Yeah, I actually uh I know in the future we are going to be bringing here business owners and kind of diving into the business and providing those supports, but uh but I actually uh was talking to somebody the other day about about those things. You know, they have commercial business, they have residential business, and then they open in another location and and all of that fun stuff, and there is a lot of stuff uh going on in there. Uh, what do you find are the main mistakes that businesses as they grow and they start picking up commercial clients or bigger accounts, accounts that pay them every month? Uh, what is the main issue that that you some that you sometimes see? And what is the main difference between retail and commercial? Are they usually making more money on the commercial side of it or the retailer side of it? And are these service industry versus product-based industry?

SPEAKER_00 6:20

Okay, no, that's a lot in one question, but okay, let's dive into it. So I think some of the biggest mistakes that I see on businesses taking on more of the commercial or wholesale is number one is pricing, right? Because like you're giving them a lot of times a massive discount, and a lot of times you don't realize that you're losing money until later. And sometimes it does take a couple, taking on a couple of those jobs to lose money for you to realize and be able to deep dive into the pricing analysis. But I would encourage you to do so beforehand. And to do that, you would just need to estimate like how much product you're gonna need to do the job, like what your labor expenses are going to be, um, etc. And also a thing to consider is if a lot of times commercial jobs take much longer because it's a bigger job, right? So something to consider is if I take this on, will I be losing money from my retail side, right? Or do I have a different um team member who can do the commercial, right? And kind of focus on that, who keeps it efficient and and keeps your retail side flowing as well. So you don't want to take away from that potential. And I guess we would call that opportunity cost.

SPEAKER_01 7:32

That makes sense.

SPEAKER_00 7:33

So that would be one thing to consider um along with just the overall pricing to make sure you're pricing yourself appropriately.

SPEAKER_01 7:40

That makes sense.

SPEAKER_00 7:41

And you say go ahead.

SPEAKER_01 7:43

Uh you said something really important to have these calculations done before picking up, before giving an estimate and offer to them, because usually what happens is once you start a relationship with somebody, it's really hard to update or break that relationship or update the engagement, and then this decision may be dragging with you for a year, two years before you can just come up to the client up front.

SPEAKER_00 8:15

So yeah, that's a great point. So I always say to, you know, that definitely double check and make sure you know your numbers to say, okay, here's the absolute lowest we can take the job for. And then so having that number in mind if you want to bid on the job, but also saying, here's the number that it keeps us profitable, like 30 plus percent to charge for that project, and then also have your bottom line number if that makes sense.

SPEAKER_01 8:43

One last question about that before we we jump. Yeah, we jump to a next topic. Does it usually the commercial side bring efficiencies that you pass along, that you can pass along to the commercial, to the commercial clients via a discount? Does that bring efficiencies?

SPEAKER_00 9:00

Yeah. So so it does. So for example, say that um say you're a donut shop, right? And then you have a larger order of like, say, a thousand donuts, and they're all like the strawberry. So that that makes it easier. So you know, okay, we have a thousand of these coming in, we can ice them all strawberry, right? So it makes it like in in one swoop rather than having to say, okay, 400 needs to be strawberry, there's 300 that are chocolate, etc. So things like that can call like create efficiencies and therefore like discounts for um for the larger deals and clients. Um, the only thing there is it does take time for efficiencies to you know.

SPEAKER_01 9:43

That makes sense. That makes sense. Yeah, I I always find it impressive how restaurants they have catering business and they're able to get these huge catering orders and they put it out there, and they have people going out and trying to get these catering orders for sure. So uh I know in our in our side there is different like uh packaging structure for our services and pricing. So and we have kind of messed around with all of them. We have we have the product types services. Well, you know, we have a service, we make the product, we sell it as a as a flat fee, we have kind of a tier pricing structure sometimes for clients that want more hands-on level. Sometimes we do just flat raise offers. Um, what do you think is the best you know, packaging structures before you for a business and for what type of business? Like what do you think? And then for each stages, I kind of feel when the whenever the business goes through stages, that is different pricing and structures are kind of just what?

SPEAKER_00 10:57

Yes, I mean that's a great question. It depends on the business, right? So if there's a business that's offering like a product, right, that it there's not really you can't really do, I guess you did you could do subscription based or a lot of like subscription-based shampoos out there now that have that as a right, like as an option rather than just buying it individually. And I think that all goes into just like having a big pricing analysis to make decisions based on that. So for things like an actual product that you're producing, first you want to know how much it's costing you to produce it, any shipping, etc. that needs to go in with that, any um credit card fees that you have to pay for for the purchases, um, of course, your labor, and then just having your overhead knowledge as well. So that's how you would price that product. And again, like you mentioned for an actual product, you could make a subscription model, like the shampoo place, the shampoo that you can order each month, but you would still need that pricing data to say, okay, what kind of discount can we give for a pro for a subscription, like what what pricing needs to be for that versus like buy the product?

SPEAKER_01 12:05

That makes sense.

SPEAKER_00 12:05

So that's on a product basis, and number two would be on the service side. And from there you do the same thing essentially, except there's less of like the actual cost of good. It's more of your people or any softwares you have to have in order to complete the service. And so then that being said, you would do a pricing analysis on that, and you could decide, okay, does it make sense to say monthly? So, say for us, say you're doing advisory accounting for a thousand dollars a month, how much time does that take my people to complete it? And what's their typical hourly rate, assuming that we still are having some profitability from that?

SPEAKER_01 12:39

That makes sense. So, for a service-based business, what do you think is the best pricing, packaging, the best packaging pricing for a service-based business?

SPEAKER_00 12:49

And I guess it depends on what kind of service too. And again, every business is different, so it depends on what they're trying to provide to their client or to their customer.

SPEAKER_01 12:57

I say I'm just I'm selling a straight time. Like, you know, sometimes as a CPFM we sell time. Sometimes when I would go out at uh, you know, a construction business, the can't force of selling time. I guess they're selling that.

SPEAKER_00 13:11

So so for construction, that's it's gonna be a little more complex because you have your cost of goods plus your PPL time. Yeah. And on those, I tell clients, you know, the best the best pricing for that is to say estimate your hours, right? And then you'll multipl multiply that by an hourly rate that you would charge per employee.

SPEAKER_01 13:32

Yeah.

SPEAKER_00 13:32

As well as your cost of goods.

SPEAKER_01 13:34

That makes sense.

SPEAKER_00 13:35

So adding those in together.

SPEAKER_01 13:36

What do you think about billing hours, billable hours? Yes. Hourly billing. Yeah, for sure. Do you think it's worth full time or it just eventually breaks? What do you think about it?

SPEAKER_00 13:46

No, I think the hourly billing usually ends up being the best, I guess, in more of the services, um, especially like CPA and like um attorneys, things like that. And the reason why is want to incentivize the people, right? So like the CPA or the attorney to give you the best quality work. So they're not rushed. Sometimes those monthly packages, people can feel like they're not getting much um value on the attorney or CPA side, right? Because to them they're like, okay, this is our monthly fee already. So now you have incentivized to work a little harder and kind of understand the your your client a little better, I think, right?

SPEAKER_01 14:29

Yeah.

SPEAKER_00 14:30

I mean, I don't know. What what do you think about that? About I agree. F from from being a CPA or an attorney, a person doing the service.

SPEAKER_01 14:38

I agree. Uh the fees pricing, the fees package kind of puts you at the stand at the standstill because you're still thinking about the billable hours, and like, man, I sold this package for $800, but I'm I I have to do it.

SPEAKER_00 14:53

Are you spending more hours?

SPEAKER_01 14:55

More hours. So uh, but it it is what it is. A quick question about that. Always about billable hours and people that do stuff for hourly. I like to look at lawyers, uh, law firms as the standard. Do you think law firms have to change their billing? The way they do it, you know, they have a retainer, always. They have a deposit. Yeah. Then they have distress accounts, they build everything by the hour, they send a monthly invoice. Do you think yes?

SPEAKER_00 15:28

And like, well, and I'll tell you, so and I did this for a living, right? So I so I did like accounting and billing work for a law firm before. So I'll tell you how it works for them. Like, yes, they do, and it works really, really well to do hourly billing. Like I told you, the benefit for the CPA or the attorney is that they actually see that they're providing value and they feel like their time that they're spending is actually worth it, right? So like the the win-win is that. And then also on the client side, you're only paying for the work that you receive, right? So you're not paying an X amount per month for some some months where you're not, you know, you're not asking many questions. You you don't need as much support, maybe. So like that could be a cheaper month for you. And I feel like then bigger projects, you're getting the attention and time detail from like your CPA or attorney that you should and that you deserve for that project for that time duration.

SPEAKER_01 16:21

Perfect.

SPEAKER_00 16:22

So then that being said, there's definitely value on both sides for the for the hourly pricing or the hourly rate versus a package. There are benefits to packages too, but again, then this what we're talking about is we're for focusing on the out the billable hourly rate.

SPEAKER_01 16:39

So do do you think lawyers, law firms should not change the way they do billing or the way they're I think they should not.

SPEAKER_00 16:47

However, I've seen where they have to, so let's continue on that point. They will send a big bill to a client, right? And a client doesn't like being billed for research or being billed for certain things, so then it ends up being a write-off. So then the attorney will write off certain, you know, certain hours, which which can be frustrating or annoying to that attorney or the CPA who maybe put time and effort in on that. But again, that's where having really strong like SOPs and like processes and engagement letters with your clients, I think, will help support that and say, hey, you are paying for research if it's specific to your case or specific to like a certain thing that you're wanting us to work on, right?

SPEAKER_01 17:29

Interesting.

SPEAKER_00 17:30

So I think I think having better like guidelines for that would help eliminate those. But I will say, in my experience, there have been deals where they would have a certain X amount of dollar to handle certain services. Does that make sense? Or certain uh cases.

SPEAKER_01 17:47

So like, hey, don't don't spend any more money than this.

SPEAKER_00 17:51

Yes, pretty much. Or or they would just say, hey, look, um, we're going to handle this case for $5,000 a month for seven months.

SPEAKER_01 17:58

What do you think about uh I know whenever people talk about billable hours, they also talk about value add uh billing. You know, just be all a percentage based on the value you brought to the client. I know sometimes some law firms kind of have the same saying it's like, hey, like you only pay if we if we win. Is that true? Or what do you think about this value add? And then how other people in other services industry can implement those value add prices. I'm like, hey, I'm saving you uh a hundred thousand dollars.

SPEAKER_00 18:35

Yeah. So I I've seen that done on tax strategies, like we like you're saying right now, and I've seen it done like for law firms too. Um and honestly, I I like I see a benefit of that, and I see like, okay, it's gonna incentivize like your attorney to win the case, or it's gonna incentivize your CPA to like save you more money in taxes. But I also see some issues that you run into there. Okay. Um, one of the issues, I guess, on the like CPA side that I would see it would maybe it benefits the CPA to kind of go too much in the gray area that may, you know, spark an audit.

SPEAKER_01 19:12

That makes sense.

SPEAKER_00 19:13

I can see that or or cause some issues for you later on. Um on the attorney side, the issue that I see is you know, I think if the attorney feels like there's a chance that you could lose the case, then I think they're gonna spend less time and effort on it because they know they're not going to get paid.

SPEAKER_01 19:31

That makes sense.

SPEAKER_00 19:31

So instead of giving you a fighting chance, it you might completely um have that case thrown in.

SPEAKER_01 19:38

That makes sense. Yeah, I feel like uh we should talk about some big news pricing instances because something I remember, I think back in 2022, an article that came that came up was the lawsuit about Elon Musk compensation. And I think the lawyers got the percentage and got paid like $2 billion, or that was going to be Delphi. Sometimes that was some uh that was something. Uh some lawsuit about like, man, why the law firm gets two billion dollars out of this?

SPEAKER_00 20:16

Yeah.

SPEAKER_01 20:17

So I think that might be an extreme, but that's interesting.

SPEAKER_00 20:20

Yeah, that and that's another the value add. And a lot of people that you see all of these like massive lawsuits, like these mass class actions, right? Yeah. And then you notice like if you if anyone else else has ever like signed up to be a part of it, you get like 50 cents or something from like a 200 million dollar like class action, right? And you'll see that oh, we were awarded 200 million dollars. Well, the attorney fees are a lot of times they'll say, Hey, here's the base fee, and then we also get X percentage of the claim, right?

SPEAKER_01 20:52

Yeah.

SPEAKER_00 20:52

So like the base fee is gonna be like in a couple like hourly and like various rates. So usually maybe that's 10 grand, maybe it's 50 grand. And then on top of that, it will be also 30 percent or 50 percent, usually around 30, I think, of the class action.

SPEAKER_01 21:08

Yeah, and you always see these movies about like this real story about loyal making a ton of money, you know, and they're fighting for the case and making a lot of money. They help a lot of people, no, they do, for sure. But they also make a lot of money out of it. So, but do you think the standard is kind of law firms? I kind of feel law firms have the best pricing struggle. I feel every service business should look up at the law firms. Do you agree or do you think there is any other industry?

SPEAKER_00 21:40

No, I agree, and I will say also something interesting that you don't see in most businesses, but that you see a lot in law firms, is a pricing team.

SPEAKER_01 21:50

Really? Yes.

SPEAKER_00 21:51

So at law firms, there's you there's an there's actually a a portion, so like there's in a pricing department.

SPEAKER_01 21:58

Yeah.

SPEAKER_00 21:58

And that pricing department kind of crosses over marketing and um accounting. So I worked on the pricing team for a short time there. And for that, that you completely do all of the pricing. So not only do you every single year analyze every rate in the entire firm and every person's hourly rate to ensure profitability, but you also analyze any the all of the cases and say, okay, this case, you know, we spent X amount of time on, we had to write off, we had all these fees, we had to do all of these filings and every filing costs money, right?

SPEAKER_01 22:35

That makes sense.

SPEAKER_00 22:36

So you would analyze that in full and say okay here was our true profitability on this case.

SPEAKER_01 22:42

Okay.

SPEAKER_00 22:44

And then that helps for determining future cases and giving budgets and pricing for your um other cases. So like for example when a client would come on and they're like hey here's this case we could then look up and say okay let's see other cases that we did similar to this we can give them a good quote and sometimes that's where you see and you're like okay hey this is a really this case was not very profitable for us. So instead let's try different billing structure which would be like a monthly fee right because maybe the case is like a case that drags on for like five or six years, right? And in that case some months are going to be really stagnant where you don't have a lot of work but that's still like on your case list. So like say it because it's still impacting the capacity of the attorneys or paralegals working on there. So that being said you want to still make money that month even it's if it's going to be a lighter workload because you know you have to save those people for the next month's workload is going to be heavy, right? That makes sense. So you can't add more cases to their workload. So then you say okay we're going to charge them say the whole thing was like 200,000 last time. So then we're going to charge them you know that broken out into monthly and then you continue making money each month that it drags out. But then it's also good for the client because then they know their stuff's being prioritized and not let left on the side right yeah.

SPEAKER_01 24:10

How do lawyers go about saying hey my I'm worth $2,000 an hour or I'm worth a thousand dollars an hour. How do they decide that number?

SPEAKER_00 24:21

So that's that's the pricing team. And and I will say so the pricing team goes through and does it's a profitability analysis right which a lot of times you know there's a there's usually like a set price you say okay the partners at this firm bill at $1,000 an hour the senior associates bill at $700 associates $500 junior associates $300 paralegals $200 right so like that's how you kind of have you have a baseline but then every attorney might be a little different and they're each on their own billable hourly rate based on like the service and the value they provide and their expertise. So for example at the firm I worked at there were a couple of like very high profile I'm calling them high profile just like they they were in like the top 100 attorneys in the world like they were like very elite attorneys. So obviously their price is going to be quite different than a regular partner right these people have their expertise is in this field. So if you want them to work and be your attorney I mean they're the best in the business right then you need to pay that higher rate.

SPEAKER_01 25:26

And they decide that because of what people are willing to take like if they have two cases I'm like hey my time is emerald like who's going to pay me more hourly or how do they I mean not necessarily I think they they I mean there's uh in that case there were a lot of attorneys you know but but they definitely were capacity based.

SPEAKER_00 25:43

So they had a very high billable rates and then when the client would come to them they would say hey um they would have engagement letters yeah and that would break down the pricing for everything and say hey here client here's this if you agree to this you sign and we sign and then we go and take you on.

SPEAKER_01 26:00

I I guess and then if a lawyer starts getting too busy and nobody can replay what he does, they just increase his hourly rate.

SPEAKER_00 26:10

I mean yes but but we haven't we never really had that um problem where it was like hey we're gonna increase in the middle of the year unless there was a promotion. But more so it would be a standard rate for the entire year. Interesting and then I mean I never saw a time where we did increase like which you could definitely can increase if you feel like there's the the value add is so strong that they're being flooded with clients but that really wasn't the case if we'd ever had that instance.

SPEAKER_01 26:38

So you just slowly increase it every GLM they take it they take it.

SPEAKER_00 26:43

Yeah and and we would have times where people would um not want to pay the increased hourly rate and then that was up to the partner who had the relationship to decide okay are we going to and typically how that conversation would go is we would provide them a report and say hey here's the profitability from last year based on the this work and here's our estimated new profitability based on like keeping the old prices versus with the new prices.

SPEAKER_01 27:12

Very fair.

SPEAKER_00 27:12

Because I mean every everyone's salary gets raised every year too so that means our expenses are also increasing. So the profitability is decreasing if we keep it at the same hourly rate.

SPEAKER_01 27:23

Interesting.

SPEAKER_00 27:23

But sometimes the work the workload was so hot heavy and high that we were still profitable enough to keep the old rates.

SPEAKER_01 27:31

That makes sense that makes sense that that is so interesting.

SPEAKER_00 27:34

That is a lot of that's why it's yeah it's important to have more of a project based accounting to understand for services because every client's going to be different. So you can kind of understand that. Yeah but having a base level too is important to say okay this is our base hourly this is our base package price just so you have a standard and then if you need to do kind of special modifications for certain clients I think that it's uh definitely available to so how do you go about uh raising prices?

SPEAKER_01 28:06

Like do we have to change improving system or like how do you communicate that or what is the best way to communicate a price increases?

SPEAKER_00 28:15

Yeah so I think first I mean obviously during the pricing analysis you want to kind of know and learn your like um elasticity of pricing so that that's like the how can like how um are your clients going to react to the pricing increase and how much can you actually increase um obviously one you want to make sure you're profitable but two you want to do some market research to make sure that you're not pricing yourself out of the market and overcharging your clients for the work that you're going to be doing. The next step after you decide the pricing for each client to communicate that increase it depends on your relationship with your client. If it's a client like one of our CFO clients who I meet with all the time I definitely would make sure to have a face-to-face meeting with them. And during that meeting I would go over any changes and say hey look we're increasing your price because of X, Y, and Z. Maybe it it was that they were a client when I first started my firm and now that I understand pricing better and I know what our worth is now I can say hey look we were giving you this price for a year and a half now this was way under market. This is you know we gave you this huge discount compared to what we're charging other people. So now we're going to increase it. And maybe it's that you meet them in the middle and say hey we'll do a slow increase or we'll still give you a discount. So say for example say I'm charging a client $500 a month but I should be charging them a thousand. So maybe it's that I give them a slow increase to like $100 a month and then continue on just to keep that relationship. But also you don't want to give them $700 if you're still going to be losing money. Does that make sense?

SPEAKER_01 29:52

That makes sense yeah and communication is kindness. Yes you know and that is that you have to communicate it but also you have to respect yourself like hey this is one more time it's worth exactly we're losing money on you all of that so for sure that sounds a really good way to communicate it and that's why it's so important to have people working on those stuff on those pricing to have admin operation teams that can facilitate those those communications like what about uh usually with price increases which clients are okay with it which clients are not okay with it and and you know what what do you do with clients that are not okay with it?

SPEAKER_00 30:32

Yeah that's a good question. So in my experience usually the clients or the customers who see the value add from you like from working with you they they usually understand and welcome a price increase. I mean obviously no one wants to pay more right but they usually understand okay yeah I'm getting a good value from this service or this person or this product so the increase is warranted that makes sense right um I feel like you have the most issues usually with your with your clients that are typically a little cheaper anyway. Some of your smaller clients are usually the ones you see issues with and that that being said if they're not willing to pay your rate I mean you can't lose money on people continuously sometimes you can if it's like a potential for a bigger client or potential to bring on more work that's another conversation that we can have later. I'm happy to chat with you guys individually about that too about when that makes sense but that's kind of more of a business development or marketing decision and that's kind of why that pricing team at some of the law firms kind of report to marketing and accounting because there's some kind of flow through those.

SPEAKER_01 31:39

With that being said uh that that was pretty good. Uh something that happened to me and I feel a lot of business owners go through this at the beginning is that they uh uh put pricing from insecurity so they just underpriced because of insecurity because of lack of lack of security like hey it's my first GL in business I need to have clients let me have the clients and then come off the hard work of increasing them and also with price increases something I struggled with is about that oh I'm I'm afraid that clients will leave what is your advice you know for business owners that that that struggle with those things like you know I'm underpricing because I'm not confident of the value they are not confident of the value they provide or they don't want to raise prices because they are afraid to lose their clients what do you advise to those type of business owners no great question and like you said we're going through that right now we both underpriced ourselves and our work and our company when we first started yeah so now we're having to revalue which honestly for us it was a good thing so we were able to see okay now we have that data to know how much time it takes us and how much it costs us to do this work.

SPEAKER_00 33:03

So now we can provide accurate pricing for everyone.

SPEAKER_01 33:06

I think it's paying your dues.

SPEAKER_00 33:08

It is it's it's a part of it. It's part of paying your dues like you said. So um but my advice would be first I think you need to analyze what your time is actually worth and make sure you know what your pricing should be. And I think understanding that will give you a lot of confidence and clarity going into price a client and meet with a client. I understand like the you know being afraid to increase and lose a client because I I'm in the same boat but I do think you have to know your worth and to make sure your business stays profitable or gets profitable you have to make sure you're providing good pricing for your for your clients and it's not fair to your clients either to be on the bottom of your list because they're not paying what you're worth. Right. So you have to consider that it's actually valuable for you and for them having that price increase so that they're getting the best of you.

SPEAKER_01 34:00

That makes sense yes and then with those clients at the bottom of the list they're not going to be happy because they're not getting the best service and then that can dilute the brand and I think the way the way I do it in my mental in my mental mind is like okay which clans I care about which clans I don't care about the clients I don't care about like you know I'm okay with our usually those going at the bottom we lose money we don't like I don't like working with them and everybody have those. Yeah absolutely and then and then the other thing is uh the clients you care about I'm like hey I think it's kind of easy to communicate it and just stand your ground and understand like your time is valuable. Once you grow to a level where you have employees I'm like hey I gotta do this. And I gotta I have to do this for my employees my employees need need need bonuses need a threshold the only way to do this is keeping this staff and profitable and it's just the way you start thinking more about your employees your your business your enterprise versus just just and and and just you so but everybody goes through that the the thing is just to take ownership in that and and go and go through it. So I guess how will you summarize this whole session about pricing? What what would you say?

SPEAKER_00 35:26

So definitely having the data so knowing if you're losing money or not which you can know that by doing a big pricing project like so that those are things that we specialize in. We can help you figure out what your best pricing should be definitely understanding the difference of your wholesale and your retail pricing if that's an option yeah um knowing how you're going to structure how you're going to charge clients. So is it going to be an hourly basis are you going to have an hourly option are you going to base it on packages and also do you know how many hours and expectations should be associated with the packages I think having that good communication like we've talked about that communication for the client say hey look I'm gonna we're going to charge you hourly or we're going to put you in a package and with that package you get X, Y, and Z.

SPEAKER_01 36:15

Perfect. I I agree with you and I feel like what people need to take out of this and I feel like what a it is that if you panic every time somebody pushes back on prices, you probably don't believe in your value yet you know exactly that that that's good stuff. Yes I agree I agree. So let me ask you one last question about this. So you do a great job for our clients with these pricing studies and profit and profitability studies. So but how do you sell or how do you communicate the importance over to clients that don't know it because you know about all of this because you all in the business are when do people or businesses start realizing how important is a study like that and then how do you sell how do you sell to people what they don't know they need yet but they need it. How do you sell that?

SPEAKER_00 37:13

That's a good those are all good questions wrapped up into one big question. So the first part of your question is um how to show them that they need the pricing. So the way the pricing has started so the way to do that is honestly best by looking at the PL. So if you see that you're constantly making money and maybe maybe each month you're making more money but your profitability is not changing or it's getting lower each month, that's a good indicator that hey something's wrong. The pricing is not correct that there has to be something going on. Another way is just you can do a sampler is what I call it is taking a couple random services or a couple random products that you have and kind of saying okay this is what we charge for them. Here's our average cost of goods for the product and here's some overhead um factoring that stuff in into a quick excel sheet and you can kind of see your profitability percentage. That's just a quick easy way without diving into the details and then I always say like if you're seeing less than like 25-30% profitability then you probably need to take another step and kind of dive deeper into all of your services and products and do a a deeper analysis to check that profitability and that's when you can start thinking about a price increase.

SPEAKER_01 38:28

I got it and this is the last thing I will say a lot of businesses don't know what is overhead and don't know how to calculate overhead. If you don't know what is that and you need help with that and the pricing, reach out to our sponsors White Glove CPAs that we love to say to figure out what is the overhead because everybody knows the cost of good soul and they like to tell yeah I made $10,000 on that project but they don't know what is the overhead of running of running their business. So awesome that was pretty good. So I guess now we can move to the next segment in here that's all about uh predictable revenue I guess uh what I would say is predictive revenue is so important you know predictivity creates power power and something I tell everybody is to always be proactive instead of reactive the best thing is to know and you and have confidence that next month you are going to make 100k instead of just expecting to make 100k and get by the end of the month. I think uh definitely to be able to go from solopreneur to entrepreneur to an enterprise it's really important to have predictable revenue. Yes you need to know what's going to happen next month for sure so how do you what is what are the easiest way to have predictable revenue and what type of revenues and I think it also depends I guess revenue is cash flow so how do you predict cash flow for your business and revenue and stuff like that what are the best way to go about it so the first step is always to everyone should have like you said being proactive every business owner should have a forecast and budget combo.

SPEAKER_00 40:16

So what that is is it's I like to say the role next rolling 12 months if possible or at least like the rest of this year and then maybe have next year like slight projections in um so the way you do that is you can factor in different types of revenue like for example for us we have MRR so that's monthly recurring revenue so every month we know that that's a that's how much money is going to come in and then you also can factor in any other projects or things like that that you're going um after from there.

SPEAKER_01 40:47

I agree about MRR I know that that is a real key what percentage of of MRR do you think should be in a in a service b in a service business to have predictable revenue and then yeah what what percentage do you think should have and how do you how what is the right balance between MRR and one time projects one time fees and more for a service based business that you just sell in time and then and I guess we get back into pricing and packages what is what is the sweetest spot in there?

SPEAKER_00 41:24

So I definitely would say close to that like 70 to 80% of your revenue you want as the reoccurring and here's why I mean yes it's nice to kind of have those one-off projects that may like kind of float your or you know provide a massive increase to your revenue but for stability purposes and for longevity you really want to have that MRR um is pretty high in your revenue because you don't want to your business relying on random miscellaneous projects or work that's may come along right you want to rely and and build your business foundationally on your continued money that you can r rely on every single month.

SPEAKER_01 42:02

Yeah.

SPEAKER_00 42:02

Because what happens is is if you start relying on one-time projects if something happens and maybe the person who's getting the business the business development maybe something happens and like they have a big health scare and they're not able to go out and get the business or maybe the people who is working on the team maybe something happens maybe a natural disaster happens right and that impacts um everyone's computers for two weeks. That makes sense because then then what happens you can't do any billable work you can't do any random miscellaneous work right you can always catch up on your MRR work because you know it's reoccurring every single month.

SPEAKER_01 42:37

What happened with businesses that don't have MRR let's think about like law firms do they have monthly recurrence revenue?

SPEAKER_00 42:43

Some of them do it depends on how their billing structure is right and like they they may have a combination of them to say hey this case we're billing monthly on X, Y, and z, right? And maybe this case is hourly so I think I think they can have a combination um but I do think businesses who have more of that um I guess the billable hourly rate the the inconsistent revenue so like construction you see that in construction too because they you know they're not working as much or even at all during the winter months a lot of times right so that's when you need to have a really hefty safety net in your bank account to make sure you can cover expenses that's where I see like businesses needing to have that six months of cash on hand are more so those who rely on projects and like random things not necessarily stable monthly reoccurring.

SPEAKER_01 43:38

That makes sense how do law firms usually do how much how much cash do they keep on hand?

SPEAKER_00 43:43

In my experience um I feel like the ones that I've seen they've kept way more than they should on hand. But again usually attorneys a lot of times are very like big preparation right because they they they've seen things go wrong so they're really big on preparation Um that being said, usually six to twelve months is what I've seen.

SPEAKER_01 44:04

Oh wow. And sometimes everybody's pays, panners pay, partner's base pay.

SPEAKER_00 44:09

Yep. That that's full like operating in, you know, in any kind of other expenses that can come up.

SPEAKER_01 44:15

That's cute. I guess having I guess cash is king, but also cash flow is king. Cash is also king, and that brings you a lot of peace of mind. If you know you have six months of expenses, 12 months in expenses in the bank account, and that can also pay the owners, the partners, that also gives you a lot of freedom to like implement new pricing changes without being scared of how it's going to reduce stuff. And then I guess it's also really proactive. It can get you to you know it gives you a lot of security. It provides a lot of security. Yes. So uh but for the new business uh that is kind of unrealistic.

SPEAKER_00 44:58

How do you manage that?

SPEAKER_01 45:01

Do you think that's just an investment that uh uh people should do?

SPEAKER_00 45:06

What do you mean by like you mean invest that much money in the business?

SPEAKER_01 45:08

For example, our situation. Should we keep six months to 12 months in the business bank account?

SPEAKER_00 45:14

I think for us, we we're more comfortable keeping three months because we do have that MRR that takes care of our monthly expenses.

SPEAKER_01 45:21

That's good.

SPEAKER_00 45:22

Um and then another part for us is we have very little over overhead or operating costs. Like most of our costs are directly associated with the work that we provide. So at any moment when our work drops, our direct expenses drop pretty significantly as well.

SPEAKER_01 45:39

Yeah, no, but it's it it all depends on the business partners. What is the business partners go over?

SPEAKER_00 45:43

The hard part on that is getting that six months of three to six months of cash on hand.

SPEAKER_01 45:48

Yeah. Is it if whenever you have a business partners, is it hard to convince the other business partners to do it, or it's just do people have the common sense of like, yeah, we should have three, six months, or how does that work?

SPEAKER_00 46:00

They don't have the common sense, and typically what I've seen, at least from just being at White Glove and working with business partners so often, is usually one partner is more conservative and one is more outland, one of them wants to continue to spend and not keep a lot in the bank account, and usually the other one does. So, in those circumstances, I say look for an advisor, an outsource CFO, someone who can kind of help mitigate that. Definitely a professional who understands that, who you guys can both kind of listen to, and the professional can listen to both of your sides and why you think you should keep money in versus why you should take it out. And that person can act as a middleman. And I think it'll keep your partner relationship a little better too, because then you guys are not constantly fighting over that, and you have an expert who can kind of guide you and set a standard.

SPEAKER_01 46:51

Yeah, no, I agree, I agree. I know that in our situation, we have had a conversation before, and and I and and yeah, you know, I think we agree more in the three months stuff, but at the beginning, we always said like, you know, the business is not a picky bank, it's not supposed to be a picky bank. But right now with experience and the yellow of business, I'm like, I guess as long as the business partners have good personal finance, it doesn't matter who has who have the who have the money. You know, if the business has like 50k, but maybe the business partners have savings of also 50k that they are willing to put back into the business when needed. I think it's see the worst. I think it's all about uh communication, but I guess it also comes down to personal finance because people have to understand, like, you know, no matter what, uh yeah. So it's definitely a very interesting conversation. It's more also business finance, personal finance.

SPEAKER_00 47:52

No, I agree. And I think I think you're right, like, yes, the personal finance has something to do with it, but I think that you should not only because, like, yes, like maybe maybe the each business partner has money they can put in. But I think the business itself needs to kind of have that foundation too, in case something yeah, that works.

SPEAKER_01 48:12

No, for sure. Uh so I guess uh so we talk about recurring revenue monthly, retain it, being able to be proactive. Like, how do you forecast that? How do you how do you forecast revenue? How often should people be talking about revenue? How do you create that cash flow stability? How do you go from invoicing to collections? How do you do all of that?

SPEAKER_00 48:33

That's a lot wrapped up in one, but good question. So, okay, first let's talk about um let's see, that was amazing.

SPEAKER_01 48:41

Let's go like forecasting and cash flow stability.

SPEAKER_00 48:43

So let's talk about forecasting. So there's a couple ways to do forecasting. Like obviously, there's the base way is if you have money that's MRR, right? So you know, okay, every month I'm gonna get paid 50,000. There that's one way to forecast. And then you forecast that growth based on last year's growth, right? So you say, okay, last year we grew 20% every month for MRR. Okay, this year let's go ahead and forecast that. Another thing I like to do is I like to kind of be conservative on my forecast. So maybe you grew 20% last year each month, and let's let's do a 15% estimate this year, just to have that conservative baseline. And the reason I do that is because what happens is if we say 20% and something happens and our expenses are growing, right, to keep up with that 20%, um, that still gives us a little leeway. So we say 15 instead of 20, because our forecast is going to have your revenue, but also your budget is going to be tied directly to that. So say you want to increase people's rates and you see or your um employees, right, or give them a bonus and and you're factoring that 20% increase, but it ends up being 15. I'd rather have that 15% already baked in. Does that make sense? Yeah. And then if you do grow at that 20%, then that's just more profitability.

SPEAKER_01 50:00

That makes sense for you. I'm gonna say, yeah, I feel like you went into too much detail there. The majority of business owners are not going to understand.

SPEAKER_00 50:08

Yeah.

SPEAKER_01 50:09

But it's a bad, that is why you need somebody that can do that because it is important for the business. It's important to sit down and have those budgets and those forecasts. That is an essential professional service for the life, for the growth of a business.

SPEAKER_00 50:25

Well, and I want to add in, and there's an easier way to do it if you if you have many of years, like right, that that you can pull up of like what you made and your expenses. So I like to pull up historical. That's probably the best, most accurate way. And you kind of see, okay, if I made half a million last year, and then like 420,000 the year before, and then you know, 310 the year before, you can kind of say, okay, I've increased by this much money, let's go ahead and put that in.

SPEAKER_01 50:53

That for sure. No, and that works for sure. And guys, I'm going to be real with you. Like, I'm a CPA, I'm an accountant, but I am not, I am not a good CFO. And and always a lot of those CFOs decisions, CFO calculation, I let uh Harold hand her handle those. And and she does a great job for us, and also uh for for our clients, I think that is something that is going to stay out there uh for uh that AI is not going to take out, you know, the CFO, the advisory, the coaching people through it, and that is pretty and that is pretty uh important. So how predictivity reduces emotional decision making? Like, you know, why do you think having that recurring revenue, having that predictivity is is good for business owners.

SPEAKER_00 51:49

Okay, so you asked me a good question. You said why does predictable revenue um reduce emotional decision? Emotional decision making. I think that's good. Um you're not pricing yourself. So one way is another pricing sensitive, I guess, topic. And and that's where you're instead of having to feel like you need to reach and grab revenue and try to, you know, lose money by taking on jobs that are losing you money, I guess.

SPEAKER_01 52:21

Let's go into this. I feel like I feel I would say the controversial take here is that I would I would say something really controversial right here. Most founders, most business owners are financially reactive.

SPEAKER_00 52:34

Yes.

SPEAKER_01 52:35

You know? So a good month come by and they think that it's going to be the rest of the year, and they go buy a new car, expenses office, loser wash. And we kind of went through that a little bit. The first usually the first time in business. He did actually. And so and sometimes you see a lot with like unpaid sales taxes, too. So yeah, like that is that is something that you loan for the first two years in business. You have to save money for the low for the down month, you know? Absolutely.

SPEAKER_00 53:11

And every industry is going to have that. You're going to have the time where you're really busy and very profitable, making lots of money. Then you're going to have the other time where you have to, you're like treading what you're trying to sustain, trying to keep the boat afloat, like you know, shoveling water out of the boat. Yeah. And that's for having that predictable, understanding your cash flow, understanding um your forecast and budget for the year. Um, all honestly, that entire section of pricing, having good pricing works out, and then preparing and having that three to six months of savings.

SPEAKER_01 53:43

Makes sense. Yeah. What do you think are the as kind of the craziest business purchases that people do whenever they are in the in the good month that they should not do?

SPEAKER_00 53:54

So business purchases, I mean, what I've seen is obviously overhiring. So I think people when they're in that phase, they may try to overhire and hire for them like to replace themselves too quickly.

SPEAKER_01 54:06

I agree.

SPEAKER_00 54:07

But then then they're having all of these employees and these managers and all this this big team, and the down season's coming, and they're not going to have any use for them.

SPEAKER_01 54:16

I agree.

SPEAKER_00 54:16

Right. So I think that that's one of them. The other might be um, because it's a business purchase, so not not personal. So business purchase with the personal, so it can be okay. I mean, well, personal, we'll we'll talk about that in a second. For business, uh, another thing is like getting the fancy office, right? Yeah. So overspending on your office space because you think, okay, we're we're so profitable, we're making all this money now. And then again, like you have this, you're in this big contract for like, you know, maybe say 20 grand a month for a nice big office space.

SPEAKER_01 54:48

By 10 years.

SPEAKER_00 54:50

And then you then you hit October and you're it's your down season, you're not making any money. Yeah, then you have this big obligation for no reason.

SPEAKER_01 54:57

That makes sense. I agree. Sometimes I see it a lot, like you know, buying the nice car, the GYN.

SPEAKER_00 55:03

Yes, on the personal side of nice cars.

SPEAKER_01 55:05

The business cars. Then even on the business side, they go out and buy the F 150, the truck. It's like, you know, business um um and business expenses. Also, you know, trying to help friends and family was not a structural, they bring them this job. Hey, let me try to retire. My mom, you know, yeah, and then or my cousin, or let me take care of my family, and then that just becomes a burden and expectations that you have to keep up with.

SPEAKER_00 55:34

Uh so pretty much it's not setting themselves up for success or future self, right? Yeah, so they they get this inflow of cash, they're like, great, business or personal wise, we can blow it, and we're not gonna put the money aside. Yeah, and they forget that maybe maybe that maybe they have a big sales tax bill from that money the next month, do.

SPEAKER_01 55:54

Yeah, that's crazy. I see that a lot.

SPEAKER_00 55:55

They forget to put that money aside for sales tax.

SPEAKER_01 55:58

That's crazy.

SPEAKER_00 55:58

Or they put forget to put it aside because they're gonna have a big tax bill, right? They should pay quarterly or however they're paying their federal taxes, too.

SPEAKER_01 56:06

Yeah, yeah.

SPEAKER_00 56:07

Some people don't need another business coach, they just need operational discipline.

SPEAKER_01 56:11

Yes, guys, and we relate with that. That was it for the pod today. Thank you for listening. Let us know any questions you have and follow us everywhere you're watching this.

SPEAKER_00 56:23

Harrow and Jet Out.

SPEAKER_01 56:25

Thank you guys.