Pricing Psychology 101: Setting Rates & Attracting A-Grade Clients

Andy 
And that is what you want, baby.  You’re listening to The Tradie Show. This is the podcast for trade business and contracting bosses like you who want to lead with confidence, make more profit and create a better lifestyle.

Ange
We’re your hosts, Andy and Angela Smith, husband and wife team, and co-founders of Lifestyle Tradie. Are you ready to have some fun? 

Andy 
Hell yeah!  

Ange
If you want 2024 to be your year and you’re tired of the endless grind, then join us at our brand new in person event, Lifestyle Tradie on Tour. 

Andy 
No more late nights quoting and invoicing. No more second guessing your decisions or missing that Arvo surf with your mates. Don’t miss out on this game changing opportunity. We’re talking real actionable strategies that have already changed the lives of Thousands of tradies just like you. 

Ange
Well, what are you waiting for? Head over to lifestyletradie.com.au and register now. 

Andy 
So today’s topic may hit close to home For many of you, when we’re talking about pricing. It’s one of those areas where even the most seasoned trade business owners can trip up. Isn’t that right, Ange? 

Ange
Yeah, spot on, Andy. Just recently, I was talking to a guy who attended one of our free one day workshops. Let’s call him Dave. And Dave believed he ran a successful electrical business. But after hearing us present, he confessed that he’s been undercharging his services for years. He thought keeping his prices low would win him more jobs, which it did, to be honest. But in doing so, he found himself overworked and underpaid.

Andy 
Yes, it’s one thing to win every job, but it’s another when you start realising you’re only breaking even. Who wants that? 

Ange
Uh, nobody. 

Andy 
So Ange, being overworked and underpaid is a classic tradie scenario. So let’s talk about how setting the right price is much more than just covering your costs. There’s a whole psychology around it, right?

Ange
Yeah, there sure is. Before we dive into the topic, let me first share what the term psychology of pricing actually means. It refers to understanding how pricing strategies impact both the perception of your service in the eyes of your customer and hence the decision making process of those same customers.

Andy 
It’s about how your prices influence the way customers think and feel about your business and the value they attribute to your work. 

Ange
Yeah, exactly. So the thing is, your pricing is not just a number on an invoice. It’s actually a reflection of the quality and the professionalism of your service.

Andy 
And your pricing is actually a subconscious message to your customers as well.

Ange
Oh my gosh, Andy, you are speaking my language.  So there’s a book called How Customers think. And in that book, Harvard professor Gerald Zaltzman estimates that 95 percent of purchasing decisions are actually based in our subconscious mind. So, tapping into these subconscious behaviors and patterns and biases can actually be an effective way for companies to both attract and retain customers.

Andy 
Okay, Ange, let’s put that back in layman’s terms, hey?  

Ange
Okay, fair enough. So, in the eyes of your customer, higher prices can often equal higher and better quality. And if you’re charging more than your competitor, it could mean you’re offering something that they aren’t. You never blatantly said that, but the customer perceives it that way.

Andy 
Well, to be honest, they very rarely would have three quotes in front of them that are absolutely a hundred percent identical. And it means they aren’t comparing apples with apples. They’re comparing apples with oranges, right? 

Ange
Right. Which means they have to make something up in their own mind as to who they think would be better to do the job.

Andy 
That’s right. Your customer is literally deciding themselves who will offer a stress free experience, faster turnaround times, or even just the peace of mind that the job will be done right the first time. 

Ange
Yeah, exactly. And this is where value based pricing comes into play. It’s an  absolute game changer.

Andy 
Yes, it is. So let’s explain what value based pricing means and most of us understand cost plus pricing where you simply add a markup or profit margin to your cost. Well, value based pricing focuses on the value your service provides to the customer. It considers the benefits or results that the customer will experience, which justifies a higher price point.

Ange
Well, it would be fair to say that Dr. Drip wasn’t the cheapest plumbing service in Sydney, right? 

Andy 
Definitely not. 

Ange
But we also weren’t the most expensive, but we did often win the work. Would that be fair to say? 

Andy 
Yeah, we definitely weren’t the cheapest plumbers going around that is for sure. But a lot of our customers would comment that we weren’t the cheapest plumber, but hands down what an incredible team we had and what an incredible service that we offered always with a smile on their face.

Ange
Yeah. They definitely said, we always recommend you to your friends, didn’t they? 

Andy 
Yeah, they definitely did. And we had a lot of word of mouth work coming through the doors. 

Ange
Fair. So Andy, when we know that many trade business owners are literally making a small amount of profit at the end of the year or breaking even, and hence it’s really clear that they need to consider increasing their prices, especially seeing they haven’t increased their rates perhaps for over five years. Why do you think so many trade business owners struggle with raising their prices? 

Andy 
Yeah, it’s an interesting one, but the majority of them, it’s fear that’s holding them back, you know, and a lot of them are walking on this tightrope where they feel like on one side of the tightrope, it’s like I’m not making enough money. But on the other side of the tightrope, they’re thinking to themselves, if I start charging more, I’m maybe going to lose all my good customers. 

Ange
Yeah. They know the business isn’t great financially, but they’re scared to upset, perhaps their long term customers or missing work with new customers. 

Andy 
You know, one of our members, Matt Ferguson, who runs a landscaping business in Victoria, went through this exact situation about 12 months ago. He knew he wasn’t making enough money, but was hesitant to raise his prices because he didn’t think he’d be able to keep his long term customers happy, but like a lot of stories I could tell you about when he finally did, not only did he retain the majority of his customers, but he also started attracting a higher caliber of customers who really valued the work that he was doing.

Ange
Yeah, look, Matt’s an absolute champion and that’s a really good example. It’s actually about finding that sweet spot, right? You might lose a few customers who are perhaps price sensitive, but you’ll definitely attract those who appreciate the value that you bring. And that’s where the real profit is. 

Andy 
Yes, and it’s got to be said as well that if you are looking at raising your prices, you must live up to those higher rates. The customer would definitely have higher expectations of you and your service. You just can’t walk in the door looking like some of the cats dragged in and do a shitty, messy job. You’ve got to live up to your new perceived value. 

Ange
Yeah, fair. So you’ve decided to raise your prices and provide better value to your customers. The next question we often get asked is, how do you communicate this value to justify the higher prices? 

Andy 
Yeah, it’s a really good question when you’re raising your prices. I mean, how do you go about it? And let’s face it, there’s different customers in different market segments out there, but I definitely say for your current customers, it’s better to probably go in small increments. You know, maybe if you want to raise up. So say 20%, maybe you’re going to do it over a period of time and just not hit them between the eyes with a brick. I think it’s not a strategy to just do it one time and go hard. 

Ange
Right. What about communicating value? What can you share about that subject? 

Andy 
Well that also starts with understanding the unique benefits that you and your business have to offer and what do your customers want? You know, is it your expertise, your efficiency, your top notch customer service? You know, it’s fundamentally the solution to the problem they are seeking. But once you know this, you can clearly communicate it with your marketing and all the conversations that you have with the customers.

Ange
Yeah, true. So with a base of knowing what hourly rate you have to charge to make profit. Thanks to our hourly rate calculator. It’s now connecting the dots to position your business in a way that provides the leeway to charge a high price because you know that you deliver on the promise every single time.

Andy 
So let’s make this practical with an example. Let’s use our mate, Matt, our landscaper as an example, instead of just building a retaining wall and paving an area. Matt is more like a one stop shop now to creatively design, build and connect a beautiful usable outdoor area to your home that you’ll absolutely be thrilled about, you know. A company that proudly showcases their design and the transformations all over  Instagram for everyone to see. And this builds a lot of trust before they’ve even made contact with you and your business. And that’s what your clients are paying for. 

Ange
Oh, that was a nice example.

Andy 
It was. 

Ange
So it’s about shifting the focus from the cost of the job to the value you deliver. Basically the outcome. So you need to ensure that your customers feel like they’re getting their money’s worth. Fair? 

Andy 
That is fair. But you may also want to look at how you and your business are presenting your brand to the world. You know, do you look professional on your website? Are your vehicles wrapped? Do you have proper uniforms? And is your branding on point? 

Ange
Oh, I agree. And this is something that you can do over time. So eventually your brand must convey quality and value. It’s a professional company they can trust. That’s what they want. So besides that, it’ll definitely help you attract more A and B grade customers. And if you want to take a deep dive into what types of customers to attract and how, then I suggest you take a look at our podcast episode. It was called ditch the D grade customers.

Andy 
Alrighty. Now let’s address the elephant in the room. 

Ange
What’s that?

Andy 
The myths and fears around high pricing. What do you think, Ange, is the biggest myth?

Ange
Um, I’d say that high prices will scare off all your customers. 

Andy 
Yep, that’s the biggest one I hear and it’s just not entirely true. In fact, higher prices often attract customers who value quality over cost. They’re looking for expertise, reliability and someone to save them time and stress. 

Ange
Yeah, I’d agree. They want the job done right the first time. So another fear is that you, the tradie, think that the customers will think that you’re overcharging. But you know what? Here’s the thing. It’s not about overcharging. It’s about charging appropriately for the value that you provide. 

Andy 
That’s right. It’s about fair pricing for the quality work that you do. It’s about fair pricing for quality work that you and your team can do. And remember when you undervalue your services, you’re actually sending a message that you don’t back the quality of your work. 

Ange
So what’s the bottom line? 

Andy 
Well, first you’ve got to understand the value that you bring to your customers. You know, are you saving them time? Are you providing peace of mind? Do you offer exceptional service? I mean, these are all valuable things that customers want, and this should be reflected in your pricing. 

Ange
Yeah, I agree. So once you understand your value, communicate it clearly and with confidence. How you speak to me as your customer, like the language you choose, the fact that you look me in the eye, all this stuff speaks volumes to me about your confidence in your ability to complete the work. So educate your customers about what sets you apart. This transparency truthfully builds trust and justifies your pricing. 

Andy 
And don’t forget your pricing strategy can evolve over time as well. And as you grow and you gain more experience or expand your services, it’s okay to revisit and adjust your prices along the way. It’s a sign of a healthy, evolving business. 

Ange
Yeah. Look, it’s crucial to always remember that your price is more than just a number on a quote. It’s actually a tangible representation of the value you bring to every job, the expertise you’ve honed over years and years in your trade and the trust you’ve painstakingly built with each of your customers.

Andy 
Yeah, 100 percent Ange. We go to TAFE for four years, we’re in the trenches, we’re digging holes all day, we’re hurting our back, we’re climbing through rooms, we’re busting our bodies, but you know the big thing? We are professionals and we know our trade, because we’ve honed our skill over the many, many years and every single tradie out there needs to be paid accordingly.

Ange
Yeah, I agree, Andy. So every dollar you charge as a testament to your hard work, your dedication, and the skill of your trade, it’s about acknowledging this blood, sweat, and tears that go into every project, like every repair, every installation. It’s not just a transaction. It’s actually an exchange of trust and expertise.

Andy 
Yeah. Everyone just think back for a bit and think about all those long nights, big hours you’ve put in over the time, the time you maybe even spent away from your family and friends, the ongoing learning that you’ve invested to be the person you are in this amazing business. All of your pricing should reflect the full scope of your effort and your commitment. And it’s not just about covering your costs or making a profit, it’s about valuing your craft and your contribution to all of your customer’s lives. 

Ange
Yeah, that’s a lovely sentence.

Andy 
It is. 

Ange
So let’s not forget. That when you price your services right, you’re not just doing yourself a favor, you’re actually also serving your customers better. You’re ensuring that you have the resources to invest in, say, the quality tools, you’re doing ongoing training and everything else that goes into delivering a top notch service. 

Andy 
That’s why Ange, we urge every single one of you to not undervalue your services. You know, when you set your prices, consider the quality of your work, the reliability, and the peace of mind that you provide to the customers. You’re not just fixing a leak or just painting a wall. You are creating safe, functional, and comfortable spaces for your customers. 

Ange
Well, you are actually helping them live a more comfortable, stress free life with a property that has the luxury of a developed country. I’m talking about the basics of running water, lights that turn on at night, power to operate the technology and the walls and a roof to give you shelter. This is the fundamental basics of life, really. 

Andy 
That’s right, Ange. That’s exactly right, us, tradies really are being taken for granted, aren’t we? 

Ange
Yeah, well look, it comes with the territory of being a developed country, but hey, here in Australia, we’ve actually been really lucky to be born into what we call the lucky country, aren’t we?

Andy 
Exactly. 

Ange
So take this thought with you, your pricing is a reflection of your business’s heart and soul. It’s actually about respect. So this is like respect for your own work, respect for your customer’s needs and respect actually for the trade that you represent.

Andy 
So everyone, you need to keep this in mind as you review your pricing strategies and make adjustments. Remember, you’re not just running a business, you’re building a legacy of quality, trust, and excellence.  

It’s Tradie Dilemma Time, and this is where you can ask A&A  anything in this segment, where you let us know what you’re having trouble with in your business, and we can give you our best advice. 

Ange
So today we have a question from Jodie in Victoria, and she writes. What can I do when a business in the same town as me has copied our business? Our colors are the same and they’ve even copied our entire name. But just slap to 24 seven in front of the full business name. And we’ve been in business for four years already. What do we do? 

Andy 
Ouch. That definitely hurts, Jodie. And you know, some of these people have real nerve. I know this happened to us in our plumbing business, Dr. Drip, you know, we were quite a big business in Sydney. We had trucks all around. And we even had one of our workers in a certain suburb where a business just popped up and they called themselves Dr. Drip Plumbing and Maintenance and um, yeah, yeah. And we knew nothing about it until one of the guys went to a supplier and said, Are you guys Dr. Drip or Dr. Drip plumbing and maintenance? And when they had a look, it was two different company names and I could not believe it. So obviously we, you know, I wasn’t very happy and I got on the phone. I had a chat with the guy and he seemed to be very blase about it and didn’t really care. So we had to call the big guns in and get the lawyers involved. And then he had to go and change his branding obviously, and pick a new name and go from there. But I think the big thing for us, Jodie, is we had a trademark for Dr. Drip. So we’d done all that work at the beginning, and that’s a lesson for every single one out there. Make sure you get your name and get it trademarked. The challenge that some people have is that they pick a name that’s very generic, like a, Bondi, and they go Bondi Plumbing. And the challenge that you have with that is other people are allowed to be called Bondi plumbing because they’re a plumber in Bondi as well. So that could put 24 hours in front of that. And then bingo, they have your name. So you’ve got to be very careful. So I’m not sure, Jodie, you didn’t mention in the email your company name. I think that’s something where you’ve gotta have a look at ASICs and find out where you stand in that. You may even need to get an IP lawyer involved to see what you can physically do, what you’re allowed to do. Because when you’ve been running a business for four years and everyone knows you and then all of a sudden someone copies your name, yeah, it’s not cool, is it? 

Ange
No, it doesn’t sit well, right? All great advice. So good luck, Jodie. We hope this helps you resolve this issue and that you have a positive outcome.

Andy 
Definitely.  

Ange
So remember, we’re here to help you navigate the road of being a successful  trade business owner. 

Andy 
Yeah, we’ve been through the ups and downs of running a trade business and we’ve got the secrets to help you navigate those tricky waters. 

Ange
Which is why we’re serving Andy up on a platter for you.

Andy 
Hey, what? 

Ange
Well, just kidding, but we do want to offer you a strategy call to help you on your business journey. 

Andy 
Now, picture this, a fun, relaxed chat with me about your business, your challenges and your dreams. There’ll be no pressure. There’ll be no boring pictures, just a casual conversation that could change the game for you and your business. Whether you’re stuck in the weeds or you’re just looking for a fresh perspective, I have your back. 

Ange
If you’re ready to make 2024 your year and still have time for your hobbies, then head over to our website at lifestyletradie.com.au or check out the show notes for a link to schedule your call. 

Andy 
Can’t wait to connect with you all and help you rock your trade business in a way that suits your lifestyle.

Ange
No more excuses. Let’s make 2024 your best year yet. 

Andy 
Hell yeah!  

Subscribe to The Tradie Show wherever you get your favorite podcasts.  Rate and write us a review or for more information about Lifestyle Tradie, head to lifestyletradie.com.au.