Updated: Jun 1
Pricing your product or service while staying true to the causes your business espouses is a challenging task. A strong pricing strategy incorporates a broad range of factors, and the ones you want to focus on will depend entirely on your business values and ethics.
Co-founders and sisters Neige and Pippa Blair established Routine — a company that makes natural products for your face, body, hair, and home. Here are insights on how you can determine your own based on Neige and Pippa's CEO journey on Routine's pricing strategy for their products.
Balancing Pricing and Social Impact
Social impact is how your product or service affects your customers and community. It is a driving force to keep in mind when developing your product or service. It's best to price your product or service to attract customers while considering its actual value and your business's mission. However, there are many things to consider, such as production costs and variable costs like your employee's wages. Some things to keep in mind when developing your pricing strategy that Routine had to manage were:
The cost of purchasing high-quality and ethically sourced ingredients or materials
The cost of hiring ethical companies or distributors
Paying your employees a living wage, not just the minimum wage
The impact you want your product or service to have in your community
It’s vital to keep your eye on your passion as you grow your business; your mission is what will keep you going. As Neige says,
“The passion comes first and then the nitty gritty, hard stuff comes second because it's worth it.”
These are the areas where some businesses may consider cutting costs to lower their prices; instead, consider being a community player when it comes to your business. Making money and making a difference in your community should go hand in hand. If your customer believes in your values and what your company stands for, they'll be willing to pay a higher price.
Neige and Pippa's Routine products, particularly their deodorant, command higher prices on the market. Despite the premium pricing, they continue to grow in sales and keep the cause of their brand, which is to care for the environment and use all-natural ingredients. Your business has a mission; what does it believe in? According to Neige:
“It's not about the bottom line. It's not all about the dollar. It's about the world. It's about what kind of world you want to give your kids.”
Apply a Forward-Looking Approach
As a business owner, you must set the price of your product or service early in the development process. However, your pricing strategy should be flexible if you need to pivot when the time comes. Owning a business entails anticipating uncertainties in your company's future. It can be tempting to settle for a bottom-line price to beat competitor pricing, but that's a bad idea. A strong pricing strategy is about pricing for the future instead of the moment. It also comes down to a value-based price — not just the product's value, but your company's values and ethics.
Your pricing strategy is critical for your product or service's success; it could make or break your enterprise. If you settle for lower prices, it could affect the sustainability of your business over time.
Know your Cash Flow
Determining the right pricing strategy for your product or service also involves proper cash flow management. You might be wondering why you have good sales, but your bank account doesn't seem to be growing. This is where tracking how much money comes in and out of your business becomes handy. It is key to:
Understand your goal
Plan your cash flow
Have the tools to forecast your cash inflow and outflow
“...There was no money in the bank account even though our sales had never been stronger. And that was when we discovered what cash flow meant.” —Pippa Blair
Not every pricing strategy is about maximizing sales — it's possible to have high sales but abysmal cash flow. Understanding where your money is coming from and going can help you assess your strengths and weaknesses. Knowing your financial numbers can assist you in adjusting where you need to improve.
Neige and Peppa worked with Arlene Dickinson of District Ventures to learn cash flow management. Through this, they could point out what they needed to do to keep their finances in the green.
Bootstrap When You Can
Before seeking out loans or investors, invest money out of your own pocket first. You can't expect someone else to invest in your product or service when you do not believe in it yourself. Neige and Peppa invested 500 dollars — 250 dollars each — to start Routine and grew from there. Remember that financial institutions and investors look for the following before they take their chances on business ventures:
Short-term and Long-term Plans
You have to explain what you are doing with your business now and how you plan to go forward. It does not have to be rigid — the future is uncertain, and many things could change. It just needs to include your high-level idea, discussed in a somewhat storytelling manner. Be reasonable with your assumptions.
Neige introduced Pippa to a book called Rework by Jason Fried and David Heinemeier Hansson where she learned that planning is essentially guessing. It can be scary to think about, but once you get into it, you'll find out that you do not have to write every step you need to accomplish. Instead, you have to create loose guidelines to get you there.
Preparing your past financials can be a lengthy process, which is why you should adopt good cash flow management for your company. Don't forget to use your forecasting tools to include expectations for future financials.
3. Proof of Viability
When you need to turn to lenders and investors later in your career, you can benefit from bootstrapping in your early years. It can show them your sales and profit figures. This data tells them that your product or service is worth their investments.
Develop Trusting Relationships
It is vital to have a relationship built on trust if you decide to take on alternative financing, such as getting a loan from a financial institution or finding an investor.
When your investors trust you and your product or service, they will believe in your story and assumptions. Trust is also a key factor when it comes to communication — it ensures that your investors are aware of what you're doing and have faith that you'll do what's best for your company. It’s vital to be reasonable about what you present to your investors, but it also helps to see them as human beings, not just institutions, as Pippa says:
“We prepared a big pitch deck and we pitched her, but we developed this working relationship with her where she felt like a human. She just trusted in us and believed in our story.”
Peppa’s experience with SheEO opened up an avenue for her and Neige to connect with other women entrepreneurs and help each others' businesses. Instead of a competitive investing scheme, SheEO uses a collaborative one — a clear foundation of trust.
Adapt to Adversities: Routine's Pricing Strategy In A Pandemic
As mentioned earlier, owning a business comes with uncertainties. You have to be flexible with your pricing when an unforeseen event arises. For example, Neige and Peppa converted to online sales when the pandemic hit so that people could still access their products. They focused on social media like Instagram to advertise and implemented free shipping vouchers and discounts.
Neige and Peppa’s Tips To Using Debt-Financing
You can start small and invest in yourself when you can. Take the risk and invest your own money. You do not have to worry about investors and lenders while doing things independently. If you like to be unconventional, this tip is for you.
2. Know Your Numbers
Develop forecasting tools from your past financials and keep up to date with your cash flow. It is vital to know your numbers three to six months from now. Applying for a loan can take several months, so know where your business is at.
3. Recognize Work-Life Balance
Being a business owner can be stressful, but it is still necessary to have a personal life outside of the company. If you need to outsource a part of your business, go ahead and do it. According to Pippa:
"Recognize when you do need to outsource if there's something that spending a small amount of money could have such a big impact versus banging your head against a wall trying to do something that you just can't do."
Business Growth and Pricing
For your business to grow, you have to set an acceptable price for your product or service. Lower prices might attract consumers, but you might not be able to pay for your overhead costs or provide your people with a living wage.
An effective pricing strategy for a business for good requires balancing profitability and social impact; you don't have to choose between the two. Knowing your numbers can significantly help you determine where you want your business to go and what you need to do to get there.
Invest in yourself if you believe your company can positively impact your community or the world. Trust in yourself, and your instincts, as Neige and Pippa did:
"We didn't research; we just lived it. I think that's what led to our success. We weren't spending our time going to seminars, and all these things. We were just using our instincts, and also, we were using our strengths — each other's strength."
If you want to know if your pricing is right and whether it can lead to your growth, a CFO can help you figure out your next best move. Understand what fair yet competitive pricing entails and how it plays a critical role in your business with the help of a finance team. Chat with Profit Reimagined™ to help you cover your foundations and deepen your understanding of these concepts.