Money Mindset: Understanding the link between mindset and profitability
Many entrepreneurs find managing company finances their biggest challenge, and over half of those questioned in a survey by Wave attributed their high stress levels to financial pressures. There are countless ways to learn about the financial aspects of running a business, but pricing and profitability will always be a struggle unless you understand your money mindset.
Mindset relates to what we believe about ourselves, the world around us, and our place in it, and naturally, this impacts behaviour. We all have a set of beliefs that shape our relationship with money. These stem from how we were taught to think and feel about money and our experiences of it. In turn, our money mindset drives our decisions about saving, spending, and managing money, as well as how much we think we can earn or deserve to earn.
People with a scarcity mindset worry there will never be enough, whereas those with a view of abundance think there will always be more. We often see business owners keeping an extremely tight rein on their spending - not investing in themselves, the additional resources, or tools they need to grow. They equate spending with loss and are reluctant to let go in case it runs out forever. On the other hand, some business owners who spend easily as if their resources are limitless. Either way, it can cause issues.
Attitudes to pricing
One of the main things that can be affected by your relationship with money is pricing, especially when you’re starting out. It’s a complex area with no clear right or wrong. Price is relative to the buyer, their perception of value, and their ability to pay. An umbrella can sell for $5 or $500; it still does the same thing, and both will attract customers.
With a scarcity mindset, you might convince yourself that people won’t pay much for what you offer, so you keep your prices low. Pricing is also often subconsciously linked to self-worth. In this scenario, individuals see pricing as a reflection of themselves personally and low self-worth can mean undercharging.
Two other main pricing traps can catch new business owners out. The first is comparison; worrying that they can’t charge a certain rate because it’s higher than everyone else. Secondly, they think that because they are new, they need to keep their prices low. Yet, this doesn’t account for other factors like industry experience, quality or knowledge. What’s more, the majority will stay charging the same low price long after they have launched. Which brings us onto another tricky topic: when and how to raise your price.
Serve not sell
Market conditions dominate so many conversations I hear between business owners and of course, it’s essential to be aware of the economic landscape. However, it has less to do with pricing than you might think.
There is never a right time to increase your prices. There will always be a reason why someone will choose not to buy from you. When evaluating your pricing strategy, several things to consider include:
What does your product cost to produce, or service cost to deliver? What is the cost of running your business?
Is there a high demand and or significant competition? Rather than only focusing on what others are charging, look at what they offer - how do you differ?
Who are you targeting? Do you want to be at the high-end, mid-market or mass?
How much money do you want or need to make? Many business owners don’t pay themselves a set salary and this isn’t sustainable. Work out your salary based on your personal financial needs and goals. These goals should be the biggest motivation for any discomfort you feel around pricing.
If you decide that a price increase is in order, remember the following:
Highlight the value you offer by solving a problem or satisfying a desire.
Be transparent without over explaining. Share why you are raising prices, for example adding extra value, cost increases etc.
Communicate in advance where possible to help people plan ahead.
Be prepared to lose some customers. Maybe not everyone will accept the increase, but that doesn’t mean it was the wrong decision, and it could result in new ones who are more aligned.
Last but not least, negotiation is a topic that almost every business owner has to tackle at some point. Generally, I would advise against giving discounts just because you’re asked. People wouldn’t expect a large retailer to discount their weekly shopping so they shouldn’t assume you can take the hit either. That said, there are occasions when seasonal offers or tactical discounts might make sense. A good way of looking at it is to think about the lifetime value of that client. Also, if you are pitching for a project, there may be negotiation required, but try to negotiate the scope rather than reduce the price for the same output. The key is to make sure you control the decision.
From undercharging and not investing in growth to wasting your hard-earned profits, money mindset will inevitably impact your financial success. Understanding your attitudes is empowering because like all mindset challenges, you can learn to address them and adapt your approach to suit your goals.
About the author
Shelley Bosworth is an international business and mindset coach and the founder of Shelley Bosworth Coaching. She helps leaders to master their mindset so they can stop standing in their own way and achieve their personal and professional goals.
