What to do when customers say they can’t afford you (and other pricing tips)
There will be more people who aren’t willing to make the investment in your offering than those who are. Here's how to use pricing to deal with this hard reality of business.
No matter how much research and thought you put into pricing your products or services (so it fully compensates you for the value you add), there are going to be people who aren’t willing to make the investment. There will be drop outs along your sales funnel. You will not convince 100% of people who are exposed to you, your work and your business to sign up for what you are selling (and you don’t have to, but we’ll talk more about why later).
This is a common and inevitable business dilemma and it doesn't necessarily mean you are doing something wrong. Yet, I know this is a particularly sensitive topic especially for independent business owners because (a) you often get the “I can’t afford it” feedback directly and (b) you perceive every sale (or lack of a sale) to have a direct impact on your livelihood.
Trust me I get it. As I business coach I provide complimentary strategy sessions every day as a way to add value and give a potential client an opportunity to assess whether my coaching program is a good fit for them (and vice versa). If they really want to work with me and I believe I can help, naturally a discussion about next steps (including the investment) follows. And everyday I have to face the fact that only a certain percentage of these calls will materialize into a paying client.
There are a handful of reasons why a potential client doesn't want to move forward, but the one I hear frequently is the investment is too high. And I’m not surprised, because my rates and packages are priced at the top of the market given the experience, skill and value I bring to the table.
So I’m right there with you. I experience this now as a coach and I’ve gone through this with other businesses and business models. It’s the hard reality of selling. But from experience I’ve found that what seems like a pricing issue on the surface may be masking something else.
Today I want to dig deep into this dilemma and provide some guidance on how to handle it. Go ahead and acknowledge your emotions around this now — get them out of your system. Because we are going to take a very rational approach to dealing with this situation so your emotions don’t lead you down a dark path. From here on out when someone says they can't afford you and it causes you distress, you are going to channel that energy into reviewing and strengthening the financial health of your business as follows.
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Assess your conversion rate
Assuming you’ve already put the work into thoughtfully crafting your pricing scheme, don’t panic and start arbitrarily dropping your prices. That's the wrong thing to do for various reasons. One big reason is this: when you don’t make what you believe you are worth victim mentality sets in. You'll only end up hating the work you once loved and despising the customers you were so excited to serve.
When you don’t make what you believe you are worth victim mentality sets in. You'll only end up hating the work you once loved and despising the customers you were so excited to serve.
That's the type of mess you deal with as an employee at the whim of “leaders” who don’t really know how to lead. Please don't bring that mentality into your own business. Instead, you want to look at your conversion rate (the percentage of potential customers who become actual customers) and try to get a sense if it’s on par with the market you play in (Google it or ask peers in your market in order to come up with an average figure if you don't already have one).
The conversion rate is a way to understand the dynamics that exist within your industry. For instance, most e-commerce players know that 2% is standard — they can be doing everything right but may not be able to convert online shoppers at a rate much higher than this. In your case, if your conversions are lower than the market average, there are a number of questions you should ask before you even think about touching your pricing, because that may not be the culprit:
- Do they know I’m selling something? You are a business and you sell stuff. Anyone who engages with you should know that upfront. Don’t be subtle about it.
- Am I clearly asking for the sale? Again, if you are beating around the bush you won’t convert. No one is going to voluntarily open up their wallet. You must actually pitch your offering.
- Did I nurture them prior to asking for the sale? Take a look at your funnel and make sure you are establishing trust and showcasing your value before you start hard pitching.
- Am I attracting the right folks? You may be inadvertently adding people to your funnel who aren’t a fit. Evaluate your traffic/lead sources and make sure your funnel is just as good at getting rid of ill- fitted leads as it is at nurturing the right leads.
- Do they see the value? You may have to tweak your offering or adjust how you communicate it so potential clients see the full value and why it's worth the investment.
Only after you’ve explored all of the above should you look at your pricing. When evaluating pricing, don’t assume the automatic solution is to drop them. It may be that you just need to make tweaks to how you present your offering so pricing is a non-issue, such as:
- adding a bit more perceived value to the offer (for the same price you are asking) to justify the purchase in the potential customer’s mind
- creating different schemes (such as a payment plan) to overcome the natural aversion many people have to parting with money
If all else fails then you may have a problem with the price simply being too high for the target market. But do yourself a favor and don’t immediately jump to this conclusion without proper due diligence.
No matter how cheap or expensive your offering is, there will always be people willing to pay for it and people who are not. Figure out your conversion rate and compare it to the market to establish a realistic expectation around the number of customers you can close. If it is below the market then improve your approach to selling and your sales funnel before you even think about tampering with your prices.
Assess the average value of a customer
Now, once you make the adjustments to get your conversion rate on par or higher than market standards, you now have a realistic expectation of the number of leads you can convert into customers. At this point you can forget about the dropouts (at least for now, I'll explain how to handle them later). Who really cares what their reason is including whether they can afford you or not? You don't have to worry about them so long as there are enough other people who are able and willing to buy.
However, you do need to make sure the number of customers you can convert are sufficient to sustain your revenue goals. You may actually need to charge more (not less) or repackage your offering to gain more value from the deal. Let’s dive into this a bit with an example. Follow me closely so you can see the logic.
Let’s say you are a marketing consultant and you want to make $300,000 a year or $25,000 a month. You have a sales funnel that leads to setting up a free consultation with you and you can convert about 25% of those conversations into new clients. Now the other 75% don’t move forward with you (some because they believe your rates are too high). But you don’t care about that because you consistently close the deal at 25% and in your market that’s an awesome close rate.
Knowing that you close/convert 25% of consultations is a powerful piece of intel. Just that one figure informs your entire business strategy.You only have the capacity to work with five clients per month because of the intensity of the work. That means, on average, you have to charge each client $5,000.
That tells you a couple of things. One, each month your funnel must generate at least 20 consultations. Two, you need to be targeting businesses who have a significant marketing problem, willingness or need to bring in an outsider, and enough money to invest in solving it. You’ve established that your “perfect customer” fits into three categories: small to medium sized businesses who make over a $1M in revenue, startups with at least $1M in funding or divisions within large corporations who have a minimum $1M marketing budget.
For each of these you create a $5000 consulting package that solves each of their unique needs. Boom, you now know exactly what it takes to hit your revenue goals. Yet, over time you realize that it makes more sense to work with these clients for longer time frames. Most clients keep asking you to stay on for longer than intended because there’s still a lot of work to get through. Six months seems to be the average length of time.
That means you are eventually retaining your clients not for one month but six months. So the average value of a customer within a year is $30,000. This is great because it was really hard to consistently generate 20 consultations each month (you were exhausting yourself). You revisit your business strategy and tweak your offering and positioning to favor longer term consulting projects.
Your closing rate is the same but now you need fewer consultations because you are pitching long term work. You only need to close around 10 clients per year (not even one per month) to hit your goals. So your funnel only needs to generate five consultations per month. And guess what, it’s ok if four out of five think you are too expensive so long as there’s one who sees your worth and is willing to invest in the opportunity to work with the best of the best.
By the way, the numbers have been tweaked but this scenario is based on a true story. It’s my story, when I started my brand and marketing consultancy (right after quitting my 9-to-5) a few years ago. Starting off I was all over the place. I knew I had so much value to bring to the table (an MBA from the top business school, a decade of business experience, deep branding expertise, etc.) but was still scared to charge what I was worth and became deflated every time someone said I was too expensive.
The numbers gave me confidence. Just the simple act of evaluating the facts and figures helped soothe the anxiety. Knowing how to assess the value of a customer changed my perspective: I didn’t need to drop my rates, I just needed to change my mindset and my approach. The numbers told me that I didn’t need to convert every business I spoke with. And I didn't need to undervalue myself or my work just because they couldn’t afford me. I just needed one new client per month — to attract that one company who was willing to invest in their business by investing in me.
I didn’t need to drop my rates, I just needed to change my mindset and my approach.
In addition to your conversion rate, you need to assess how much you bring in from an average customer. These two figures will help you determine (a) the number of customers you need and (b) the number of leads you need to reach a certain number of customers, in order for you to hit your revenue goals. Armed with this intel, you won’t be as anxious about the people you can’t close including those who exclaim “I can’t afford it” because you know you have enough people who are able and willing to invest in what you have to offer.
Use pricing to make selling easier
Listen, the “I can’t afford you” people are doing you a favor. They are opening your eyes to the the stark realities of business, one being that most people have a distorted view of money and don’t really enjoy parting with it. As a result, it takes a lot of energy to convert a lot of customers. I don’t care what market you play in, you should be trying to hit your revenue goals with as little effort as possible and decreasing the number of new customers you have to convince to buy from you is one effective method.
Even in high volume industries like e-commerce, savvy marketers prefer to increase the value they can derive from existing customers (through upsales, loyalty programs, etc.) rather than depend on bringing in brand new customers. The former is much easier (and cheaper) than the latter because they’ve already established a relationship and gotten permission to pitch what’s on offer. So they don’t have to jump through all the hoops of convincing a new person that they are worth it.
And here’s what always tickled me back in my e-commerce days (as both an executive and entrepreneur), that 2% average conversion rate I mentioned earlier was true no matter if you were selling a $25 product or a $2500 product online! Cheap stuff does not automatically sell easier or faster than expensive stuff.
Cheap stuff does not always sale faster or easier than expensive stuff ... and having more customers isn't always better.
So when thinking about pricing, your strategy needs to work for not against you. Revisiting my personal example, I want to call out a key insight: the fewer clients I had, the better. Less clients gave me confidence. Less clients gave me space to do higher quality work. Less clients freed up more personal time. And guess what, less clients made me more money.
And the same approach I used as a consultant I use now as a coach. Fewer is better and I price my services accordingly. That way, I can be selective about who I choose to coach so I can devote time to the clients I know I can truly help. I don’t cringe when someone says they can’t afford me because the numbers tell me don’t worry, someone else can.
At this point I’m giving you the ok to evaluate and tweak your pricing. You have your conversion rate and your average customer value plus the insight that fewer is better. I now want you to look at your prices and determine how high you can raise them (without completely pricing yourself out of your market). Your formula:
Annual Income = Average Customer Value * Number of Customers
If you need to embellish your offering (or your messaging around your offering) to justify the increase then go ahead. I want you to never worry about the “I can’t afford you” people again. And an easy way to do that is to reduce the number of customers you need to depend on to hit your revenue goals.
Don’t take it personally
This is easier said than done especially for independent business owners, creative entrepreneurs, and those making a living from their personal brand. Who you are is so closely linked to the work you do and you are much more sensitive to the ebbs and flows of business. So the best way to not take things personally is to build consistent systems that streamline and automate certain processes, removing emotion from the equation.
When it comes to selling, your system is your sales funnel. And you need to ensure this funnel is set up to handle the four types of leads you will get.
Lead 1: Potential customers who can't afford and don’t value what you have on offer.
This is the type of person who will consume everything you give them for free and then raise hell the moment you even allude to something being for sale, especially if it’s perceived as high priced. They shouldn’t even be entering into your funnel. Re-evaluate how you generate leads to make sure your messaging only attracts qualified persons.
Lead 2: Potential customers who can afford but don't value what you have on offer.
This is what happens when you try to broaden the scope of who you are going after instead of serving a niche. For example, a luxury fashion brand who wants to target anyone who makes over $250,000 a year, forgetting that their aesthetic won’t be attractive to everyone in that segment. Just because they have the funds doesn’t mean they are for you. So stay in your lane and don’t bring people into your funnel who aren’t a fit for your brand just because they have money.
Lead 3: Potential customers who can't afford but value what you have on offer.
This is always a tough one for creative entrepreneurs because these are typically our peers. I remember in my consulting days when I would get approached by the coolest startups who desperately wanted me to work for them — for free or chump change. I’d be so excited by their ideas and a couple of types I foolishly took on “pro bono” projects until I learned an important lesson: people value what they pay (or have to work) for much more than handouts.
People value what they have to pay for or work for much more than handouts.
If someone really wants what you have to offer they’ll find a way to pay for it. You aren’t running a business if you are giving everything away for free or at a ridiculous discount (though intelligent discounting isn't bad). Your funnel can redirect them to an offer that’s more appropriate for their price sensitivities, so you don't leave money on the table and retain a good relationship with someone who may be able to buy your higher priced offering in the future. If that doesn’t work then they need to be phased out, sad as it may seem.
Lead 4: Potential customers who can afford and value what you have on offer.
Bingo! I remember in business school I met this wonderful girl and we hit it off and we started calling each other “my person” (in the whole Meredith and Christina kind of way). We just clicked and still remain the best of friends.
Well, these are your people, the folks you click with. These are your “perfect customers” and what you do, you do for them. Your funnel should nurture them by providing tons of value and establishing trust so they don’t have to think twice about saying YES once you make your sales pitch.
In fact, they won't even perceive your sales pitch as a pitch but as you talking directly to them — solving their problems, meeting their needs and fulfilling their wishes. You have what they want and once they see that they will gladly invest in themselves by investing in your offer. These are the people who give you the confidence to graciously send the “I can’t afford you” folks on their way and not think twice about it.
Make sure your brand and marketing efforts (especially sales funnel) is designed around serving “your people” (i.e. your perfect customers). When you message directly to your perfect customer, it’ll be easier to phase out the people who don’t belong in your funnel while simultaneously strengthening the relationship with those who do.
Don’t leave money on the table
Now that you've broke your dependency on people who aren't right for your business, let's circle back to the "I can't afford it" crowd because I don't think you should completely disregard them. I can't afford it means a lot of different things depending on the person or context. You want to get adept at interpreting what a potential customer is really saying when this comes out of their mouth.
You want to get adept at interpreting what a potential customer is really saying when 'I can't afford it' comes out of their mouth.
Some really don't have the money while others don’t have but can probably get the money, but need to know it’s worth the effort. Still there are those with the money who say ”I can't afford it” because they aren't quite convinced of your value.
So don’t be so quick to walk away from a potential deal. Have a couple of different pricing schemes in place to appease potential customers who may just need reassurance, or downsell them to a lower priced alternative. There’s a lot of emotion tied up in money and sometimes people need things to be packaged or positioned in a certain way to move forward.
Take time to uncover the true reason behind any pricing pushback. It doesn't mean you will change your prices or break your neck to convince someone to buy from you. However, you may be able to reposition or repackage your offer in a way that’s more appeasing so you aren't throwing away potential value.
Take inspired action
Are customers constantly giving feedback that they can't afford your offering? Are you struggling with converting potential customers into paid customers? Is your pricing too low to sustain your revenue goals? If so, book a complimentary strategy session with me and let’s discuss ways I can help you boost your earnings.