You're listening to “Financial Advisor Marketing”—the best show on the planet for financial advisors who want to get more clients, without all the stress. You're about to get the real scoop on everything from lead generation to closing the deal.
James is the founder of TheAdvisorCoach.com, where you can find an entire suite of products designed to help financial advisors grow their businesses more rapidly than ever before. Now, here is your host, James Pollard.
James: Hey, financial Advisors. This week's episode is a continuation of last week's podcast episode, and these two episodes are about the psychology of price and how consumers interact with different prices with different products and services, and entitled “Financial Advisors, Raise Your Prices,” because I frequently see advisors charging too little.
There are lots of psychological reasons for this, and maybe I’ll discuss those in a future episode, but for right now, I want to continue with stories and facts that can help you understand more about pricing, and I want to begin with something about inflation. [01:06.5]
You have probably seen inflation all over the news. CPI reports come out, the stock market goes up and then down, and maybe it goes up again and back down again. Who knows? But inflation is the talk of the town right now at the time of this recording, and you probably need to raise your prices due to inflation.
Now, I'm a bit of a hypocrite here because I haven't raised the price of, for example, my Inner Circle Newsletter, but that's only because the $99 per month is so embedded in my marketing. It will be a massive headache to change all of it—it's in podcast episodes. It's in blog posts. It's in the status updates online. It's in books. It's in products—and it would just be a pain to try to track down every place I said $99 per month and change it. Eventually, I'd like to raise the price, though, and I plan on doing that sometime in the future. [01:55.8]
Anyway, a study was done where two groups were surveyed about hypothetical people named Ann and Barbara. Hahaha, Barbara, Ann, like the Beach Boys song, I get it, okay. The groups were asked about these people. One year, during a time of no inflation, Ann got a 2% raise, so 0% inflation, 2% raise. During a period of 4% inflation, Barbara got a 5% raise. So, Barbara was living in a time of 4% inflation; she got a 5% raise. Ann lived in a time of no inflation and got a 2% raise.
The first group was asked who was doing better in economic terms. The majority of people picked Ann because Ann got a 2% raise and 2% is higher than the net 1% Barbara received. Ann's purchasing power increased 2% while Barbara's increased only 1%, so that makes sense. She's doing better in economic terms.
The second group randomly chosen from the same population was asked who was happier after the raise, and this is where it gets interesting because most people chose Barbara. Most people associate happiness with more money, like more dollars and cents, not necessarily more purchasing power. This is related to the anchoring bias in psychology. [03:15.1]
The nominal dollar amount is the anchor and inflation adjustments are usually insufficient to trigger a reaction. If inflation is 9% and your income has increased 7%, you’ve got a 2% pay cut. You don't feel that way, though, or at least, you don't feel all the pain you otherwise should feel because you see, “Hey, number go up. Yay, number go up, that feel good. Number go up, I feel good.” You are making $100,000 and now you're making $107,000. You think, Woohoo, I'm making $7,000 more. But in terms of buying power, you're making $2,000 less, and lots of people get screwed by this.
Again, at the time of this recording in 2022, inflation has been running wild like Hulkamania all over the world, and to quote the great Thomas Sowell, “Inflation is a quiet but effective way for the government to transfer resources from people to itself, without raising taxes.” Even though a politician can come out and tell you, “Hey, I'm not raising any taxes or I'm not raising your tax rate,” you're still going to get poorer and resources are still going to go to the government because of inflation. [04:20.5]
But hey, this is not a political podcast, but I will tell you, inflation can literally take away your entire life savings without the government ever having to raise the official tax rate at all. It's scary stuff and it keeps businesses on this hamster wheel of raising prices just to keep up, and as much as I hate the government phenomenon of inflation, you have no choice but to raise prices during inflationary time, so raise your prices. If you charge $5,000 for a financial plan in 2021, you should probably charge, clickety-clack-clack-clack, let me figure it out, 10% inflation, 5,000, 10%, oh, $5,500 this year, so just something to think about. [05:00.4]
Moving on, price can be part of your marketing strategy. This is the Financial Advisor Marketing podcast. It can totally, totally, totally be part of your marketing strategy. Lots of financial advisors and financial planners, they're not transparent with their prices. Being transparent and telling people exactly what to expect is a qualification mechanism by itself, especially if you're someone who doesn't like spending 30 minutes to an hour talking with someone, only to have that person tell you, “Your price is too high.”
I said this in the last episode, but I will say it again—some people will never work with you no matter what. I know it's cute to think that people will gladly pay as soon as they see the value for something, and all you have to do is just convince them of your value and then they'll open up their wallet and they will just literally throw their credit cards at you, because they’ve just got to have whatever it is that you're selling. And that's not true, and I’ll prove it to you. [05:53.4]
People obviously see the value in eating healthy. People obviously see the value in working out. People obviously see the value in reading books. Reading book make smart, but people no read. Why? Hmm, let's think. Drug addicts see the value in being clean, but do drug addicts just go clean? Not always, because they're in psychological prison.
If you are someone who thinks you can magically swoop in and somehow get people to see the light of financial planning, then you are more narcissistic than I am, which is difficult to be, so congratulations on that, I guess. But in my experience, you are not going to be the difference, okay?
There are books. There are YouTube videos. There are people on TV. There are other financial advisors who are hitting them up in the inbox all the time and they're getting emails, and they're reading personal finance blogs and they're inundated with this stuff. And if they're not, then you probably don't really want them as clients, I guess. That's a topic for another conversation. But my opinion is that you should spend time with people who immediately get why they should hire a financial advisor and why financial advice is important. [06:58.8]
I know that philosophy isn't for everyone. I know some people believe you should smile and dial and push and shove your way into the marketplace. That's not me. I believe you should be aggressive about what you do. You should not be squeamish about selling. You should have a rock solid belief, but you should not try to twist someone's arm into seeing your value, and just like I said or I alluded to, those people tend to be pains in the butts, and you probably want to work with people who make you happy.
Another reason why I say price can be part of your marketing strategy is because certain prices attract certain clients. Let me tell you a story about Build-A-Bear Workshop, and, hopefully, you can learn a lesson from this. In 2018, Build-A-Bear Workshop ran a promotion called Pay Your Age. This meant, if you had a 6-year-old, you could come in and build a bear that would normally cost $30 and only pay six bucks. If you had a 2-year-old, guess what? You whip out a $2 bill and you are good to go. [07:54.0]
It was the first and last time they ever ran that promotion because it was an absolute dumpster fire. There were long lines, crying kids, and even violence. Yes, I'm telling you the truth, people broke out in fights at Build-A-Bear, okay? I mean, if you don't believe me, you can google it. Google Pay Your Age Day at Build-A-Bear and read all about it. People waited in line for hours to save 20 bucks on a bear.
I'm sorry, but I don't want those people as customers. I would never dream of doing a promotion like that to attract people like that. The police even got involved. They shut down the stores because people were getting too unruly. The whole thing was like a powder keg getting ready to explode with little sparks going off everywhere. The parents must have been like, Little Billy gonna get his bear. If you try to stop us, we shall engage in fisticuffs. The parents just went crazy. The CEO even put out a public apology. It was bad, y’all. It was bad.
But what can you learn from this? You can learn that your price by itself can be a qualification mechanism. Ferragamo penny loafers are 900 bucks, $895 to be exact at time of this recording, and if I have a thousand men in a room and I ask, “Hey, is anyone interested in buying penny loafers?” I might get 20 or so men to raise their hands and say, “Hey, hey, yeah, I'd like some penny loafers.” [09:13.6]
But how many of those people would end up saying no once they saw the price? I’d say, “Okay, here are the penny loafers. They're $895.”
“Oh, nevermind, I don't want penny loafers. No, no, no, no, no, thank you. I would never pay that much for penny loafers.”
Therefore, I would be better served by being transparent about the price, and I guess the lesson under the lesson here is that if you're going to price higher than most people, you should be transparent. Yet that's not what most professional services providers do. They think they need to spend half an hour to an hour demonstrating their value to people before even disclosing the price, and I don't believe that one bit. [09:48.3]
Hey, financial advisors. If you'd like even more help building your business, I invite you to subscribe to James' monthly paper-and-ink newsletter, “The James Pollard Inner Circle”. When you join today, you'll get more than $1,000 worth of bonuses, including exclusive interviews that aren't available anywhere else. Head on over to TheAdvisorCoach.com/coaching to learn more.
Another way to powerfully position your prices—wow, that's alliteration for you, “powerfully position your prices”—is in terms of time savings. I want you to think about what happens when flights are overbooked at airlines. They begin offering discounts and perks and stuff like that to get people to take a later flight. If nobody takes them up on the offer, they sweeten the deal even more.
Let's say you have 150 people on a plane. You never see a stampede of dozens of people rushing to take advantage of these offers, even though they're offering discounts and sometimes free plane tickets. Why? Because people want to stay on their flights. They don't want to wait three or four hours for the next flight. They value their time and they value their certainty. [10:53.6]
What if your offer as a financial planner was positioned in such a way where people began visualizing the time spent worrying about doing things themselves? They could see it clearly in the mind. “Oh, my goodness, I spend a lot of time worrying or making a mistake.” It takes time to fix Roth conversion errors. It takes time to fix tax mistakes, and don't even get me started on being able to retire on time versus not.
How much is certainty worth, knowing you have a plan in place to ensure you retire at 60 instead of 62? When you explain it in those terms, an extra thousand bucks or so seems cheap in comparison. Would you pay an extra one-time $1,000 or even $5,000 fee if I could help you plan on a way to retire two years earlier? Of course, it's a drop in the bucket.
I will be transparent with you, this is one of my favorite ways to sell to financial advisors. I love selling time savings because it kills two birds with one stone for me. One, it makes whatever I'm selling easier to sell. Yes, I have products and services, and I’ll just tell you straight up, this will improve your life. And, two, it attracts the right types of financial advisors to me, namely the financial advisors who place a high value on their time. These are entrepreneurial financial advisors, and those are the ones I want involved in my world. [12:10.3]
Your high price can immediately send a signal to the type of person you want in your world. If you're nervous about this or scared to do it, it's probably because, and this is going to be hard for a lot of people to hear, but it is true, it's probably because your marketing machine is not up to snuff. You're not getting enough inbound leads. You're not setting enough appointments. If you can build your marketing machine, which is what I'm here to help you with this podcast, then you can begin attracting more and more opportunities.
Allow me to give you some math. Let's say that one out of every 50 people in your leads list are willing to pay you $3,000 for a financial plan. That means the expected value of every lead is 60 bucks, so 3,000 divided by 50 people equals $60 per lead. [13:00.4]
Now, let's say you raise your prices to $7,500 for a financial plan. Now, don't get too attached to the numbers, but I want you to take note of how you're feeling. If you have an emotional response to the number, whether it's too high or too low, I don't care. I want you to think about it, really understand where you are coming from. But we'll say that one out of every 100 people are willing to pay $7,500, so the expected value per lead is now $75. We went from $60 to $75 expected value per lead.
Now, of course, the real-world problem is that you have to get 100 people together to find one person who is willing to pay that price, and you might be thinking, Expected value is nice and all, but I have to find these people—and that's exactly my point.
Many financial advisors are unconsciously pricing their services too low, because they're poor marketers. They're worried about finding the people. They're worried they won't be able to find the people in the first place. They won't be able to find the people who are willing to pay higher prices. But that's exactly why you build a marketing machine using things like LinkedIn, your website, email marketing, and more. These things will get you in front of more people and you can take advantage of higher expected values. [14:12.4]
Since this is the Financial Advisor Marketing podcast, again, I’ll talk about an old yet often overlooked marketing concept, the unique value proposition. Having a unique value proposition is a proven way to improve your marketing success, but it requires having something both unique and valuable.
I’ve talked about this in previous episodes, so I’ll keep it short. There's a lot to be said about being different. If you try to fit in with what everyone else is doing, you will get the results everyone else is getting, so you want to be unique.
Next, your own psychology may be keeping you from charging more money. I referenced this in the last episode, but it's so important, I want to bring it up again. You need to stop thinking in terms of what you would pay for something and begin thinking in terms of how you can serve your prospective client. Your client is number one. Serving that person is number one. It's your priority. It should be today, tomorrow, forever, and for all of eternity, you are serving that person. [15:14.1]
I’ll give you a silly example because silly examples help illustrate my points well. As a teenager, I worked in classic car shows. I would be around old Camaros and Mustangs and pickup trucks and Model T’s all day long. These cars were immaculate. They were absolutely gorgeous, and the owners were proud of them.
A few of these cars were for sale. If you've ever been to one of these car shows, people try to sell their cars there. I remember, people would fall over them and wish they could buy them if they had the money, and I just never had that same desire. I don't know why, but I’ve never been bitten by the classic car bug. I mean, I like them. I think they're stunning, but I personally wouldn't spend a bunch of money on a classic car because it's not something I value. [16:00.0]
Now, here's the important part. If I were selling classic cars, I would sell the heck out of them. I would charge as much as I possibly could, given market conditions, and I would get every dollar I possibly could. Why? Because I know what I have. I would have a valuable scarce resource that someone else values more than the price I'm charging, period. I shouldn't charge less merely because I don't have a desire for the car, just like you shouldn't charge less because you don't have a desire for financial planning or figuring it out, or peace of mind or whatever, because you already know all the stuff.
Also, I want to throw this in here, too. If you're a tight wad in your personal life, you will attract tight-wad clients. I can't explain it, so I'm not even going to try. I would just tell you, if you want to get better clients, you must become a better client. It works. I don't know how I wish I knew. It just works.
The final reason I want you to raise your prices is because higher prices allow you to invest more in yourself and your business. Not charging enough will handicap your marketing because, quite frankly, you won't have enough money for effective marketing and to do cool stuff. [17:09.6]
Let's say you're working with corporate executives and you want to send all your prospective clients a book about executive leadership. You have 100 prospects and each book is $15. That is, again, clickety-clack, 100 times 15 is $1,500. If you're not charging enough, that may be difficult, and that's only with prospective clients. That's not even including any client-appreciation events you might do to show some love for your current clients. Client-appreciation events can be incredible referral sources, but you won't be able to wow your clients if you don't have any money.
Charging more and plowing the cash back into yourself and your business creates a virtuous cycle, because you can get more clients, make more money, which means you can invest more back into your business and those investments can get you more clients, and then you invest back in your business and so on, and so on and so forth. This works precisely because other people don't do it. Doing more by investing in yourself, it allows you to stand out from other people. It makes you unique, which can be a unique part of the unique value proposition. [18:13.5]
Also, you have to operate within economic realities. Imagine you're putting together a direct mail campaign. You want to do three steps, okay? You send a postcard, a letter, and then a lumpy mailing. The postcard might cost you $1, okay, for easy math. The letter might cost you $2, and the lumpy mailing might cost you $5. So, 1, 2, 5, that's a total of $8 to put each person through the direct mail sequence.
If your direct mail campaign sets appointments with 2% of those people, that means your cost per appointment is $400. Eight times 50 is $400. If you convert one out of every three appointments into clients, that's $1,200 per client, and your margin will dictate if you can keep running that campaign. [18:57.6]
If you charge more and thus have a healthy margin, you can endure rising marketing costs. You can pay the cost for direct mail campaigns. You can do more stuff. You can do more than direct mail. You can put people through the direct mail campaign and then try to get them on a webinar and then approach them on social media, and then you can put them through a landing page and try to get them on your email list. I don't know, you can do a bunch of stuff.
I know marketing, multiple marketing strategies is the holy grail for financial advisor marketing, and you need money to do it. Guess what? Also, online ads, prices fluctuate. Direct mail printing costs tend to go up over time. All marketing operates based on averages, and you might be below average for some time. If you're under average and charging more, you can weather the storm easier than someone who is under average and not charging enough. [19:45.3]
I hope this episode inspires people to raise their prices. I want you to understand that people have other motivating factors than mere price. Plus, charging more allows you to run a better business and serve people better, and that is what it is all about. It is about serving the client and providing the best possible outcome for the client and just improving that person's life. If you put those two things together, you can increase your profits literally overnight by charging more, and you can improve someone's life just like that more, and that's great.
So, raise your prices, and I will catch you next week.
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