What To Do When Your Pricing Model Doesn't Match Your Avatar | Ep 865

In this episode, the host discusses the persistent problem small businesses face with customer churn, especially those selling to very small business owners (VSMBs). Many businesses find themselves stuck in a cycle of acquiring new customers only to see them leave shortly thereafter, often due to the disconnect between the services provided, the pricing, and the customer type.

The core issue is that many businesses either deliver too much customization for low-paying customers or fail to offer sufficient volume services that can scale effectively. The host emphasizes the importance of aligning service delivery and pricing with the needs and capacities of the customer avatar to escape what he calls the ‘no man's land’ of customer service that leads to high churn rates.

Two contrasting examples illustrate this point. One is Shopify, which maintains a high customer acquisition rate but still loses around half of its customers within the first year. The other example involves an acquaintance who successfully managed to keep his service-based agency profitable by adjusting his pricing structure to provide high value at low cost, resulting in a significantly longer average customer lifespan.

The host argues that businesses must choose: either target more stable, higher-paying clients with customizable services or pivot to a more scalable model serving lower-paying clients, ensuring high gross margins. The episode underscores the significance of understanding one’s market and the importance of operational leverage for scalability, encouraging businesses to introspect on their growth strategies and customer relationships to foster sustainability.

Key Takeaways

• Identify the mismatch between your business model and customer avatar.
• Choose between scaling services or moving upmarket to stabilize customer retention.
• High gross margins are crucial for maintaining a sustainable business.