In my neck of the woods, paying what you can or possibly what you feel like is an attractive new business model that is getting all the rage.
Unfortunately, as of now, it is currently only offered at the local barbershop but seems to slowly expand as there is incredible demand. As of now, this can be a prime example of the pink tax.
Since supply chain disruptions and bottlenecks donât affect all industries equally or as hard as consumer staples and defensible goods, barbershops have more leeway and opportunities to take advantage of these inflationary times.
If your business is almost always in demand and offers desperately needed haircuts, this new pricing model can easily entice new customers or existing ones to pay more!
So you may be wondering, how is the barbershop able to survive without pricing power?
A barber in itself is a business since you are always working on your own. Like a salesman and hairdresser, they get a base annual salary, benefits, IRAs, and flexibility, except for work from home, obviously, but they work on their own terms and usually have more control over how much they make than one in an office chair. They arenât tied to one salary. In fact, they arenât reliant on anyone except themselves. The real entrepreneurs that are financially free and flexible know this inside out. They have never been financially supported by anyone since they know it is the riskiest choice of all.
In fact, the worst risk is not taking one at all so you must be willing to test the waters, especially with your earnings. With this mindset and ability to control their earnings potential, the power is handed off to the customer in terms of what they are willing to pay.
How does this price sell?
To stay in business you need to have an audience, know the audienceâs desires, and have a personal emotional spark. We all have our favorite venues, bodegas, coffee shops that we religiously support. Oftentimes it is because something clicks. Either a person, price, vibe, experience, or feeling we receive from it. Possibly a hit of dopamine, relaxed mind, or purchasing power!
Barbers, business owners, contractors alike find and secure their own leads to convert to customers and what makes them qualified âbusiness ownersâ is that they earn income from supplemental side hustles and earn tips in the form of cash.
Earning cash and equity-based compensation is more tax advantageous than a higher salary. Up to a certain pre-taxed annual income, ~500k you will paying more in taxes over your lifetime than storing. Plus due to an inflationary lifestyle, you will be better off earning a lower annual salary and more from passive and portfolio income sources that are tax-deductible.
At the end of the day, itâs not what you earn, itâs how much you keep.
Feel Good Purchase
My familyâs contractor has been working with us for almost 2 decades now. Heâs worked on all of our rental propertiesâ renovations, including my own primary residence in the suburbs and in the city. He isnât the contractor that never answers the phone and charges double for the supplies paid for at HomeDepot.
He is reliable, trustworthy, and honest because the customer is in control.
Heâs become extremely superb at his craft as a true salesman and is the number one person we call when having to deal with any renovation at any time.
The secret is, he lets customers choose what his work is worth within a reasonable and realistic price range.
This reverse psychology mechanism allows customers to actually be more inclined to pay extra for his work since we feel in control, not told what to pay and what is charged. As long as you are given a price range, youâll be surprised how good it feels to choose and you may even end up paying a bit more!
As a business owner, whether it be a barber or contractor, they usually only accept cash tips or cash for their entire project. Cash provides you tax advantages to be able to report a lower annual income putting the cash straight into your pocket or preferably your tax-advantaged account.
Every day business owners, typically those that have the dirty yet rewarding jobs of such as plumbers, electricians, contractors, and barbers are the ones with the most financial security as they report as little earnings as possible to reinvest into the business and into pricing power systems such as the ones above! A win-win for both sides as the customer feels emotionally invested and happy to pay more than what they were intending given the power is in their hands!
I would encourage, Big Tech, also known as cash cows with massive balance sheets to AB test this system. Although Apple is designed for the wealthiest billion people on earth who use the IOS operating system, itâs worth a shot to try out. Apple is only a few gains away from a $3T market cap for goodness sakes! They could buy most of the companies in the S&P500 and still have the largest FCF balance. They have nothing to loose.
Since the pandemic began, business has been tough for small businesses. The least we can do is support them and feel good about it. Although itâs hard not to shrivel up into a ball when a bar of sop costs $20 at the local shop, itâll feel better if that business gave their customers and clients the opportunity to chose a price within a range. This is negotiating power at its finest and clearly works!
The Priced & Practiced Alternative
Although these two examples are local, the âpay what you can modelâ pays up and is more widespread than we think! For example, self-employed contractors, entrepreneurs, and creators alike provide customers the bargaining power on what they can pay for their services all the time through the power of negotiation.
Life is a negotiation in itself.
People cause problems and solve them through communication. You may not officially institute the âpay what you can modelâ but you sure do have a voice and can allow your customers or as the customer yourself, to voice what you are willing to charge or spend.
Nothing is set in stone in life. This is a principle I learned a bit too late in life. There are various systems, rules, and guidelines in life that make absolutely no sense to anyone but we continue to follow them since no one is willing to improve them! Negotiation is one step closer to making everyoneâs life easier.
If you arenât willing to show up and ask, youâll never know!
If you can make your customer happy and emotionally connected, that is golden. They will do the marketing, sales, and referring for you and practically work for you then!
Although luxury brands refuse to lower the price of their $700 handkerchiefs or $400 sunglasses and still outperform during a recession due to the flaunting power of the ultra-wealthy mixed with the obsession of scarcity, ownership, and authenticity, sooner or later they will face tough competition when negotiation and pricing power comes into play in the hands of consumers.
Options are always helpful. Keep them open and both sides will be pleasantly surprised and rewarded.