Episoded 443: Accelerating Business Growth: Mastering Pricing Strategies and Seamless Exits with Carole Mahoney

Speaker A: Since 1974, I've read a book a week searching for what it takes to achieve business success. After thousands of books, hundreds of client success stories, and decades of hard won business wisdom, here's what I know for sure. Working yourself to death isn't a badge of honor. It's a failure of strategy. So thanks for joining us today. I'm Josh Patrick and this is the 5050 accelerator where we explore how real business owners are cutting their hours by 50% while growing their profits by 50%. No consultant BS here, no theoretical frameworks, just proven strategies from people who have actually done it. Because here's the truth. If you're still working 65 or more hours a week putting out fires and missing family dinners, it is what it is. But that's not how it has to stay. So let's get started. Hey, how are you today? This is Josh Patrick and you're at the 5050 accelerated podcast. And I almost said my old podcast named Cracking the Cash Flow Code, but we're past that now. Now we're going to help you figure out how you can work 50% less. And when you do that, your profits will automatically improve by 50%. So our guest today is Carol Mahoney, and Carol is the founder of Unbound Growth, which is a sales training company. But we'll talk a little bit about that at the end of the podcast. But to start off, we're going to talk about some of the issues that Carol has in her business and see how what her thoughts are about solving them. So let's bring Carol on and get started. Hey, Carol, how are you today?

Speaker B: I am good. Thanks for having me on.

Speaker A: Oh, it's my pleasure. I always enjoy recording these podcasts. They tend to be pretty good and fun conversations.

Speaker B: Yeah, no, I love the format of it because it's like, you know, people can learn from what I'm struggling with and I can learn from what they're struggling with. I think this is great.

Speaker A: That's the whole point. That's what we're trying to do. So one of your struggles, you said, was pricing strategy. So can you talk a little bit more about that?

Speaker B: Well, so one of the things that I'm looking at in my business now, um, as I prepare for my exit strategy, is what is our GR profit margins at? And with that, to change those is to be more effective and less cost. But really then raising our prices. And I've consistently been raising our prices throughout the years. And so for me, the struggle is how do I know when I'm overpriced and how do I know when I'm underpriced? And, you know, you try to do market research. Most of my competitors are not really willing to tell me how much they charge, so it's usually something I have to find out in the sales process. So that's kind of the challenge that I have is that as I'm looking at increasing profitability so that I can sell the company later, is really basing my strategy for pricing on some type of a formula versus my best guess.

Speaker A: So, um, my dum dum method for figuring this out is how many times are you hearing no and how many times are you hearing yes? So if you're hearing yes, say 97% of the time when you do a proposal, you're probably too cheap.

Speaker B: Okay. I wouldn't say it's 97%. It's. It's probably closer to. I want to say 50% of the time on average that the price is not an issue, whereas the other 50% of the time it is. And I have learned and found that it also depends on who the buyer is. Startup founders. A 1500 dollars program isn't really within the scope for them. And so it's then creating other programs that are within the scope for them that I find.

Speaker A: Right. Or just don't try to serve them to serve higher level people. People.

Speaker B: Right. That's. Well, that's part of my conundrum is I love working with small business owners and startup entrepreneurs. And so it's figuring out the price points and the value points for them so that I can still serve that and also have another higher profit margin, um, with other clients. The challenge is those larger clients take up a lot more resources than the small business clients do.

Speaker A: Yes. And you should charge them a lot more because of that.

Speaker B: Exactly. Yeah. I have to.

Speaker A: Right. So, um, have you ever figured out where your average hourly rate is for the work when you're actually working on a project?

Speaker B: Yes.

Speaker A: And what would the range be?

Speaker B: So the range is between, uh, 300 to 500 an hour.

Speaker A: Okay. It's probably not enough money.

Speaker B: I like hearing that.

Speaker A: Well, let me tell you why. You only have about 40 to 60% of your time that you can actually sell. So let's say you're working 2,000 hours a week, I mean, a year. And if we take 50% of that gives a thousand, that gives us 1,000 hours.

Speaker B: Right.

Speaker A: And if our effective charging rate is $300 an hour, that gives us a total gross of $300,000, which is pretty nice.

Speaker B: Yeah.

Speaker A: Um, but that all depends on what your expenses are. So let's assume you want to make a reasonable salary. That would probably be in the range of $150,000 to $200,000. So that leaves you with $150,000 to $100,000 for the rest of your expenses plus profit. So if you're trying to sell your business, and we'll go to. The other reason people won't buy your business by the way, is not your pricing, because they'll fix your pricing if they want to. Um, but the, but the thing is, if you go and sell a business, you're likely going to have a profit margin somewhere around 10 to 15, maybe 20%. Mhm. Is that a good guess?

Speaker B: Uh, right now I'm at about 30%, but yes.

Speaker A: Okay, so you're doing better than that. So 30% shows a nice margin. And are you happy with the money you're making now?

Speaker B: No.

Speaker A: Okay, so you have two choices on how to do that, which is reduce the startup guys that you really like working with and find more businesses that have 25 to 100 employees that have been around for five to 10 to 15 years. They can afford to pay the fees that you need to get paid. Um, or just say I really like what I'm doing and I'm willing to make less money for that.

Speaker B: Yes. And or so this is my thought is for the smaller clients who maybe can't afford what I need to charge per hour in order to hit those numbers is my thought is to create self, uh, serve systems for them that can be like a monthly recurring revenue for me and a smaller price point for them. But they're still getting some of what they need in order for them to solve the issues that they have.

Speaker A: Or what you, or what you could also do for your smaller clients is charge them a small retainer and then a piece of the increased sales that your, your system creates.

Speaker B: Mhm. Yeah.

Speaker A: You know, for example, if you go to a startup and you say happy to work with you, but my average fee is $10,000 and I know you can't afford that. But here's what I'm willing to do. I'm willing to work with you for $500 to start, but you're going to give me 20% in the increase of sales over the next three years. And if what you produce is really good, you're making them a no risk offer.

Speaker B: Right.

Speaker A: And that could, if you're working. I, uh, the challenge with this is this is especially true with startups, at least in My opinion is that the challenge comes in is most startups don't know anything about running the business and they tend to push back on everything that you recommend unless it fits in with their belief system. So that's the real challenge with startups is that they're, most of them are not going to be here five years from now.

Speaker B: Which is why I try to focus on the ones that are uh, backed by venture or they have accelerators that they're in that are teaching them how to run and create a business.

Speaker A: If they're backed by venture capital, they have capital.

Speaker B: Yeah, yeah.

Speaker A: And venture guys will probably spend the money on sales training because for them top line is everything.

Speaker B: Exactly. Which is why I really try to focus on finding the right, uh, investors that I know have good ethical reasons for the startups that they invest in and try to work with those particular ones. So that's. So I don't go after them one to one. I try to find the communities where I know the ones who are serious and going to make this happen are and try to work with the organizations that way is my go to market strategy.

Speaker A: So I would, in that particular case I would definitely be looking at a revenue share.

Speaker B: Mhm. Okay.

Speaker A: You know, that's my, that's the thing that I would, I would probably be experimenting with. And the key here is experimentation.

Speaker B: Right. And the first thought that comes to mind is that there's uh, a lot of admin on the back end of that that I would need to put onto my team because I don't want to be chasing them. And even the sharing of information of uh, you know, what are the numbers, how do we share those numbers, how do we authenticate those numbers, how does that payment get processed? That's a lot more admin work that I um, would need to consider.

Speaker A: I think actually you can make that really simple. You could ask them to send you quarterly financial statements.

Speaker B: Mhm.

Speaker A: And all you need to see is their top line. And then you can also ask them for their annual tax return which will show you what the real top line is if they're not reporting correctly.

Speaker B: Yep, yep,

Speaker A: good idea. And I would put some sort of a penalty in your contract if people give you false numbers. So you want to have an incentive for them to be honest, not to be dishonest. Right. And it's really simple. You could set up a spreadsheet, you could set up um, a billing system and have a virtual assistant. Take that over very, very easily.

Speaker B: Yeah, that's what I would do for sure.

Speaker A: Yeah. And I would start off with, you know, one client, maybe two clients. See how that works? Mhm. Uh, what's your timeline for an exit?

Speaker B: The next 15 years.

Speaker A: Okay, so you have a long Runway to go.

Speaker B: Yeah, um, I like to get the business to the point where it's appealing in the next five years, but I don't need to sell it for like another 15 if I sell it sooner. I'm not opposed to that either.

Speaker A: Okay, uh, what you want to do is I call having your company sale ready.

Speaker B: Yes, exactly right.

Speaker A: Sale ready does not mean you're going to sell the business. It just means it's a business in a position for someone else wants to buy.

Speaker B: Right. And I want to do that in the next five years.

Speaker A: Right now there's two things that make buyers really interested in businesses. What do you think that might be?

Speaker B: Profitability. Uh, recurring revenue. Um, assets. One, uh, one company that I talked to said that they look at gross profitability assets in term of employees as well as your ability to not be disrupted by AI or you have incorporated or created your own AI. And recurring revenue is what they told me.

Speaker A: Okay, well, recurring revenue is on everybody's list.

Speaker B: Yep.

Speaker A: And the second thing is you have to become operationally irrelevant.

Speaker B: Yes, I forgot it. The most important one it can be relying.

Speaker A: That's the most important one. If you haven't done that, your business is essentially not saleable.

Speaker B: Exactly. That's why I didn't call the company Carol Mahoney.com I hosted it on Von Growth.com.

Speaker A: well that, that was a really good move by the way. Too many people. I mean, I made that mistake in my first company. It was called Patrick's Food Service. Uh, people didn't really care what the name of my company was. They just wanted our accounts because Patrick Food Service disappeared the day they brought it. But that was. Yeah, but my, my other businesses have nothing to do with my name.

Speaker B: Mhm. That was by where they incorporated it into their own business.

Speaker A: Yes.

Speaker B: Okay.

Speaker A: Yeah. You always want the best buyer from most private businesses, believe it or not, is a strategic buyer.

Speaker B: Yeah, that's what I'm starting to see.

Speaker A: Yeah, like if you have another sales training company that's interested in what you guys do, they would be a good buyer because A, they understand the industry and B, they can make all your overhead disappear. Mhm. And that's why strategic buyers can afford to pay more than what's called a financial buyer, which would be a private equity group. Yeah, that's your typical standard sort of. Um, um.

Speaker B: And the person Who I talked to was, I think, ah, a private equity person. So.

Speaker A: Yeah, well, you know, private equity guys are really smart in certain instances, but they really have no business buying small companies. Um, I'll tell you a quick war story. I recently helped a, uh, managed services company sell their business. It was a $1.4 million business and the guy was making $800,000 a year. So it was a really, really price and he wasn't involved in anything in day to day operations. And the private equity guys came in and they went through this stupidly complex process to buy a small little business which should have been a petty cash check they wrote. And then they immediately ignored everything he did that made all this money, moved all the service stuff offshore and lost 50% of the business. Wow. Uh, that's a typical private equity move that is not unusual. I see that happen over and over and over again. And then challenge comes in. Is that how do you, you know, um, if you're going to sell a private equity, you pretty much have to have the opinion that I don't care what happens in my business afterwards. Yeah, you could.

Speaker B: The other option that I was considering is doing an employee stock option where um, I, you know, find a key set of employees and as part of their salary negotiation is that a percentage of their base salary gets put into an account towards them being able to buy the business later. Because I mean, I love the idea of it continuing on. And then if they want to sell it as a strategic sale or as a private equity, then that's totally up to them. But they get all of the IP and the assets and the systems and the processes and the client list to keep running if they want to.

Speaker A: That's my favorite way to sell a business.

Speaker B: Yeah, that's my preferred way to do it, um, with I think strategic by probably being the secondary and then, you know, the third being private equity.

Speaker A: Right. So if you decide to do an internal sale, um, you have to realize one, you're not going to get as much money as you do from a strategic sale.

Speaker B: Yeah, yeah.

Speaker A: Because if there's one thing true about employees or team members, they don't have any money.

Speaker B: Which is why I was thinking, and someone that shared this with me is if you can, uh, negotiate so that that money is getting put into the bank and then that becomes their base for being able to buy the business. And maybe they have to take out a small amount or something. I'd rather not have to do that, but I don't need to sell it for tens of millions. Of dollars to be happy with the outcome.

Speaker A: Right. Right. So what you're going to want to do is, or what I would recommend you think about doing is, um, it's a good idea for him to put money away, um, as part of a bonus, where you take a bonus and you pay them. Let's say they get 50% cash and 50% goes into this, um, account to buy your business. It probably won't produce enough money to buy your business totally. But it'll be enough for a down.

Speaker B: Right.

Speaker A: The other thing you want to be really important about it, if you're going to be the bank, and you likely will be the bank, if you do an internal transaction, you want to act like a bank, which means you want to get personal guarantees, you want spouse's personal guarantees, and you want to tie their house up because that's the only thing they have that's a real asset, as a rule. And it takes an owner's mentality to do that.

Speaker B: Yeah.

Speaker A: So one of the things you need to do with the key person is, is to help them move from having that employee or team member mindset to an owner's mindset. And when you do that, um, what happens is they realize that, well, if I want to be the owner, I'm going to have to take some financial risk.

Speaker B: Yep.

Speaker A: And if they know the bit and if they know the business, there's no, not much of a financial risk.

Speaker B: Well, in my mind is that, you know, I've spent 20 years in building, uh, a platform and an audience and the systems and the processes. And, yeah, my house was definitely on the line for all of that. And now I'm handing them all of it already done. To continue to run on and improve. So I feel like that's worth something. I, uh, would mean if someone had given me that opportunity, I would have snapped it up in a moment.

Speaker A: Well, it's a whole lot easier growing a business that's already running than starting a business from scratch.

Speaker B: Yeah.

Speaker A: I've done both. And I can tell you that I

Speaker B: got the gray hair to prove it.

Speaker A: I have no hair to prove it. But that's.

Speaker B: You win. Yes. You win on that one.

Speaker A: Yeah. I think you're a good 20 years or 30 years younger than me, so I'll take that. So. But that's. That's really important. So, um, if you can learn how to become operationally irrelevant, which means that you're only working on strategic things in your business, not operational stuff, right now you have a sale ready company, and then the people who are doing all the operational stuff. Those are your likely buyers. Um, the other thing is you want to structure the deal. And this is another important thing that many owners miss. You have to make it affordable for the buyer. And the reason is, is that if there's not enough cash flow for the buyer to make their payments, they won't. I see way too many owner finance deals go south because the owner was too piggy when they wrote the deal.

Speaker B: Right.

Speaker A: Like one of the things that we deal with folks, is that we um, often will say, oh, for the owner, you're going to get what's called not qualified deferred compensation. M Now what non qualified deferred compensation is, is that you've underpaid yourself while you were building your business. Mhm. So you can put together a legal structure that says I would like to be paid, uh, let's say $100,000 for the next 10 years as a going away president for being underpaid. Now the good news for the buyer when you do that is that becomes tax deductible. So um, for every dollar that they do for deferred comp, it actually saves them 80 cents in taxes, believe it or not. And for you, you say, well, gee, I don't want to pay that higher tax rate. If you're looking at what's called the average tax rate versus marginal tax rate, and this gets a little bit wonky, but it's really important is that uh, your average tax rate, let's say you're making $200,000, your average tax rate might be 21 or 22%. Your marginal tax rate could be as high as 30%. But you want to look at the average tax rate because that's what you actually pay your taxes.

Speaker B: Okay.

Speaker A: So the difference often when you're doing this methodology is only a couple of percentage points between capital gains and average tax rates. Mhm. So when you do that, let's say you make 50% of your deal deferred compensation, 50% of your deal is cash. They've saved a down payment that's 25%. So they only need to come up with 25% after tax dollars. But that 50% is all pre tax dollars, which saves them a ton of money and makes the deal much safer for you because they're using pre tax dollars, not after tax dollars. Does that make sense?

Speaker B: Yep. Yeah.

Speaker A: Cool.

Speaker B: I mean that's, that's how I, I plan for my retirement portfolios is pre tax versus post tax. And you know, and I balance those two things out. So it Works the same way for the business.

Speaker A: Yeah. And the other thing that you can do, by the way, thank you for bringing that up. Um, I don't know how profitable or how big your business is. Uh, and we won't go into that right now. That would be a conversation we'd have privately if we did it. Um, but, um, if your business is reasonably profitable, you can literally put almost as much money into a retirement account as you can imagine.

Speaker B: Yeah.

Speaker A: If you're over 55 years old, you can put as much as $300,000 a year and deduct it into your qualified plan. And that's called a hybrid plan. And what it does, it compares a 401k with a profit sharing plan with a plan which is hardly talked about, but it's called a cash balance plan.

Speaker B: Okay. Cash balance. Because I did the first, but I hadn't heard the cash balance plan.

Speaker A: Cash balance is the third piece, and that was. Gets you to a couple hundred thousand dollars more.

Speaker B: Okay.

Speaker A: Um, and I assume if you have a 401k guy, you could ask them, uh, or her and say, hey, I heard about this thing called a hybrid plan, which combines a 401k, a profit sharing plan and a cash balance plan. Could you look at that and tell me how much money I can put away?

Speaker B: So I just did that. So I do have a hybrid plan because it has a 401k and a profit sharing in it. Um, but I don't remember talking about the cash balance part.

Speaker A: Yeah, the cash balance is what makes it higher. Hybrid, 401k and profit sharing. A profit sharing plan, believe it or not, is a subset of a 401k plan.

Speaker B: Okay.

Speaker A: So it's actually part of the same plan, but the cash balance is something you layer on top of it. It requires an actuary every year to look at it, and the cost is a little bit more. A couple thousand dollars more. But if you're putting away an extra $100,000, that's irrelevant.

Speaker B: Right. And this is once you're 55, because I'm not there yet.

Speaker A: Well, you could always look at and see how much can you put away.

Speaker B: Yeah, yeah, yeah.

Speaker A: I mean, my bet is you could probably put away $100,000. M. So that's the, uh, that's the easy way. I call that pre funding your retirement.

Speaker B: Exactly.

Speaker A: Because often we have more cash flow available before we retire than after we sell the business. So, um, you know, unfortunately, I've been, you know, yammering around, and I've. I've chewed up almost all our time. And I want to hear a little bit about what does your business do and how do you do it? And how do people get a hold of you if they want to learn more about what you do? Because you seem to be a pretty flexible, uh, and interesting person.

Speaker B: Well, I thank you for that. Uh, so what our business does is that we work with small business owners and entrepreneurs, startup, uh, founders, as well as established sales teams to. What happens is that we often go out and we try and use all of these different tools and tactics to get better at sales. It's the latest trend, the latest fad, the latest process. But what a lot of times they don't realize is that their lack of sales results isn't due to the tactics that they have, though that's part of it, but often how they think about sales. Especially for small business owners and entrepreneurs who don't like to think of themselves as salespersons and even sales teams. A lot of times what I find is that organizations will have the people who are doing the operational work, the delivery work, who then end up getting into sales also don't like to think of themselves as salespeople. There are very few people in the world who as a kid said, I want to be a salesperson when I grew up. And that's what they did. And so I really help these teams to address what are the underlining causes of pad sort of sales performance. And we use an assessment that uh, is based on two and a half million sales professionals that have specifically been evaluated for specific sales tasks and roles. And we align that to create custom learning paths for themselves or their teams, both at the delivery level of selling to the customer or, or the management level of actually managing those people who need to do the selling or the leadership level that creates those systems and processes for the company to be able to grow and scale. As we apply a scientific data based neurological science as well as behavioral science to how we change the behaviors and sales so that we can increase revenue more predictably and keep more of those customers for longer because it still costs more money to get a new customer than it does to keep one happy. And so that's what we really. It's not just sales training, what the latest tactics are. Huh? But how do you actually create a sales process and structure and mindset that serves our buyers first? Which is why I wrote my book, Buyer first How to grow your business with collaborative selling. Rather than selling to your customers. We help them sell with their customers.

Speaker A: Sounds great. So Carol, how would they find you

Speaker B: so the best way to find me, uh, for our training site that I just mentioned is@unboundgrowth.com I also do a lot of keynoting and speaking, and you can find me there@carolmahoney.com m just my name spelled out. And if you want to find me on social media, I am on LinkedIn on a regular basis. And if you really want to stalk me, then you can find me on Instagram and on Facebook.

Speaker A: Cool. And I've got two things I'd like you to do. The first is please go to wherever you're listening to this podcast and give us an honest rating and review. If you love us, you give us five stars. If you say, oh, Josh, you're full of junk, give me one star. I might cry a little bit, but I'll probably get over it and you won't even know. So there you are. The second thing is, if you have own a business and you have a story or you want to talk about stuff that would make your business better and become 50% more profitable while working 50% less, send me an email at Jay Patrick and stage2 solution.com and I will send you back a link. We'll talk a little bit about whether you'll be a good fit for the show, and it would be good for you and good for us. And if the answer is yes, then we'll book you there as a guest, just like Carol. Uh, I think that there'll be a lot of fun, and I love doing these things. And most people come on the show, I think learn something that's valuable for them as well.

Speaker B: Oh, I have a whole page, Josh. I learned a lot.

Speaker A: Uh, cool. Cool. So this is Josh Patrick. We're with Carol Mahoney. You're at the 5050 accelerator podcast. Thanks a lot for stopping by. I hope to not so, but I hope to see you back here really soon. Look, I spent enough mornings thinking and writing about what it takes for business success. Here's an important final thought. The old ways work for a reason. But the best legacy isn't just about what you build. It's about building something that outlasts you without burning you out in the process. If you found value in today's podcast, do me a favor. Take 30 seconds to rate and review the show. And, uh, yes, I mean honest reviews. I'd rather have the hard truth than empty praise. Your feedback helps other business owners find these conversations. Hey, I'm Josh Patrick, and this has been the 5050 accelerator. If you're ready to work less and profit more. Make sure you subscribe wherever you get your podcasts. And remember, you've built something incredible. Now let's make sure you're actually around to enjoy it. See you next time.