Are You Pricing for Your Clients or for Your Business?

Introduction:

Pricing a service business sounds straightforward—until you actually have to do it. How much should you charge? What’s reasonable? And what happens when “reasonable” isn’t enough to keep the business healthy? This week, Sarah Segal walks David C. Barnett and Liz Picarazzi through how she thinks about pricing her PR services—why she aims for consistency across clients and why she resists charging based on what the market will bear but insists on building in enough margin to stay profitable. It’s a balancing act between values and reality, and not always a comfortable one.

The conversation gets into practical questions every business eventually faces: Do you raise prices a little every year, or wait until you’re forced to raise them more than just a little? Do you price based on your costs—or your customer’s perceived value? And how do you handle those conversations without damaging relationships you genuinely care about?

Plus: Liz expects a tariff refund—but isn’t counting on it to help very much. She also explains why she’s stopped flying employees around the country for installations.

— Loren Feldman

Guests:

Sarah Segal is CEO of Segal Communications.

David C. Barnett helps people buy and sell businesses.

Liz Picarazzi is CEO of Citibin.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome Dave, Liz, and Sarah. It’s great to have all of you here. I want to start with you, Sarah. There’s a lot of uncertainty in the world right now, and much of it is pushing businesses in the direction of raising their prices. But of course, that’s not always an easy thing to do. You recently reworked your billing rates. What exactly prompted that?

Sarah Segal:
That’s always a good question. So with most agency models, we log our hours for any given client. Each team member is in a system that we use where we line-item what their billable rate is, and every time they log an hour, it basically goes towards the retainer that we charge the client. And when we work with a client, I use the three-month rule, where I’m not going to call them up and be like, “Hey, give us more money,” if, like, one month we’re over-servicing them. I usually look at three months.

And so if there’s a consistent trend of like, “Okay, you’re giving us too much stuff for the amount of money that you’re paying for us. Let us know.” But in the same sentence there, I also work really hard to make sure that my senior-most people, who are my most expensive people, are not doing the things that junior people should be doing. So we went through and kind of reworked our billable rates. And there’s a classic structure you look at: You look at kind of what you pay the person and their benefits. You look at your overhead on a monthly basis of all those tools and services that you use to keep your doors open. And then you add in your profitability. So agency standard profitability is it’s always nice to be around 20 percent.

When I’m looking at billable rates, I’m looking at a person’s salary, their payroll taxes, what we’re paying in for their HSA, if we’re doing a match to their 401(k), all of those details. And I’m literally going through and quantifying that. But the billable rate that we determine is not based on the person. It’s based on their title.

So if they are somebody who just became promoted to a manager, their billable rate will actually be set at the far end of that spectrum. So like say, they were making a round number, like $50,000 a year, but someone who’s been in that role for a couple of years may make $70,000, we’ll price their billable rate towards the $70,000 so we’re not having to rework those numbers at any given time.

So yeah, it’s been eye-opening, and I’ve had to do a lot of shifting on the back-end again to make sure that my senior people aren’t doing things that they can pass off to less expensive members of the team. But it was an awesome practice to go through that.

Loren Feldman:
One point of clarification: Did you also increase what your retainer fee is to clients, or are you just increasing how quickly they run through it?

Sarah Segal:
I’m increasing how quickly they run through it first. But I’m also looking to see and make sure, like, “Okay, if this is our real billable rate and this ensures our profitability, is there anything I could do on my side first?” That’s where we are right now. Can I do something on my side first to make their budget stretch? And I’m honest with clients.

I had a great conversation with one of our clients the other day who wants us to do additional work. And I said: Okay, that’s great, but this person who’s been doing a lot of your work on your team, I can’t have them doing that much work anymore. We’re going to be bringing in some junior people because I’m working for you. I want to do this. But I want to stretch your dollars even further. And people are pretty reasonable.

And it’s not necessarily me going out immediately and saying, “Pay us more.” It’s more, when those conversations naturally arise, I’m armed to have those real conversations and explain, “You know, I love you. I love working for you. I think we have a great relationship, but I also need to be profitable.” So, it’s not triggering me to knock on people’s doors—yet. To me, that naturally comes, because also, I can’t be changing my billable rates and then just turning around and demanding that of my clients, because I committed to the retainer that we agreed on. And unless it’s based on the workload, I can’t just be like, “Hey, our price has changed.” I’m sure other people do that, but I don’t feel comfortable doing that.

Loren Feldman:
You said that going through this process was eye-opening. What did you learn?

Sarah Segal:
Well, I learned that my billable rates weren’t as high as they should be.

Loren Feldman:
That’s an important thing to learn.

Sarah Segal:
I know. I did learn that my blended rate was on target, though, so I’m happy that the number that I came up with a couple years ago for our blended rate was on track. But it was my operations manager and my CFO who were like, “Listen, you have to price these out at the top level so you’re not always changing things.” And I was like, “Okay, well, that makes sense.” But you know, I’ll do PR for anybody. I’d like to do it for free for everybody, because I think it’s an awesome part of communication. I love what I do, but I also have to make sure that I can keep my team employed and keep the lights on and keep the business running smoothly.

So it was very eye-opening, because there were little things that I wouldn’t have necessarily included if I had sat here doing the math, but they also included things like the number of vacation days that somebody is allocated per year, because that impacts how many work hours they are available to do work, which then impacts their billable rate. So there was some math that I wouldn’t have thought of.

Loren Feldman:
In pricing decisions, there’s always kind of a balance struck between what it costs you to provide a product or a service versus what you think that product or service is valued at by the consumer of it.

Sarah Segal:
Right.

Loren Feldman:
It sounds like you’re focused primarily on the cost of providing the service, as opposed to what the market will bear. How do you think about that?

Sarah Segal:
That’s interesting. So, yeah, I don’t know. I really like being fair with people, because we work with a lot of small- to mid-size businesses who know they need what we do and need to be able to have that kind of support and expertise to get to the next level of growth. And so, I always want to be fair with people.

Yeah, there are clients out there that have much deeper pockets for sure, and you can just [go], “All right, I think they’ll pay this amount of money and do that.” And I get that, but I like to be consistent, so I’m saying the same thing to everybody I’m working with. And so, if I can be fair and know that I’ve built in that profitability, that margin that I’ll get back, then I know that I’m doing the right thing. And then I’m not giving one shop owner one price and giving a corporation with deep pockets another price. Like, what happens if they talk? I don’t want to be in that situation. I want to give everybody the same numbers.

Loren Feldman:
Dave, how do you approach that? I know your pricing system is different from Sarah’s, but in terms of balancing what it costs you to provide the services you provide versus what people are willing to pay, how do you approach that issue?

David Barnett:
Well, I think only about what I think people are willing to pay. And if they aren’t willing to pay enough, or if I can’t deliver it in a profitable way, then I figure there’s not enough real demand for it. In listening to Sarah, the way that you’re sort of costing out what you need to charge for your people, your profitability is only assured if you’re actually selling all their available hours that you budgeted in this formula—and please correct me if I’m wrong. So you’re charging people a retainer of X amount of dollars every month, and then, based on the work you do, you’re deducting from that retainer for every hour that people work on the file?

Sarah Segal:
Yeah.

David Barnett:
And it’s only if we run out of money consistently for three months that you ask them for more money every month, is that correct?

Sarah Segal:
Yes.

David Barnett:
Okay, so what proportion of your clients do you expect to be asking for more money in the next few months?

Sarah Segal:
That I expect me to be asking for?

David Barnett:
Yeah, to tell them, “Hey, we have to bump up your retainer because you’re running out of budget every month.”

Sarah Segal:
Not many. Honestly, I probably have that conversation maybe once a quarter with a client.

David Barnett:
Yeah, so, I remember when I used to jokingly refer to Costco as the $200 store, and now I can’t seem to get out of there for under $350. And everything goes up every year, and I’ve seen so many people get into a trap where they’re trying to avoid raising prices or trying to avoid asking their customers for more money. And they feel very good about figuring out how to do that. But then what happens is three, four years go by, and then they have to go and ask people for, like, 20 percent more money.

And it potentially creates a real problem, because then the move you have to make at some point becomes a pretty big move. It makes me a little bit anxious to hear you do that. I review my prices every year, and it’s rare that I leave any of them alone. Even if I just move up by one and a half, two, three percent, I make a move everywhere, just because I know that all my costs are going up.

Sarah Segal:
So how do you communicate that to your clients? I’m curious, like, we sign an annual retainer. And, you know, it’s not their fault if I price it incorrectly, or I’ve said yes to too many things and haven’t put a cap. But most of our clients, we have a cap on the number of general hours that we’ll spend on them. So if they do go over those hours, I can be like, “Hey, listen, we capped you at 25 hours a month, but we’re spending about 35 hours a month. Let’s have a conversation.”

David Barnett:
Yeah, I think it’s all about communication, and with the way that you do it, I think that you could give people a heads up a couple of months before their annual review. And you could say, “You know, based on cost increases in our business, your budget is now going to fall from 25 to 21 hours—unless we increase your retainer amount.”

Sarah Segal:
Oh, that’s an interesting way to approach it.

David Barnett:
Because if the hours are costing more and more, your clients are using them more quickly. You’re going to have to say, “Look, we can either cut some of the things we’re doing for you, or you have to maintain the same amount of hours, which means increasing your monthly allotment, your retainer.” Everything else in their business is going up and they’re trying to figure out how to charge their customers more. This is not gonna surprise anybody.

Sarah Segal:
No, it’s not. What’s interesting about this is, I am a mid-size agency and working to be bigger. And I will often talk to current, past clients, friends who work for other agencies about the deliverables that other larger name brand firms charge people for their services, and what are the deliverables that they provide? And what’s interesting is that there are a lot of agencies that won’t even have a conversation for less than $25,000 a month. And then you ask the follow-up question, like, “Okay, what do they deliver?” And it’s literally the same stuff that we do. It’s just they have to obviously charge more because of their overhead.

We had a situation recently where we’d been working with a client for the last year or so, and they emailed me. And they said, “Hey, listen, we really love you guys a lot. It’s been an amazing experience, but we’re going to have somebody else do this work for us, who is a lot less expensive than you.” And I replied back, and I said, “Oh, okay, well”—because I thought that we had pretty good pricing and was fair. And I said, “Are you going overseas for this support?” And they said, “No, no, we are working directly with a person who’s just starting her agency. And, you know, will give us a really good price on it.”

And it made sense. That person is a single contributor and has no overhead, so they probably charge a lot less and get a vanity name on their website to grow. And I can’t compete with that. But thinking about pricing structure, there’s overhead and there’s a vanity metric. So, coming to Segal Communications, you’re definitely getting value. We’ve been described as solid by most of the people who know us. But when you are a larger brand, if you work with one of the FleishmanHillards or the Edelmans of the world—it’s almost like a vanity metric. Like, “Oh yes, our agency is this big global agency, and we’re paying this price tag.” There’s an impression value, as well, I think, that they get out of that.

Loren Feldman:
Do you look to see what other agencies that are closer to you in size are charging?

Sarah Segal:
With friendlies, yeah. We have those kinds of conversations. But most agencies do something similar to me. But pricing is a really sticky thing for agencies. There’s no perfect math. I mean, it’s the same with lawyers. Like you may pay $600 an hour for one lawyer and $200 for another lawyer. Like, how does that math work out?

David Barnett:
Well, you might also pay 30 percent of your settlement for some kind of major lawsuit, right? There’s way different ways that you could decide to charge for this stuff. You know, what’s the value of you getting someone into a big newspaper article or something?

Sarah Segal:
I know. There are some agencies that will take equity, especially with the startups where, “Okay, you don’t have enough money to pay us; we’ll take equity.” I’m actually talking to a client that doesn’t have enough money to pay us kind of on the upfront, but they do these big events with ticket sales, and we’re considering working with them to take part of the payment on the back-end as well. I mean, there’s a lot of ways to get paid, for sure, but no, agencies generally are kind of close to the vest, in terms of sharing that information.

Loren Feldman:
Liz, you sell an actual physical product, not a service, of course, but you too have to think about the cost of putting that product together versus what a customer is likely to pay for it. How do you balance those things?

Sarah Segal:
How do you price it? Obviously, the labor going into building it, the actual components needed to build it.

Loren Feldman:
The tariffs you have to pay.

Sarah Segal:
The tariffs you have to pay. Is it based on what you think people will pay for it? Or is it built based on math that goes into each particular kind of product?

Liz Picarazzi:
So, Sarah, I hate to say this, but my pricing strategy is so much easier than yours, because yours is about quantifying the value of your work, and I have to somewhat do it, but I have a big, large aluminum cabinet. It’s understood that it’s well-designed, and I know how much it costs. So my pricing is really based on what my markup is.

We, of course, look at the market, but if I were pricing according to what my competitors charge, you know, they have a much lighter-duty product. It’s not going to last as long. It’s made out of steel instead of aluminum. So those are factors. I mean, I definitely do get price objections, but it’s a little bit easier for me to calculate, because I’m looking at a product, not a service, and I’m applying a markup to that.

Sarah Segal:
Do you provide discounts for larger quantities? So say, you’re working with the City of Albuquerque, New Mexico, and they’re like, “We want 100 enclosures.” Do you discount that?

Liz Picarazzi:
We definitely do.

Sarah Segal:
And how do you do that?

Liz Picarazzi:
It depends on the volume. So right now, the biggest discount you can get is 20 to 25 percent, and that’s if you buy more than 16 modules. So it’s actually pretty easy for municipalities to get that discount. It’s something I probably should really look at, because when you’re dealing with large purchases like that, if the cutoff is only 16, then it’s not really a high threshold to reach.

But that’s how we do it. I mean, if a municipality wants to just buy a couple, they’ll get less. If a property manager wants to buy in higher volume, she or he needs to purchase it at the same time. They can’t just have a rolling 20-percent discount. It’s only if they buy them together. And we developed that policy because there were a lot of them that would say that they were going to buy more, and then they didn’t, and then they basically ran off with the 20 percent discount when they otherwise would have gotten five.

Loren Feldman:
I want to move on to something else, but first, Sarah, you do your pricing in multiple ways, in the sense that you have the conversation with your client about the monthly retainer, and then you’re also charging based on billable time. You could change the billable time factor without your client ever even knowing it. Does that ever come up in the conversation with your clients?

Sarah Segal:
The billable, to like, how many hours we’re going to work for them?

Loren Feldman:
And what you’re charging per hour, which is what, I gather, you just raised.

Sarah Segal:
Yes, we include in most of our contracts how many hours we’re going to be working on a client. And that’s based on me looking at the billable rates of everybody. It also just helps me. I find that it’s an easier conversation to have with clients if we’re like, “Hey, listen, we’re spending a lot more time on you than we are contracted to do.” They can wrap their heads around that number, where it’s just hours, because they don’t want to know that one of my account coordinators costs X, and my vice president costs Y. They don’t want to know all that.

Loren Feldman:
But they also probably have no idea how many hours it should take to do the magic that you do.

Sarah Segal:
When we’re talking to a prospect, the conversation is always like, “All right, what do you need? What do you need help with? What are you doing that you need to offload or do better with? And working with an agency, like, what’s your utopia?” And then we say, “Okay, well, what’s your line item budget?”

And sometimes people come back and they’re like, “I have X amount of money to spend per month.” And we say, “Okay, that’s great. Based on everything that you said, we’re going to make a recommendation on what you should start with and what we can do for that particular budget.” More often than not, people come back to us, and they say, “Well, I don’t really know what it costs. I don’t really know what I want. Can you give me a menu?” And in that case, that’s where the hours come in, where, basically, we look at our blended rate, or we kind of, if it’s like a purely social media client, we look at the billing rate for that team, and we go, “Okay,” and we compare it to other clients.

Like, all right, that beer company, we run their social media. We spent probably about 25 hours on them a month consistently over the last year. This is similar. This is how we’re gonna price it out. And that’s the recommendation that will give them all the different price ranges, but it will be based on reality, of similar clients. So we do have that benefit of being able to look at similar work, similar hours, similar clients, because we log everything so that we can actually make real comparisons.

David Barnett:
So then you are not charging by the hour. You are charging a retainer fee. From the customer’s point of view, “You’re saying we’re going to do this for you, and here’s the monthly cost.”

Sarah Segal:
You paid $5,000. It’s like, how much did it cost for Gaia, Gabriel, and Whitney to work on your project this month? I need to know that.

David Barnett:
Right, so if the person thinks that you’re working for them for $5,000 a month to do all the things you’re doing, then you definitely need to be having an annual price increase. Because, from their point of view, they’re buying a service with a set suite of things, and they’re paying X dollars for it. From your customers’ point of view, it’s like your cable bill. I pay X amount for this many TV channels. You know, everyone expects it to go up every year.

Sarah Segal:
Yeah, but we’re telling people how many hours we’re working.

David Barnett:
I don’t know if you should.

Sarah Segal:
Well, it makes the conversation easier. No client wants to ever hear that you have other clients. So you can’t be like, “Well, you know, we’re spending time on you, and we should be working on other stuff.” If we can be clear of like, “Hey, you’ve gone above your 25 hours a month for the last three months. Let’s have a conversation,” it’s just a much easier dialogue in my experience.

Liz Picarazzi:
Sarah, do you ever share with clients how they can more effectively use your time? So, obviously, you probably have clients that sort of get in the way of things, or are not keeping things going along, or sometimes probably bottleneck, which has a cost to you. I have vendors that probably should talk to me about that to say, “Hey, these three ideas sent us down a tangent.”

And I am aware of sometimes how I’m spending an agency’s time. So I guess it’s a question of, have you ever had a frank conversation with a customer to say, “These are some things that you shouldn’t do if you want to make sure you keep it under this amount”?

Sarah Segal:
It’s less about that in terms of, like, under the amount. It’s like, “Hey, what’s going to have the most impact for your business?” If I’m looking at a local spa, and they want us to do media, PR, social influencers, I know that most people that are discovering them are probably finding them on social [media] and probably finding them through influencers going there. And I’m gonna say, “Hey, listen, the media side of it is important, because it’s the third-party validator. It’s important. It helps you be searchable in AI, and all of this stuff.” But I think that we spend more of our attention there. They know that out the gate.

We put together plans and go, “Hey, listen, we had a conversation with you when we were talking about working for you. And this was your wish list, and these are the things that we think are going to have the best return on investment for you.” And so it’s kind of an ongoing conversation. In terms of them asking us to do things that are just a time suck, yeah, absolutely, I’ve had conversations where we’re like, “You’re asking us to do this stuff, but it’s not going to deliver anything. And we can’t track the value of it. And so it just kind of goes into the abyss.” So, yeah, we’ve had to have those conversations, for sure.

Loren Feldman:
Next topic: Liz, this is the first time you’ve been on the podcast since the Supreme Court ruled on the tariffs. I just want to quickly ask: Do you have any expectation at all that you’re going to get a refund?

Liz Picarazzi:
So I will get a little bit of a refund. I paid $400,000 last year in tariffs. 90 percent of those are for Section 232, which is the tariff on aluminum and steel, and that is applied regardless of the country of origin.

Loren Feldman:
It’s not the reciprocal tariffs that the Supreme Court ruled on?

Liz Picarazzi:
Exactly, it’s not the reciprocal tariffs. It’s another category. I was exempt from the reciprocals because I was being tariffed on 232. I am going to get a little bit back, because I was paying the fentanyl tariff when I was doing more manufacturing in China, and that was also knocked down by the Supreme Court ruling. So I’m going to be getting about $23,000 back on that.

Loren Feldman:
You sound very confident. There’s no procedure yet that’s been determined. Has something convinced you that there will, in fact, actually be refunds?

Liz Picarazzi:
I think that it’s going to take a while for them to iron out the process, but I do think it’s going to happen. And maybe the reason I’m feeling more confident is that it’s only $23,000 out of the $400,000. And if I worried about that $23,000, it would take away my energy and my drive. I could have, now, over a year, had a lawyer, a trade attorney, on retainer to help me navigate this. But I realized pretty early on, with all the changes, that it really was not a worthwhile expense. Because in some cases, I knew faster than they did about what was going on, because I had alerts set up on my phone for the word “tariff.”

So, I think it’s eventually going to come, but for me, it’s sort of like, I don’t know if I’m going to get it back, but I’m also not worrying about it. I mean, many of my friends who were in the reciprocal category failed. Some of them even needed to abandon containers when they were on the water. When China was at 150 percent, I knew a lot of manufacturers who just abandoned their containers, or they rerouted it. So they have a lot of money that’s due back to them, and I really hope that they get it. But my energy is not going to that, because it wasn’t as significant an expense for me, like the section 232, for aluminum and steel.

Loren Feldman:
The other category that represents the bulk of the tariffs that you did pay, is that being challenged in court at all? Or is there any possibility that that goes away?

Liz Picarazzi:
That is not being challenged. That has been around since the ‘60s. It’s about some sort of national threat due to economics. It was rarely used until the first Trump administration. As we know, the Biden administration kept it on, the 25 percent, and then Trump raised it last June to 50 percent. So if anything, I’m a little bit worried that the revenue that they’re losing from the reciprocals they might try to get in Section 232.

You don’t hear people talking about the aluminum and metal tariffs much. But I do remember on one of these like Meet the Press or Face the Nation, whatever those Sunday shows are, they had the Treasury secretary say something like, “We’re going to be looking into other categories, such as metals, to increase tariffs.” So, it’s in my mind that it can happen. I don’t think it’s going to be challenged, because no one has really tried. I mean, maybe there’s some in the lower courts, but I’ve never been asked to sign a petition against the tariffs for 232, as I was for the reciprocals.

Loren Feldman:
On another high-profile front, I think it was the last time you were here that we talked about how your Venezuelan installers, who are here legally, are nonetheless reluctant to travel by van to do your trash enclosure installations. But they were, at least at that point, quite happy to travel by air where they saw no risk. Of course, that was before ICE started showing up in airports. What has that meant for you?

Liz Picarazzi:
I have been watching the news really closely to see if there are articles about detaining, arresting, and harassment of immigrants in airports. And luckily, it doesn’t seem to be a big thing—yet. However, I did not want to take the risk with any of my employees who we normally would fly anybody anywhere. If someone was willing to pay for their installer to come, we would go. So I had one installer who frequently traveled to California by air. He’s not going to be doing that anymore.

So that’s a change, and now it’s just better for me to remove the risk by hiring local installers. It means that the timeline on us training our national installer base needs to speed up. But none of my employees right now have any plans to travel, and that is even without any news saying that there’s reason to worry. Why take a risk? I’m not going to have them travel somewhere where they’ll feel unsafe.

Interestingly, we recently got orders from Washington, D.C., and Minneapolis, both of which have the highest prevalence of ICE in the whole country. And we had already made the decision not to send our installers by van to any other cities. But with Minneapolis, we’re like, “Well, that’s an easy decision. We’re definitely not sending our installers to Minneapolis.” You know, if you’re a brown person in a work van, you are a target. It just is the truth. And we’re going to be hiring people locally. Also, in Washington, D.C., we have an order to fulfill and there’s a high presence of ICE there. Same thing. We’re going to hire someone local to do it instead of having our guys travel now by van or by plane to other places.

Loren Feldman:
Liz, that sounds like a big challenge for you to hire installers locally, and have to train them, and have to find people who are not at risk of getting caught up in an ICE action. How are you approaching that?

Liz Picarazzi:
So we have connected with a couple of companies that just do installations, so installations of furniture of all manner of, let’s say, equipment for stadiums and events where there is a skill-set around installation. And so they have a network of installers nationwide. There’s two of them that we’ve been working with with great success. They do cost more than our normal installers do, but it really is a part of scaling.

We did, in the beginning, try to find individual installers in individual cities, and that ended up being really time-consuming. And then that sort of puts the pressure on us, A) to hire the right person, B) to train that person, and C) to follow up and manage them. It’s better to hire someone else to do that, and that’s what we’re going to be doing nationwide for the foreseeable future.

Loren Feldman:
Is training a big issue?

Liz Picarazzi:
It’s actually not, because our product is so well-designed to be modular and ready to assemble. They come flat packed, and we have an installation video. It’s very straightforward.

Loren Feldman:
Liz, you indicated that you’ve also had some interesting dealings with your vendors. Tell us about that.

Liz Picarazzi:
Yes, so I’m in a really good place right now with vendors. And I’ve been thinking about it for a while, because there have been times when I felt very unstable with vendors. And so for me, right now—

Loren Feldman:
What do you mean by that, “unstable with vendors?”

Liz Picarazzi:
So, during the pandemic, the warehouse that I was in, I had a couple of just gigantic orders that came in, and they tried to change the price of the third-party logistics warehouse right before they were to go into the warehouse. So they came from the dock of New Jersey, and they’re in the parking lot of the warehouse waiting to get checked in. And then I find out that the price has been increased like double. In that moment, I had all these containers—in the pandemic, when product was not moving—that I was going to pay rent on that was double what I had thought. And I really feel that that was sort of extortionate. I think he may have been doing it on purpose.

Contrast that with, a couple weeks ago, we already have a warehouse that’s on our complex in Brooklyn. It’s called Industry City. And we needed overflow space because we have five containers coming this week—huge, a lot of installations. So we had wanted to increase our warehouse at our current space, and they were trying to get us to sign another five year contract on another space. We went back and forth with them a little bit, and then finally, I found an alternative warehouse where I could have gone month-to-month.

And I luckily ran into the number two in the complex that we’re at, and I said to him, “Look, tomorrow, I’m going to be signing with the Army Terminal, which is a half a mile away, and I’m going to start paying them $9,000 a month. I would rather that you took my money. I would rather that I could just have my month-to-month here in this complex.” He took care of it the next day. We were able to easily receive our containers this week. It’s literally in the same building as our current warehouse, and that was the opposite feeling as I had five years ago when I was in a warehouse where they had a really good ability to extort people.

On this one, they’re incredibly accommodating. I would have had three rent checks going out before, but now I have my office, my first warehouse, and my overflow warehouse all with one check to Industry City. And both economically and geographically, it makes so much more sense.

Loren Feldman:
So what’s the lesson from that?

Liz Picarazzi:
First off, you need to know how important that vendor is to you. So my biggest vendor is my factories in Asia. That’s where most of my money goes. I have total trust with them, because I’ve worked with them for eight years. If that relationship felt unstable, that could throw off a lot—a lot. So I’ve got that relationship that’s really good. I’ve got my rent situation really good.

And so I think the moral is, if you look at the categories of spend you have, in relation to your total expenses, and you can see those vendors that you’re writing the biggest checks to, make sure those are good relationships. And if they’re not, work on getting something else. Because that’s too much hassle to have a vendor that is not a good fit for you. And sometimes you don’t realize it until you feel that you’re in a bad vendor relationship. It’s almost like any sort of relationship. But man, did I take action on that, and now I’m feeling really good.

Loren Feldman:
On kind of a similar note, Sarah, I know you recently had to fire a couple of contractors. I think you hired two and fired two over the course of maybe two months. What happened there?

Sarah Segal:
Well, I’m not going to use the word “fire,” because it was prompted by budget. But it’s interesting that someone, a long time ago was like, “Look at your team, and always look at them. And if there’s somebody who you wouldn’t miss if they left, it’s probably somebody you shouldn’t have on your team.”

And so, it’s a hire fast, fire fast, and I used to not do that. You can tell if somebody is not going to be a fit, in general. Because as my agency grows, I need people who are going to deliver 200 percent and are invested in the business and really love what they do. And I can’t be chasing people down. Like, that’s not my job.

I hired two people who were supposed to be—they ended up being more work than help, because I was having to chase them down for updates. And I needed to make a change because a particular client was leaving, and so I had to make cuts. And so it was an easy cut to make, because it was, I would say, 75 percent because of budget and 25 percent because they just weren’t the kind of person who was helping me move the agency forward in the way that I wanted to do it. I mean, three years ago, I shared this on the podcast where I had a couple clients leave, and I was devastated to let my team go, because I really enjoyed all of them.

Loren Feldman:
And you were letting some senior people go then, too?

Sarah Segal:
Yeah. The first time you do it is awful, but then there’s just a weird feeling of relief that you feel after you’ve done it. To get personal for a second, my mother had cancer. And she languished with cancer for about five years, and it was like such a terrible time. And when she did pass away, there was this weird feeling of relief that set in after that. And it’s kind of the same way when you’re making these hard decisions. I get that same sense of: Okay, I did it. It’s done. It’s for the best.

Loren Feldman:
What determines whether you are working with an employee or a contractor?

Sarah Segal:
Well, I have to say that while I love some of the contractors I’ve worked with over the years, they’re not invested in the same way. And they shouldn’t be.

Loren Feldman:
Well, they’re not paid in the same way, either.

Sarah Segal:
No, they’re paid more, Loren.

Loren Feldman:
Well, they’re probably not getting the same benefits.

Sarah Segal:
They’re not getting benefits, but they’re paid more to make up for that benefit.

Loren Feldman:
But they’re also not in your full control, or they’re not really contractors.

Sarah Segal:
No. Like, you can’t make them come into things. You can’t make them like, you know, there’s a lot of rules, especially in California.

Loren Feldman:
So how do you determine that they’re not as invested as they should be, given that it’s a relationship where they’re not expected to be fully invested?

Sarah Segal:
Because they behave like a waiter. There’s a certain level of employee who we expect them to think ahead of the client, and that’s why you hired them, right? And so we cannot be reactive with our clients. That’s not our job. We can’t wait for them to be, like, “We need this done.” “Here, go do it.” We’re not waiters.

Loren Feldman:
So if you’re paying them more, why are you hiring contractors? Why don’t you hire employees who you can control fully?

Sarah Segal:
Well, that’s the chicken or the egg question: Do I hire people before I have enough retainer money coming in to justify their full-time employment? Or do I stretch my current team so thin that their heads are going to explode until we have enough money to hire somebody? And both ways suck.

Loren Feldman:
Dave, is this an issue for you?

David Barnett:
Well, it has been in the past, but I had—I think I mentioned it on the podcast before—somebody in November just stopped showing up, an employee. [Laughter] And so I was literally ghosted by this person.

Sarah Segal:
Quiet quitting. That’s less quiet, that’s just like: boom.

David Barnett:
Silent quitting.

Liz Picarazzi:
Did they file for unemployment?

David Barnett:
No, and they ultimately resigned. Because I had someone else on my staff actually reach out to their wife’s place of employment, because this person wouldn’t respond to text messages, emails, or anything. So, I knew where his wife worked, and I asked my assistant, Dave, to reach out there and find out. I thought they had a car accident or something. Like, I was really worried. Because it’s a remote situation, right?

So, as soon as we reached out to his wife’s place of employment, within 20 minutes, he basically emailed to say he was resigning the position. So that was that. And then that sparked a whole sort of analysis and reassessment of our volumes and the kind of work we do and what we charge, and this is how it kind of dovetails into the earlier conversation with Sarah.

Because what I realized is: Hey, there’s a lot of time I’m spending managing other people. And I actually, with the help of ChatGPT, realized that for some of the things we were doing, I was actually getting a negative sort of time leverage from some of the employees. Because I was spending as much time helping them and teaching them and working with them and then monitoring what was happening—I was spending more time doing that than some of these things would take for me to do myself.

And so I went through and I did a whole rationalization of what I really wanted to be doing with my time at work, what kind of projects I really wanted to be working on, and then I consciously actually raised some rates to try to do fewer projects on my own, yet earn more money. So it was kind of a redesign that I went through over the holidays, and a lot of help from AI to analyze things like my calendar, just to really know: How many hours last year did I spend meeting these particular employees? And, you know, ChatGPT went into my Google Calendar and added them up for me, and I was very surprised.

Loren Feldman:
Are the laws in Canada, Dave, the same as in the U.S., regarding distinguishing between employees and contractors?

David Barnett:
Yeah, pretty much. You know, a contractor is somebody who controls their own time. They have their own business. And there are extremes, obviously, like, the person you hired to put new shingles on your roof. Obviously, they’re only working for you for a couple of days, and they’re off to their next customer. That’s clearly a contractor. Someone who shows up every day and you tell them what to do and provide tools, then you’re in that gray zone, right? This person’s really probably an employee.

And I’ve got people working for me—well, this one particular case, the person was here in Canada. They were an employee, so I was doing income tax deductions off their pay and all the other stuff employers need to do. But I’ve got people in other countries who are my employees, but legally, they’re contractors, because I don’t have a business in their country. So you kind of get into a different series of gray areas in those scenarios.

Loren Feldman:
So Sarah, what happens now? Do you need to replace those two contractors?

Sarah Segal:
Um, well, I’m doing all the work myself, Loren. [Laughter]

Loren Feldman:
Wrong answer, Sarah.

Sarah Segal:
I know, and it sucks, because I shouldn’t be, because I should be working on new business. I should be working on other things for the business. Yeah, I am doing it all. I’m doing what they were doing, all myself. Because, as Dave said, I know I can do it, and I’m doing it better. And so I want to do it myself for a little while, because I want to right the ship and find out the process.

David Barnett:
Yep.

Sarah Segal:
And then, I need an additional senior person on my team. I can’t afford them yet, and so, yeah, I’m in this hard place. Yeah, I could hire somebody junior, but then, I’d be teaching. They don’t have the experience that you literally need this experience to do this kind of work. And so I’m kind of just toughing it out. One of them is a project that will be done mid-month, next month. I’m good with it. The other ones are for two ongoing clients. And yeah, I need another senior-level person. I just can’t justify it just yet. Especially, like, it’s so freaking expensive here. People are looking for jobs. I just don’t want to go down the road of a freelancer or contractor.

I did make the mistake of hiring a couple junior people last year on a kind of temp-to-perm where they were part-time, and they kind of grew into the role. But what happened was they continued to look for full-time jobs, and so they became full-time with me, and then literally one left after the other, because they had been offered another position. So the whole temp-to-perm thing doesn’t work out, because obviously, they’re still looking for full-time employment. And if I can’t offer that to them, I’m second fiddle to whatever they do get offered. Yet I can’t afford a $100,000-plus salary at this point. I mean, I could, but then my profitability goes down the tank.

David Barnett:
This is why you need to raise your prices.

Sarah Segal:
Mmmm, I do. But then, you know, half of my half of the market that I kind of own, that mid-size business, they can’t afford me anymore. And there’s not enough—

Loren Feldman:
Are you sure?

Sarah Segal:
Yeah.

Loren Feldman:
How do you know?

Sarah Segal:
The economy’s not so good, you know? There are a lot of consumer brands—we do consumer lifestyle. People aren’t going to restaurants as much as they were. There’s no tourism in California. So everybody who does things related to tourism—all the international travelers? Gone. I’m sure you guys have read about Vegas, and how they’re suffering. It’s less about me going to them and saying, “Hey, let me raise my prices.” It’s more them coming to me and being like, “Hey, can we lower our prices?” I literally have a phone call this afternoon with a client that I think is going to ask me to lower their prices.

David Barnett:
Is there a way for you to raise your prices, even if you lose a few clients and end up making more money?

Sarah Segal:
I don’t know. I will sleep on that. That’s a big question.

Liz Picarazzi:
Also, the value of your time. So if you’re in the weeds, that takes away the time that you can be getting new customers, and those could be higher value. So, looking at the value of your time.

David Barnett:
Business is hard, eh?

Sarah Segal:
Yeah.

Loren Feldman:
On that note… [Laughter] my thanks to David Barnett, Liz Picarazzi, and Sarah Segal. Thanks for sharing. This episode was brought to you by Grasshopper Bank.