Why Warring Money Mental Models Will Hurt Your Business

We’re not taught that business is like physics, but it is.

Just as the laws of thermodynamics, motion, mass and energy help us understand how the world works, the laws of finance help us anticipate the results our business decisions will create.

Not that these laws can’t (or shouldn’t) be broken. The laws of finance can be defied in a way that the laws of gravity can’t.

Business has an internal logic.

I coach many people who have a love/hate relationship with their business, especially the financial bits, like what to charge or how much profit to make.

Their business is either a mysterious stranger or a withholding and disapproving authority figure torturing them.

If you feel that way about your business or practice, it’s a sign you have conflicting mental models about money and business. 

Sometimes this conflict is inherited, sometimes it is learned. 

But it can almost always be defused by learning business “physics.” 

If you don’t reconcile warring mental money models, you’re managing your business like a disco where everyone is wearing headphones and dancing to their own music. Nothing is synchronized. No one is moving to the same beat, and the dance floor is pure chaos with flashing lights.

Here’s an example.

I have a client, a coach, who struggles with pricing. (She’s OK with me sharing.) She’s still building her book of business, by giving free sessions and converting clients into paying customers.

Recently she felt queasy offering a 6-session package for $300. $50 a session felt outrageous. So she immediately offered 12 sessions for $500, a better deal. But she also thought that $500 was a more legitimate sum.

My client has a mental bucket labeled “session rate” that caused her discomfort — “Gah! How could I charge that much?” and another labeled “business income” that felt $300 was peanuts.

Offering a discount on a longer commitment makes business sense. But that wasn’t the case here, where the rate per session was too expensive, but the total of those sessions was embarrassing.

The same money was being put into warring mental money models of “charging too much” and “earning too little.”

This is a two-for-one special on self-flagellation.

Business math would tell you that $50/session and 6 sessions for $300 have the same “value” in the sense that if the thing being multiplied ($50) is “too much” the results of multiplying it by 6 doesn’t turn it into “too little.” It’s just 6x “too much.” 

$500 is more money in total, and it’s perfectly valid to offer a discount as compensation for the time value of money (you get to use their money before they get your services, and they could be earning money on that money). It allows you to better forecast your cash flow and to ensure you’ve got your monthly nut covered. A sensible trade off for her right now, but not necessarily for everyone.

If the yardstick used is the RATE PER SESSION, the $300 is “superior.” If you look at TOTAL DOLLARS, the $500 number is “better.” Know what yardstick you want to use and why. You get to choose your priorities. Your choice of yardsticks will influence your decisions and create differing results.

Either way, by being more intentional, you’ll make better decisions – for YOU.

So we did a few business physics problems together. 

We explored how many clients she wanted a week, what her current mix of free vs. paid clients was, how much progress she’d made towards being fully booked, and that the $500 she threw out was a 16.7% discount, so she could see if that felt good. We ran a bunch of “what if?” scenarios to get a grounded plan for growing her practice.

Math creates a reality check (will I get the income I want from proceeding as usual?) and enables dreams (these are the actions that will add up to my desired result).

Developing an understanding of business physics will let your actions be more congruent with your desires. Once you get your mental money models paddling in the same direction your profit canoe will cut through the water more swiftly.