This is a very critical step in the development of your business.
Pricing your products or services is the one area where you can make quick, sustainable, and massive increases in sales and profits. In my experience many businesses charge too little for their products or services.
There are only two factors to consider when setting the price – value and profit. Concentrating on giving extraordinary levels of value: and profit will take care of itself!
Having said that there are 3 factors to consider here…
- Adding Value
Let’s take each element in turn…
How To Charge The Perfect Price For Your Product Or Service
I can say quite confidently that you are not charging the right price for your product or service. And when you consider that product and service pricing is the quickest and easiest way to grow your business with increased profits, you’re missing out on a huge opportunity.
Here’s how most people go about pricing their products or services (I’m sure you’re no different)…
- They look at what their competitors charge (many people don’t even do this simple step!)
- They decide ‘where’ they want their customers to view them – are they ‘low priced,’ ‘middle of the road,’ or ‘high end’?
- They then price their product or service based on the results of the two scenarios above
This is what’s known as ‘price positioning,’ and to a certain extent it does serve a purpose, but what it means is the business owner bases their own prices on where they see themselves positioned in the market in relation to what their competitors charge.
You might be saying to yourself, “well that’s fine – isn’t that how pricing should be done?” But that’s WRONG – very wrong!
This is a huge fundamental mistake. People rarely buy on price. Sure there is a small percentage of people who buy the cheapest, but this is a minority. What people are buying is based on ‘VALUE’. And ‘price’ and ‘value’ are two very different things!
Let me explain…
As a rule, people automatically value your product or service more if they charge higher (unless it’s viewed as a commodity). The opposite is also true!
This may surprise you, but think about this simple example…
You go to two different restaurants on two different nights…
The first restaurant has a low priced menu. Although you may think “great a cheap meal,” you will start having some doubts about the quality of the food and the service – even before you enter the restaurant.
You keep these doubts hidden until you wait ten minutes to be greeted. You pass this off as “one of those things,” but your doubts are starting to come to the fore.
You are seated at your table.
The table is still dirty from the previous diners. The waitress comes and takes down your order. She has to keep asking you to repeat what you wanted. You really are now worrying. Not surprisingly your order comes and it’s all wrong, and so on.
The point here is as soon as you saw the menu the doubts started, purely because the price was low. If you’d had a good experience then you’d be surprised and you’d definitely go back.
The second point here is this – the restaurant should charge more if they serve you well and you have an enjoyable experience (the value is greater!).
The second restaurant you go to is different – very different…
The menu is very expensive. In fact you’ve never been to a restaurant with prices so high. However you automatically think, “it must be good if they charge these prices.”
As long as you are treated exceptionally well and your food is excellent, you would never quibble about the bill. The point is that as soon as you saw the prices you perceived the restaurant to be good even before you entered!
If you’d had a bad experience you’d never go back and pay those prices. The point here is this – although the restaurant charged high prices, they demonstrated to you with their service and food why they charge high prices. IN OTHER WORDS THE VALUE THEY PROVIDED AT THE VERY LEAST MATCHED YOUR EXPECTATIONS.
It’s exactly the same with your pricing. If you charge too low, your prospects will automatically think you can’t be that good. On the other hand if you charge high prices you’d better make sure your customers receive excellent value from you – because that’s what they’ll expect.
Ultimately what I’m saying is that you cannot determine how much people are prepared to pay – you must let your customers decide what the perfect price is. You could be lucky and get the price right, but the odds are stacked against you.
What you’re looking for is a price point that gives you the biggest PROFIT (not revenue!), over the lifetime of the customers relationship with you.
The only way you can come to this ‘perfect price’ is by testing. In simple terms this means having one price for the first 10 customers, another price for the next 10 and another price for the next 10. You can then calculate which price generates the greatest profit.
That doesn’t mean the highest price automatically wins. What you may find is that more people buy at a lower price, which means you make more money because you get more customers.
Having said that when you add the principle of ‘value’ to pricing this is when you build in ‘elasticity in the price, which means you have a greater flexibility in your pricing.
The Ultimate Principle On Value And Price
What I hope you’ve gained from this so far is that as long as you provides excellent value – people will flock to your business and pay you handsomely for the privilege.
Often many people make the mistake of thinking that price is the main issue in the mind of their prospects or clients or customers.
But what you’re missing is that if everyone is viewed by the prospect as ‘the same’ – i.e. companies don’t take the time or effort to differentiate from others and add considerable value, the only way they can choose is based on price.
But when you add so much value to your business – substantially more than your competitors, you leave the prospect with little choice.
And often they’ll pay you much more than anyone else. Why? Because you’ve added so much value!
Also when a customer decides to leave you and turns to one of your competitors, often they’ll say, ‘Your price/fees are too high.’ What they’re really saying is this…
‘Your products or services are not worth what you charge. I’m just not getting value for money!’
There’s a big difference!
If you add so much value to what you offer, people will be prepared to pay much more for your product or service. Or equally as important you’ll be able to charge the same price, but because you’ve added so much value, more people will chose you rather than the competition because they’re getting so much more value. Does that make sense?
You’ll be amazed at what you can charge when you start adding value.
Here’s a great example…
One of our clients was a professional wedding and portrait photographer (he’s now retired and living in Dubai). When he first met us he was charging between $350 and $450 for a wedding. After just 12 months he charged a minimum of $2,995 right up to $4,995 for his weddings. All we did was add value to his services.
Build extra value and you’ll be surprised how high your ‘perfect price’ climbs!
I would say the expertise we have in terms of charging the right price and building real value in any business is unparalleled.
Adding value to our ‘Client Partner’ businesses to make them irresistible to customers, is in many ways the culmination of many things we do for them.
We have proven solutions for highly competitive markets, price sensitive markets, premium markets, and of course commodity type markets.
I’m sure your business fits into one of these ‘boxes’ so to speak. And if it does, we can make a huge difference to your sales and profits, even if all we do is to focus on adding value and making sure you’re charging the right price.