You get what you pay for. Not only is this saying true BUT many consumers (including your ideal clients) subscribe to this doctrine. And it’s true if you’re being honest with yourself. You know that there are certain things you’ll only buy from the dollar store. C’mon, be honest. **wink**
Sadly, many entrepreneurs set their prices based on fear – fear of rejection – instead of what they KNOW they need to charge in order to ensure excellence in product and delivery.
I am often quoted for saying that “undervaluing your products and services makes it impossible to deliver legendary service.” There is no way, if you under charge, for you to give them what they need to receive to see you as the only solution whenever the problem you solve shows up.
So, you may be asking yourself this question: How do I set prices that are going to add to my clients and add profit to my business? This is exactly what Monica wanted to know when she submitted the question we are featuring in this “best-of” episode of Incredible Factor TV.
“Hi Darnyelle. I am so confused about how to set my prices. I have looked at what other people in my industry charge and tried to make my prices the same thing, that didn’t work, no one bought. I’ve tried to just pick numbers that feel good to me and that didn’t work either. Help! I’m at my wits end and I have no idea what I should be charging, but know that I need to make money in my business ASAP!”
Not surprisingly, what I shared in the episode in 2013 is still relevant today, but I will add a little more to it.
It’s still true that you can’t just pull your prices out of your Woo-Ha and expect to gain traction in the market place. Pricing your products and services takes strategy and intel. You have to be crystal clear on the vision you have for your life and business as well as a few other keys that influence price. And yes, I think it’s okay to have an idea of what your market will bear, but that alone does not a pricing strategy make.
Here’s what else you need to consider:
Consideration Number One: What is your life vision?
Likely you started your business to shatter the glass ceiling and remove the financial cap on your earning potential, and there was a reason that was important to you. So, setting your prices without thinking about how this affects where you live, the car you drive, the school you send your kids to, etc is not a good way to start the process of setting your rates. Take the time to get crystal clear about your vision and the kind of business that will make that vision a reality for you. Remember, dream and see big and back the vision up with work (at the right rates.)
Consideration Number Two: What is the lifetime value of the service that you render?
Depending on what you offer to the market, you really need to think about the transferability of your offerings. If you offer your clients a skillset that they will use for the rest of their lives, your prices should reflect that. If the problem you solve is an expensive one, you should consider that as well. Perhaps you’ve heard this story:
A company’s machinery went down for a day and it cost them approximately $1,000,000 in lost revenue. After trying all that they knew, they still couldn’t get it up, so they called in an expert. The expert walked in with a hammer, was taken to the machine and left there. Not ten minutes went by before they could hear the machine running. The expert returned to the manager, held out his hand and said “that will be $1,000,000 please.” The manager, obviously flabbergasted, said “I’m sorry, what? You weren’t in there for even ten minutes.” The expert, smiled and said, “You didn’t hire me for my time, you hired me for my expertise.” The manager relented and asked him to itemize his invoice. The expert returned with an invoice that read:
$50 for the hammer
$999,950 for knowing where to hit the machine with the hammer.
Consideration Number Three: Do you want to trade your time or results for income?
In the story above, this is a clear case of trading results for dollars. As a business owner you’ll have to decide. Sure, you can trade hours for dollars but eventually you’ll become the bottleneck in your business’ ability to generate additional income because there are only so many hours in a day. Until you stop trading dollars for hours and start trading dollars for results, you’ll never have a profitable business without way more work than you really want to do.
Consideration Number Four: What is the percent of profitability you want to earn on every transaction in your business?
Remember, profit is how we keep score in business. So, as a business owner, you’ll want to be cognizant of the amount of profitability you desire in your business down to the program, offering or transaction level. Without a clear understanding of what your profitability needs to be, it will be challenging to grow your business enough to support your lifestyle, unless of course you want to work way too hard for way too little. Profitability helps you to save for business reinvestment, give to the causes that your company supports, and allows you to get a profit share as the owner of your company. Those, by the way, can be used however you’d like!
Consideration Number Five: Which pricing strategy is best for your business?
a. Lower pricing which allows you to position yourself for more of your market but with a known loss. With this strategy, you know going in that you are under pricing but you’re hoping to get a ton of clients, which will offset your low prices to begin with. Here you can choose this strategy if your goal is penetration, predatorial or expansion in your market.
b. Higher pricing which makes your product exclusive and desirable. When you set your prices higher, they are at a premium and you know that everyone will not be able to afford them but you are clear that those who can afford them will choose you –they buy into the adage that we get what we pay for and higher prices are synonymous with luxury. Here, image, value or quality and opportunity play largely into your pricing strategy.
c. Parity pricing which allows you to “flip-flop” your prices based on your need at the time. Here, you focus on being at the right place at the right time. You are looking into “going rate” pricing strategies that target to a specific demographic within your industry and/or you marginalize your prices just to cover your expenses.
Let me also say here that depending on the type of product or service, there may be a clear pricing strategy that is best for you.
Consideration Six: What are the overhead costs that you must consider and meet in order to perform the job with ease, grace and exceptional service levels?
Will you need to have people assist you to complete the job? Have you assessed the true amount of time to perform the job? Have you taken into consideration what your time is worth as it pertains to your life vision? This is where many entrepreneurs lose because they don’t know their numbers. Keep in mind that if you are a service-based business owner, time spent working with a client or on a project is time you can’t spend to gain a new client, so you want to ensure you price it appropriately.
Consideration Seven: What will your market bear?
Here is where it gets very tricky. I recommend that you start by conducting some market research. In fact, do some direct (people who do exactly what you do) and indirect (people who don’t do what you do but do serve the same clients you serve) competitor research and learn what they charge and what is standard in your industry. Usually, you’ll uncover a range of prices. Where you fall in that range will depend on:
- The amount of social proof you have to validate that you deserve to charge what you charge.
- How confident you are that you are worth that much.
- How much your marketing copy speaks to your differentiation in the market.
When you take these seven things into consideration, setting your prices should become clearer. But, I do recommend that you review the internal and external data that you’ve collected while taking your life vision and business goals into consideration. That way the prices you set reflect who you want to be in your industry.
What’s your two cents? I want to hear from you! How did you set your prices? Are you still struggling with your price points? Do you have a tip or strategy that could benefit Monica or others who are where you once were? Share your two cents below by leaving a comment right here on the blog.
Struggling with how to set your prices? I can help. My best selling home study program Get Paid: How to Package, Price and Successfully Sell Your Incredible Factor can help you get crystal clear about the value you bring to the marketplace. Learn more today!
©2016 by Darnyelle A. Jervey. All Rights Reserved. Darnyelle A. Jervey, MBA, The Incredible Factor Business Optimization Coach and Mentor, is the founder of Incredible One Enterprises®, Incredible Factor University® and the Leverage Your Incredible Factor System®, a proven step-by-step program so you experience financial and spiritual abundance in your life because of your business. For more information and a FREE audio CD “7 Critical Mistakes Even Smart Entrepreneurs Must Avoid for Clients, Connection and Cash Flow!” just fill out the form below.