How do I know what price to charge?

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Do you ever find yourself having a bit of a heated internal debate about whether you’ve got the pricing right in your business?

I know that for a lot of people who are growing a business, price is one of the most difficult and often most uncomfortable areas of business. It brings up all sorts of questions about worth and about value; it really does have a huge amount of emotion connected to it.

It can trigger lots of questions like: “What’s my value? What’s my product or my service worth? What’s my worth? What does value really mean to my customers? Am I too expensive? Or am I completely getting this wrong and selling myself too cheaply?”

It really can be a huge quagmire!

So, I wanted to share this week a few hints and tips  to help you think about price differently, and to understand why it’s so important to focus on attracting the right customer and putting out the right message. Because if you get that absolutely right, then your price could actually become almost irrelevant.

There’s really no such thing as too cheap or too expensive.

Take somebody who drives a Ford Fiesta. They may well look at somebody else in a Ferrari and say, “wow, that is an expensive car.” But the person driving the Ferrari is simply a different type of customer. This is a whole different target market. To them, the Ferrari is not an expensive car, they probably think it’s amazing value.

Equally, they might look at the Ford Fiesta and think, “Blimey, that thing is cheap as chips.”

But neither price and neither car are right or wrong. What they are, is the right product for their own customer segment. So for instance, if Ford put out an advert for the Fiesta but they aimed their advert at incredibly high net worth individuals, they would just be wasting their time and money. Those are not their customers.

Whereas if Ferrari suddenly started to put out marketing appealing to, let’s say, your typical office worker, then they might draw them in, they might get really interested. But when they found out the price they would quickly realize, this absolutely isn’t the product for them. But it only looks expensive because it’s appealing to the wrong customer.

It’s not the price that’s wrong, it’s the marketing and the message!

So the key question for you is less to do with how much you charge, and much more about whether you’re focusing on the right customer.

Are you matching expectations?

Another crucial question is whether your price is in the bracket that your customer would be expecting.

If you think about your own buying decisions, one of the big questions is often “is the price what I expected?” Because when you have a rough figure in mind that you expect somebody to charge, if they broadly match that figure then it corroborates your assessment of them, so it reassures you that you’re making the right choice.

Matching expectations conveys dependability and reliability and other emotive things like that, which can be very persuasive in our buying choices. When you’re happy this is the right supplier with the right product and you’re convinced they’re trustworthy and dependable then ‘too cheap’ or ‘too expensive’ starts to fade from your decision making.

Price is entirely subjective

The whole concept of whether something is too cheap or too expensive isn’t defined by you. It’s entirely subjective to your customer. Let me give you an example…

I’ve recently been looking for some marketing support in my business and I have to confess, that I get my virtual assistant, Kylie, to go and do all the research for me. Because I talk about price and because I encourage quite a few people to put their prices up (because most people are massively undercharging in small business) I know that people quite often chance their arm with me and increase their normal prices when they come and deal with me. So Kylie is my perfect buffer.

Anyway, there was one supplier in particular that I was very interested in working with.  But when their price came through, it was significantly less than I had expected it to be and that actually put me off working with them. I had a broad figure in mind for what their fees would be and this was nowhere near it.

Now, some people may see that as a bargain, but for me the figure I had in mind is what I would expect to be charged by somebody who really knows what they’re talking about; who is getting demonstrable results for their clients; who has a lot of clients; who is doing quite well.

So when their quote came in significantly cheaper than that, it raised a lot of questions for me. Questions like … do they actually not have as many clients as I think they do? Are they not really getting the kind of results that I believe they are? Have I not judged these people as accurately as I believed I had?

So their low price put me off working with them!

This is one of the crucial things around getting your price right and the key is not to actually focus on price as much as you focus on understanding your customer.  Understand what the customer expects and needs and what the customer believes value to be.

Value is more important than price

Now the third crucial thing is that actually, to the vast majority of customers, price is much less important than value. Value is made up of a huge realm of different things though. The most typical things are quality, service, dependability, reliability and trustworthiness. It’s about whether you’re going to do or to deliver what you say you’re going to deliver. Are you actually going to generate the results you’re promising?

So it’s much less about what YOU do, and much more about what the customer receives. Their key question is whether you can provide what it is that THEY, as the customer, are really seeking.

Value can also be about the personal elements, such as the relationship you have with a particular supplier. It might be about working with somebody who you really like, who you get on with very well, who is fun to work with, who you have great banter with. Believing that a particular supplier will be much more enjoyable to work with may be enough to convince somebody to hire them, even though they’re more expensive than others. They’re offering a different kind of value.

But equally, you might say, “Well, I have great banter with this person, but maybe sometimes that goes a little bit too far, maybe we’re too friendly and this won’t be the right working relationship.”  Or they may be a lifelong friend which could mean that the lines get a little bit blurred. They could be the wrong choice, regardless of their price.

Other factors that influence a customer’s perception of value could be the complexity that you can help them overcome, or the time or hassle you could save them. For instance, if a customer buys an hour of your time, the hour isn’t the value, the value is in what that hour of time delivers to the customer. Does it save them time? Does it get rid of some hassle? Does it make something incredibly easy? Does it get something off their desk? Does it make something happen?

Because I can promise you that if you can save me some time and some hassle and get something off my desk, I would pay good money for that!

So I think it’s pretty fair to say that value is a very complex proposition.

Somebody should be telling you you’re too expensive!

The final thing to think about is that somewhere down the line, somebody should be telling you, you’re too expensive because not everybody is the right customer for you. If nobody ever tells you you’re too expensive or if every single one of your inquiries turns into business, those are two strong signs that actually, you are probably not charging enough.

So when an occasional customer tells you that you are too expensive, that’s actually likely to be a great gauge to tell you that you are about right.

 

So in conclusion, price is much less important than value.

Value is driven by your customer, it’s entirely subjective.

There’s really no such thing as a right price or a wrong price. Only a focus on the wrong customer.

The crucial thing is to totally understand your customers. So instead of spending hours thinking about “how do I get my price right? What should I factor in? How much should I charge?” If you were to invest that time really getting to understand your customer and developing an incredibly clear picture of what value means to them, then you can work towards making price almost irrelevant for that customer.

Need more help?

If you know that you need more help with your own price or a better understanding of how to appeal to the right customers, then add a comment below and I’ll get in touch. Or if you’ve got any feedback on this video or blog (whichever format you’re viewing it in), then please leave a comment below or drop me an email. I’d love to hear from you.

 

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