Setting The Right Price
How much should I charge for my service Dooley?
I get asked this question a lot and setting the right price is so important to business profits.
There is no such thing as a price that is too high if someone is willing to pay it
So many entrepreneurs do this wrong and it can affect your business growth significantly.
- 1 Pricing Your Product
- 2 Reasons To Charge More
- 3 How to Charge Your Customers?
- 4 Value Research Surveys
- 5 Conclusion
- 6 All Growth Hacking Related Posts
Pricing Your Product
For your product to be successful, you have to take into account more than just a great idea or service.
Pricing your product correctly is imperative, along with understanding your customers budget and completing a thorough competitor analysis.
From personal experience, bundle building, cross-selling and upselling is also crucial when pricing your product.
We spoke with a bunch of entrepreneurs on their top tips to pricing your product… Here’s what they had to say:
What is the customer willing to pay for my product?
It’s very easy to fall into the trap of ‘assumption’.
We as humans make subconscious assumptions of what a customer would be willing to pay without even asking them. This behaviour is also known as unconscious bias, where we stereotype and form opinions which dictate how we influence others.
You will find many companies use the method cost-plus pricing, for e.g. if your product costs £1 to make, they will sell it for £2. Pricing SHOULD be only be based on what the customer is willing to pay. If your product has value to the customer then they will pay a lot more than double.
- Selling your £10 product for £1000 = successful product.
- Selling your £1000 product for £1000 = You don’t raise the price – You get the f#ck out that business.
Do not waste time trying to sell products with little profit or value. Move on and find a service which is profitable but clients can see value in what you do.
What kind of customer do I want to target?
The key is to target customers who value your product the most.
Mass selling to larger market isn’t the most effective system if your product is of high value. You can make lots more money per sale from a more calculated audience by sectioning your audience into unique price points.
HOW does my customer care? If your customers haven’t done their pricing homework then you are your only competitor.
WHO are my competitors? If your product is the best then you have no competitors because your sales techniques need to market yourself so they cannot compare your product alongside any other.
Remember to understand the awareness of your product, especially its value.
The Rule of Three
Studies have found that giving a customer only 2 options to choose from will automatically find the customer opting for the cheapest option. Giving them 3 will offer a happy medium (nobody wants cheap).
Also carefully wording your 3 options will play a powerful part in your customers choice. No-body wants basic, most will want upgraded, but everybody is interested in premium…. People will pay for the best of the best.
Savvy Seasonal Selling
Observing customers buying habits will tell you everything you need to know when it comes to adjusting your prices.
Depending on the occasion, customers can easily change their willingness to pay.
We have all been guilty of panic buying at the airport or last-minute Xmas eve shopping for our loved ones.
If we NEED it we will pay anything for it.
Do your research!
Reasons To Charge More
There are many reasons why you need to charge more than what you think is a sensible price.
Real Differences vs Perceived Differences
Selling the benefits of your product to the customer is the only way you can charge a higher price than a competitor selling the same product for less.
If you are selling your product for £1.99 and the business down the road are selling the exact same product for £1.49 then your customer will expect to be explained the difference in value.
Whether that be real differences (product development) or perceived differences (marketing & sales).
Selling Intangible Benefits
Imagine purchasing a mobile phone simply because it was the most expensive phone on the market, the newest model and had features you couldn’t even pronounce.
Now imagine buying a mobile phone that was going to connect you to your loved ones across the world and capture the best quality photos of the memories you make.
Selling intangible benefits is about connecting with your customers and showing them the impact it can have on their life.
Bundling products is a great way to show your customer they can get more for their money.
Look at McDonald’s. Why would you only buy a burger when you can have fries and a drink for a better value.
Bundle building benefits both the seller and the buyer.
As long as the customer says YES to price you can pretty much bundle anything.
Discounts and Promotions
If you have to discount your product on a regular basis to ensure a sale then you’re either targeting the wrong audience or the features of your product aren’t what customers want to pay for.
‘Sales and offers’ shouldn’t dictate the success of your product.
Keep them infrequent.
How to Charge Your Customers?
Creating a model that fits with how your customers want to buy your product or service is crucial especially when it comes to renewal/retention.
There isn’t one solution fits all.
It’s easy to fall into the habit of how easy the initial sale is but don’t forget to invest in your loyal customers.
Existing customers are much easier to upsell or cross-sell to because already know who you are and the value you can bring.
It could be a one-time fee charge, annual, monthly or rental opportunity.
If you can get your customers onto a recurring payment strategy this is best in my opinion.
Value Research Surveys
The first step to setting the price of your product/service is to carry out a value research survey.
A pricing survey is built out of a set of questions and answers that are used for evaluating customer reactions regarding price changes.
Some questions in the value research surveys you would be wanting to ask are:
- What is the price you are willing to pay for goods and services based upon the cheapest price point vs premium maximum cost?
- Why would this product benefit you?
- What is the value in the service provided?
A key ingredient to setting prices properly is to understand a company’s goal.
The market price people are willing to pay for a unit of a particular commodity is determined by what your target audience sees as value for money
The value research surveys allow entrepreneurs to see the price points the target audience is willing to pay depending on quality.
Price should not ever be determined by cost + % profit.
It needs to be worked out on what your target demographic is willing to pay.
The willingness to pay test will determine the right price on what your customers perceive value for money.
Perceived value pricing is not based on the cost of the product, but it is the value which the customer thinks that he/she is deriving from consuming a product or a service.
Work out the lifetime value on what you are providing to your customers to see whether you are underselling yourself.
Setting the right price on what your clients are willing to pay can literally double your company profits if your service is of value.
All Growth Hacking Related Posts
Check out the in-depth list of growth hacking posts.
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