So recently I had a conversation with an awesome client-to-be and pricing came up.
Lots of folks have lots of issues surrounding money: taking money, making money, asking for money, setting prices, etc.
There’s research out there on pricing methods if you want to get scientific about it. Or, you can wing it and set prices based on what the gurus tell you to do… set prices based on what you are worth.
Here’s the thing folks… and I’m gonna put it to you straight… there’s no way you could afford me if I set prices based on my worth. No one could. I’m priceless… and so are you.
So, maybe you’re worth every penny you feel you deserve for an hour of work. To me, you’re only worth the results I get from your product or service.
Therein lies the problem. (Stick with me I’m all over the place in this post.)
You probably aren’t going to like hearing this but the truth, the reality of pricing, is really very simple… people pay based on value to them and what the market price is for the same product or service.
Sometimes referred to as anchoring, the idea is that we see prices out in the world and anchor a product or service in our mind to a set price. We aren’t going to spend $50 on a cheeseburger when we can go down the street and get one for $10. I mean someone is really going to have to convince me that burger is worth $50. And if I leave unsatisfied… other people are going to hear about it.
I’m sorry but I’m not ever going to pay $200 an hour for coaching. It’s just not going to happen. Why? Because I can get similar coaching for less and it’s probably just as good.
It’s like this… you can go into Wal-Mart and buy Shamrock “Half and Half” or you can buy Wal-Mart brand “Half and Half” for a dollar less per quart. If you are thinking that the Shamrock brand has to be better… consider the fine print on the Wal-Mart container… it’s distributed from Shamrock. Yeah, different branding, pretty much the same product, I mean… a cow is a cow right?
Now, there’s a caveat to all this and that’s celebrity. If you’ve got a bit of celebrity going for you or you’ve got some serious fan-girls and fan-boys, then you can ask much higher pricing because fans aren’t as interested in results.
And, you might be thinking… well I paid $200 for coaching and it was the best money I ever spent!!! Well, you’ve heard of confirmation bias… right? It wouldn’t make sense for you to tell people you threw your money away, I mean you’ve got to justify the expense. This is especially important when you’ve got a partner you share income with because your partner might get angry if you said it was a mistake.
Over time, you’ll likely come around, and start to complain. I see it a lot.
I’ve paid for stuff with really horrible results or no results at all. I only name names in private but there are some programs out there that will take your money and leave you with nothing.
That’s the anchor you’re fighting, because we’ve all experienced paying for something and getting poor results. We get a little skeptical about paying high prices again. All of that skepticism affects how your prices are perceived, too.
Sure some folks are better than others at providing a service. With a little leg work and some asking around, you’ll likely find someone who can help you for a price that makes sense for you.
So how do you charge? How do you set prices?
Here are a few things you need to start with:
1. Who are you selling to?
If you are selling to single moms, your price will be very different than if you sell to CEO’s at Fortune 500 companies. The price anchors are different. This is a critically important factor and one you can’t ignore. The people you work with will dictate price. Not everyone makes big bucks; in fact, most folks are just getting by contrary to what they would have you believe.
2. Do the Research
Sure you might be worth $500 an hour but if your prospect is anchored at $100 an hour, you are going to have a really hard time making a sale. That gap is too great to overcome in most cases. You need to do your research. What are others charging for the same service in the same demographic? When we set price, we can’t rely on psychographic customer information. We can really only rely on demographic income data.
3. Narrow the Range
Once you’ve got some research under your belt you should be able to establish a general low and high range for your particular product or service. What separates the low-end from the high-end of the price range? And, where do you fit along that spectrum? By determining where you fit in the spectrum, you can price appropriate to your experience or popularity, whatever the measure is.
4. You Are Worth More
Yes, no matter where you land on the spectrum, you are worth more. No one is you. No one comes to the table with the same background or experience. But, unfortunately, as much as some may like you, they can only pay what they can afford to pay. When you don’t take the prospect’s economic status into consideration while setting prices, you’ll be unable to sell to them.
5. Set the Price and Adjust
Prices aren’t set in stone. Prices are malleable and flexible. Take gas prices, they fluctuate constantly. This is where testing comes in, change prices a little and observe any shifts. Do sales go up or down? If you’ve done your research this part should be easy.
6. Tier it Up
There’s no reason to have only one rate you use to calculate project pricing or even hourly pricing. Create tiers. I like to create tiered pricing based on the type of work. Take auto service (one of my businesses), an oil change on most cars is pretty straightforward, so we change the hourly rate we use to calculate the cost of that job. But diagnosing an electrical problem requires skill and knowledge specific to a car line and that means a higher rate.
7. Experience Counts
One of the things I look for when working with someone is experience. I don’t want a guy who has some military background and college degree or a guy who was almost homeless with no college degree, telling me how to run my business. I want someone who has run a business telling me. And it doesn’t have to be the same kind of business; most business issues aren’t specific to a widget. Make sure your prospects know your experience and results.
Can You Charge Whatever You Want?
Sure! But it’s not always the right way to do business.
One of the things I like to keep in mind about business is… it’s not about you.
It’s about your customers, but it’s also about your business. Your business should be an entity separate from you. Corporations are.
The idea is that you work for your business and that your obligation is to the business. Your choices and actions should always be in favor of growing your business and being profitable.
Sure, you might be part of what the business sells because you happen to be the coach or consultant or writer or only sales person. But if you can’t separate who you are from your business you’ll always treat it differently. You’ll make decisions based upon your needs first and not those of the client.
When you change perspective to the client’s needs, you suddenly realize that in order to service that client, you need to adjust price to meet their needs.
Don’t get me wrong, I’m a capitalist, I love to make money. But I also understand the dynamics of pricing to serve the business and client.
The idea that you should charge what you are worth is a pretty loaded and based on a lot of emotional stuff. How does one really calculate what one is worth?
Sure, I figure I’m pretty damn awesome, with a brain full of experience and information worth one million dollars… but in an hour you aren’t getting access to all of it so why would I charge you that much? I’m utilizing just a tiny part of what’s up there in my noggin and you should really only pay for that.
Pricing doesn’t have to be hard; pricing simply has to be smart. ‘Nuff said.