The past couple weeks have been busy around here. I am involved helping one friend grow their business, the other to launch one. Working our way through myriad issues, the topic of Pricing finally came up.
The pricing subject can cause many companies, from the very large to the sole proprietorship, no small end of distress. What do you charge? What does your competition charge? What are customers willing to pay? Get it right, you’ll do Ok. Get it wrong…causes all sorts of mischief.
Mischief? Well, over-price your offerings—product or service—and fewer customers buy. Many may assume you’re too posh, to high-brow, or simply unrealistic, and look another direction. Price your offerings too low, they assume you’re cheap, lack credibility, or incompetent, and…look another direction. To a degree, I believe pricing yourself too low is far more damaging than too high.
Why? For one, you can’t change perception. If you’re cheap, you’re cheap. Might as well restart the company with a new name and brand. At least if you over-price, you’re not viewed as cheap, and, you can lower your pricing. Its pretty difficult to raise prices once stated.
Last night, I had dinner with 14 creative types running similar businesses. The topic of the night’s dinner was Pricing. We discussed what we charged, for what types of services, and why. A few people even brought their formal price lists…what they show customers…to pass around. These price lists, in part, fueled a lot of discussion. How much time was spent on materials, in production, and so on.
In many cases, certainly the more commoditized your offering, the more meaningful a price list may be. If you can essentially purchase the same thing (e.g. printer paper) numerous places you simply want it at the lowest cost. To do otherwise is to waste money, right?
But, what if your business’ offerings are highly customized. For me, it might be consulting. For someone else, it may be photography services or custom software development. Whether consumer or business facing (B2C, B2B), they are looking for value. They have a need and there’s a value they’re prepared to pay to deal with it.
For instance, if you are a photographer, the bride (or business) is looking for your services taking pictures. You have the expertise and equipment. Quality prints are a side business (I know, most wedding photogs will disagree with me). The question is, what is the value to the customer of the service you provide? Is it $1,000? Or, $10,000?
Value-based selling is a key challenge for many. There are entire sales-training programs focused on the subject. Figure out what the value is, what the amount the customer’s prepared to pay for your offering may be. Then work from there.
This is why:
Your Price List Is NOT for Customers
The intent behind price lists varies depending on your business. As a large company, it provides a standard you expect your sales force to observe. After all, you cannot have 1,000 sales people each ‘doing their own thing.’ For smaller businesses, the price list can have a different purpose.
Simply by creating a price list,
you are determining the minimum amount you are willing to accept.
The key thing to remember, is that your cost to deliver a given service, is the same no matter who the customer may be. As a new business owner, having previously prepared your pricing gives a framework with which to make important decisions. Such as, the ability to recognize good business from bad. And, the confidence to know you’re making the right call, if it’s time to walk away. After all, if business is not going to be profitable, it isn’t worth taking. Nobody can live on Raman Noodles® indefinitely.
Nobody can live on Raman Noodles® indefinitely.
A price list (if only committed to memory), gives you the ability to shape discussions. It gives you the ability to negotiate with your customer in a way that lets both of you come away feeling satisfied. The key is to deliver value to your customer, at the price he or she is happy to pay, not constrain them to your price list—the lowest common denominator.