Consultants often say that the most common mistake they see business owners make is pricing too low. On The 21 Hats Podcast, Jay Goltz has said that if he could go back in time and give his younger self one message, it would be, “Raise your prices!” Had he done so, he believes, he would have grown more slowly but more profitably and with a lot less chaos.
How do you decide what to charge? How do you assess whether it’s working? What’s the most important lesson you’ve learned about pricing?
I’ve ghostwritten and promoted more than 45 books so far. When potential clients tell me I’m way too expensive, say asking $100,000 where others might charge more like $30,000 I never argue. I simply say, “Well, a Timex tells time, and a Rolex tells time.”
If you truly believe you are the Rolex, and show confidence in what you can deliver, you will discover that most people will pay your higher price!
That’s my experience and advice to create a higher paying clientele.
We're a product based company so I believe that it's a bit easier for us than a service based company because we can easily see what other people are charging for very similar products directly from information readily available on the internet. Typically the gross margins for our type of products is 40-50%
For custom-made or new products that we develop, we will typically add another another 10-20% premium to a similar solution...and our customers are very happy to pay the premium because it usually means that we are saving them time/money in other areas...
However...it must be noted that we sell B2B so our customers are professional buyers not emotional based consumers. They understand big picture value better than most consumers so if we can demonstrate the overall value to them...they will purchase our products at a premium
When I was in the residential electrical contracting business we had a flat rate system similar to auto mechanics. That rate was based on 7 x hourly wage for licenced electricians which at the time was $42/hour. Therefore our chargeout had to be $294/hour. Then all jobs were categorized and put into 12 levels. Level 1 was 1/4 hour time frame so the charge was rounded down to $72. Level 4 was $294 and so on. This covers overhead, materials, and other costs. Clients knew the guaranteed upfront cost before we started Never had a complaint and it is still in use 2 years after I sold the business. Never be afraid to charge premium prices when you offer premium service and guarantees (Ours was theee years on some products and lifetime on major items such as service equipment and panels).
I started my own communication firm 25 years ago as a corporate trainer, and I checked with many other trainers to see what was possible. The best advice I was given that still holds true was "consider your audience." I never worked with the top dogs in businesses; I have always been hired to help the front-line workers, the admins, and the lower-level managers learn more about communication skills (American grammar, business writing, interpersonal skills), so my prices reflected that.
Eleven years ago I added editing / copyediting to my offerings, and I did the same type of research. I have several price points that allow me a wide range of clients, from first-time book authors to corporate clients.
Is all this working? Yes! I have been booked solidly these past few years, especially in 2020.
But it's not the money that draws them in; I mean, it's not like I advertise what I charge.
First we need to be visible to our likely clients / customers, right? And diligently working to be seen on social media, primarily on LinkedIn, has given me the way to have others decide if I might be the right fit for their needs, no matter where they live. The internet has opened up the world for a lot of us!
Oh this hits! We are a nonprofit so a lot of people think our programs should be free. 🤦🏼♀️ We have to explain that just like some colleges are nonprofits and charge for classes, we charge, too. A lot of it has to do with educating our customer about what they are getting for the cost, but sometimes it’s just annoying how aggressive people get with their opinions. PSA - nonprofits need to make $$$, too!! 😃
Any product or service can be commodified, which results in a race to the lowest price. There’s a continuum that extends up to an experience and a transformation. How well one communicates the value (framing), establishes expectation, encourages trust, promotes transformational change and executes on all fronts will determine price flexibility.
You can’t raise your current prices before all of the above have been soundly established.
In a service business, people buy you before they buy what you do.