Pricing – Everyone’s favourite subject.
Here are our ways to think about pricing and understand which price points work for your product or service.
Rule 1: NO ONE knows!
We can sit here and guess all day long and we will never know what people are willing to pay or not until we test and try. Sometimes a higher price sells more sometimes a lower price sells more.
Rule 2: Different markets want to pay different prices.
You need to know the target market that you want to sell to and making sure they have money. This is so critical. I think it really hit us on a project we did at Poplar in East London just over the road from Canary Wharf. In Crisp Street Market, Poplar you are selling to a mixed audience who don’t have much money and are haggling over 50 pence!
Whereas if you crossed the road and went to Canary Wharf you have got one of the wealthiest areas in the country and they will pay quadruple to have good service, save time and just get the same product.
Different markets not only will pay different prices they also want to. This is tied to the belief that “you get what you pay for”
Rule 3: Do market testing.
When Alan first started his company he got an early contract with The Times Newspaper telephone sales team to run some training sessions. We had a great chat on the phone and they asked him to send them a proposal including a price!
Alan had a moment of panic where he didn’t know what to charge. He said he would drop them an email with all the details and got off the phone quickly. The next step for me was a panic call to his friend Billie who very calmly told Alan to ring some competitors and find out what they charge.
So he got on the phone and called 4 or 5 companies and asked them for a quote for training for his business to get an idea. The prices varied dramatically from £250 for a day all the way up to £1500 for a day.
Alan didn’t want to be the cheapest (that shows you aren’t confident or good) and he didn’t want to be the most expensive (because he wasn’t confident and didn’t know if he was any good at this stage!)
So Alan set the price at £500 for the days training.
The stroke of genius was that Billie said to put in the proposal an extra item that they could buy so he added in a line that said for only £250 extra they could get a day’s coaching for their team.
So I sent off my price and waited for a response! To his delight they bought the training day and the coaching day! Turned out he was significantly cheaper than who they used in the price. But Alan was happy with what he had got to do the work!
Rule 4: Price is related to confidence.
It’s related to your confidence in your own ability, your confidence in getting the deal, and your confidence in the moment. That is why we are always saying to the participants on our courses spend as much time building your business as you do building your confidence.
The first time Alan landed a piece of business working for Microsoft he was sat at a lunchtime meeting and put next to someone he didn’t know. He introduced himself as the Head of Readiness (learning and development) for Microsoft EMEA. At the time Alan was selling training courses and he nearly had a fit at this point as he was exactly the man Alan needed to meet!
They had a great chat at lunch and by the end of the break, he asked the dreaded question.
“Alan your courses sound great but how much do you charge?”
Alan’s stomach did a flip. He had to fight the urge to beg and say
“I’ll work for free just give me some work!”
Alan put on his most confident voice and said £950.
He didn’t want to be over £1000 as he REALLY wanted the business!
He paused.
It felt like an eternity
Longer than eternity.
This is such a critical moment that you stay quiet and wait for the other person to respond.
You must stay quiet and strong!
He then said something that Alan wasn’t expecting.
“I’ll give you £1050”
He agreed. Alan then left the building as quickly as possible and drove home screaming with delight.
I’ve landed Microsoft!
There are some key points we would love you to take away from this short story.
- Know your market and what other people are charging. Alan didn’t.
- Take a deep breath and say the price confidently.
- SHUT UP! Look them in the eye and give them time to answer. Wait for them to speak next.
- It doesn’t matter that he undersold at the start as Alan got what he wanted.
Rule 5: Think value, not cost.
Cost pricing is where you work out how much time, materials, and other costs it takes to deliver your product or service and then add on a profit margin.
This is the typical way to price things.
There is another way. Value-based pricing is where you think about the value to the customer and charge them based on what they will get out of it.
This is all about thinking about the value to the client rather than the cost to you.
How much time will you save them?
How much money will you save them?
How much stress will you save them?
How much will you build their business?
Work to directly tie your work to a £££ or $ amount in value for the client and charge based on the value to them rather than the cost!
Rule 6: A/B testing prices.
You never know what the best price is to sell out until you have tested, seen customer reactions, and done the maths afterward to see which one works! So test!
Ways to Test:
1. Setup 2 identical product or service or product pages on your website where the only difference is the price. A/B testing online will send half of your web traffic to one page and half to a second page where each half of the audience will see a different price. You can then measure which one converts to sales better and you will have empirically proved which price is better with data.
You might sell less at a higher price but be happy with that because it is less work for more money or you might sell way more at a lower price and be happy with the volume. The key here is that you don’t know what is going to happen unless you test! You may just sell more at the higher price because people believe that “you get what you pay for”
2. You might also test at a physical market. Do half the day at a lower price and half the day at a higher price and see which one sells more. This is not as clean a test as the A/B testing online but you will get valuable client feedback.
3. Try doubling your prices. If you have already started then just try doubling your prices and see what happens. Experiment and see how the market reacts. You might lose a few existing customers but you might win some new ones too…
4. Surveys are to be avoided. In our opinion, surveys are to be avoided because people won’t give you an honest answer until you actually ask them to make a purchase. Until you actually ask someone to take their wallet or purse out of their bag or pocket and give you money they will be nice to you. As soon as you ask for money you will get a true response. Always test live with real money at stake.
Rule 7: Ask the other side to go first.
Sometimes you don’t know what the other side wants to spend and you need to ask them to go first so you have a ballpark to play in.
In the Microsoft example above if Alan had found out they were paying other providers £10,000 a course do you think it would have affected the price?
How I do this in pricing situations is to ask:
“Do you have a ballpark budget for this purchase?”
“Have you purchased anything similar before?”
“I normally charge X for my services, tell me what your budget is and let’s work out what we can do”
Look to get the other person to go first and give you a hint of how much they are willing to spend. If you go first like Alan did in the Microsoft example you might be leaving money on the table!
Rule 8: Why is the price the price? Differentiation
If your price is high then you need to highlight why your product or service costs more than your competitors. What is the differentiator between what you do and what other people do that means you can offer more to your buyers?
List out what your product or service includes that other people don’t. List out why yours is different from the competition.
If you are going to charge more for your product, then you need to be able to clearly articulate why you are different and what your customers are getting for their money.
The added value of doing this is that if you get it right, these customers will then become advocates of your product, explaining to other people they meet why they spent so much with you and your offering is different!
You have got to differentiate from everything else that is out there and why what you do is better, different, faster, cheaper in the long run…
Rule 9: Break it down!
As MC Hammer taught us, “Break it down!”
Take the price you are charging and divide it up. When we say the price of our 2-week event, people are surprised and ask why. We have 2 tools to combat this:
- Break it down. So, we say that the average 2-week course gets around 100 people attending and the biggest event we ran had 260 attendees over the 2 weeks! The more people attending makes the average cost per person for the 2-week course much lower.
- What does it include? By highlighting what the course costs over time, you can make it seem far better value. For example, our course covers three main elements; the promotion to get people to the event, the event itself, and the post-event support. The money doesn’t just buy a 2-week event, it buys you a year-long programme.
How can you break down your pricing?
By the number of people it helps?
By the day? By the weight?
