Pricing Basics (Don’t Stab in the Dark)

Do you ever feel that setting prices is like stabbing in the dark?  It shouldn’t be.  There’s an art and a science to price setting that, when followed, will immediately increase your profit.

This is why, when I’m starting with a new client, we often start by revamping their pricing.  Done right, it’s instant profit in the bank.  Here’s 4 basic considerations to set smarter prices and make more money, and they apply equally whether you’re offering products or services.

Your Cost to Offer the Product or Service

Taking into account your cost may be obvious, but there are two things important to say.  First, don’t forget to factor in the value of your time and your team’s time.  And second, don’t stop your pricing thought process here!  Just because you have positive profit doesn’t mean you should offer it at that price…you may be leaving money on the table.

Competitive Pricing

What are your competitors charging for similar products or services?  Your customers probably know. Do you?  If not, you need to find out!  Do some research, or ask your customers what their experience is.

Market Positioning

Relative to your competitors, do you want to be a budget option?  A premium option?  Or right in the middle?  Any of these can work, but you need to be CONSISTENT.  Being budget sometimes and premium other times is confusing for customers and prospective customers.  The most successful companies know where they stand, and they send a clear message about it.

Psychology of Numbers

Think setting prices like $99 or $499 is cheesy and pointless?  Think again.  When I managed sales at Costco and Best Buy, it was clear that a $99 item sells a lot more than the same thing at $100.  If you have a product or service at $100 (or $110), you have two options.  Either drop it below $100, and you’ll see sales pick up.  Or, if you don’t want it that cheap, raise it up to $125.  In general, $125 and $110 feel about the same to people, so you’ll sell the same amount and make $15 extra profit each time.

(No, you’re not exempt if you’re selling a service!  If you’re a lawyer, people will perceive you as significantly more affordable at $385/hour than at $400.  If you’re a web developer, people are more likely to hire you if you quote $14,800 than $15,000.  Just the way the human brain works.)

Share Your Thoughts

What have you found effective in setting your prices?  What are you going to try differently after reading these tips?  Share your thoughts with the community below!

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