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Pricing your products and services can be an interesting exercise.
- We don’t want to charge too much which could cause us to lose a deal.
- But if we’re charging to little we might not even cover our cost.
- Then there is the perceived market demand and perceived value of the service.
For example, you can hire super cheap freelance writers but sometimes it is what you pay for. Other times you might pay premium prices to an agency that then has interns – who are still in college-write the content.
Mark Stiving, of Impact Pricing, joined me on the Business Storytelling Podcast, to discuss pricing strategy.
I work on pricing strategy all the time myself for consulting, speaking and then also how I priced my latest book. At first I actually priced the book too high and it wasn’t selling so I lowered the price by $5.
The below is based on our conversation on the podcast with personal opinion sprinkled throughout as well.
How do you come up with the right price? (1:15 minute mark)
Determining the pricing strategy is something every business has to do but that very few people truly understand.
Consider adopting value-based pricing. That means price at a level that the market sees the offering and its value. Personally I’m a big fan of that model and I’m not a fan of the billable hour model. As I tell clients when I bill by the hour the client and I have opposing goals. I want to book more hours and they want to use fewer hours.
In a value-based model you have goals that are more aligned and the pricing isn’t based on how long it will take but outlined deliverables.
Value-based pricing in theory is easy to do because it’s basically charging what your customers are willing to pay and maximizing revenues. It’s much harder to implement because sometimes it’s hard to figure out what customers are actually willing to pay and hitting revenue targets.
The real trick is to get into the minds of our customers to figure out how they perceive the value of our product. That can help us with pricing.
How do you find out what people are willing to pay? (2:17)
Mark mentioned how he just finished his book on pricing and that somebody asked him how much he charges to speak and he hadn’t even thought about it. So he went to Google to find out what speakers charge.
He had just finished a book on pricing but hadn’t yet considered speaking pricing.
On the first attempt he said he will charge $2000. They said yes. On the next engagement he charged $2500. It’s hard to know what people would pay until you understand the market and your specific segment.
Testing the market is a strategy that works and at some point you certainly would get price pressure which might be an indicator that you have reached the top of the pricing or it’s just a sign of not explaining the product well enough to the right people.
In the case of speaking, new speakers start getting price pressure around $5,000 while more experienced speakers can go up as high as $10,000.
One problem with solopreners can be to have the right level of confidence to not price yourself too low.
Be confident that you are worth the $10,000 for a speech.
What about the cost of production? (4:48)
Even when we don’t bill by the hour, projects still take time and effort. Even the pitch and RFP process can take up a bundle of time. Then the billing, etc.
Sometimes prospects ask for strategy during the pitch process. Those are billable knowledge goods. And somewhere we need to get paid for that service.
If your price is below a certain number it’s never profitable when all the prep, admin and other tasks are factored in.
Always moving your price up is important. So is closing the next sale, but when the pricing is too low, that can have a negative detriment as well.
The idea of losing a deal can be terrifying to many, but what if you double the price. Now you don’t need as many deals.
Why is pricing so hard? (6:02)
From personal experience I would attest that this is true. When I first started pricing packages I would come up with a number, and the team would convince me that it should be higher and then I would increase it’s slightly more before sending it.
Mark assured me that this wasn’t just my problem and that many people run into this issue as they are pricing services and products.
Certainly it comes back to the value for the client. So let’s say the branding project is $100,000 and that ultimately helps them evolve their brand to be more relevant helps push revenues from $1 million to $1.1 million.
That doesn’t mean we have to guarantee the results but a customer probably wouldn’t have hired us if they didn’t believe that there was potential. I do see cases where customers try to pass the risk to their vendors and only pay when there are indeed results.
What about price competitions? (12:30)
Sometimes you do have to give discounts but it shouldn’t be the first thing to jump to to win a deal. Of course discounts are an interesting thing because if you bake them in you end up at the number you want to end up at anyways.
Instead of lowering the cost find a way to make it more valuable by explaining what you’ll do. Do not give away the entire strategy in a proposal however.
Many proposal seekers don’t give you a budget but having a budget is very helpful because you can then customize towards that budget.
Subscription businesses (14:30)
Subscription businesses can teach us something. Traditionally when you try to make a sale you sell it once and then it’s sold. In the subscription model-like software as a service – you sell it but customers can often cancel each month. Basically you have to sell it every month and get people to use it and appreciate it. And not cancel it.
Sometimes when subscription businesses raise the rates that can also cost cancellations. Because we are now noticing the cost.
On the flipside you sell to a committee at the beginning of a larger technology SaaS project. Once a company has signed on to a platform many companies see few people leave.
Committee buying – sharing different stories for different members (19:00)
Many technology decisions are now made by committee. So we have to mold our stories for the different committee members. For example, the chief marketing officer has very different needs than the specialist.
How to think about value and pricing (20:25)
Some companies create a new product and then they say “how much can I get for it?”
We discussed it can be more beneficial to think about that earlier in the process and create a product-including price point-for solving a problem in the market earlier in the process.
Offering three prices (23:47)
There’s also value in offering three price points.
- Large burger
- Medium burger
- Small burger
The same applies for proposals. Offer a large package that you would be happy about if it was bought and then provide two other packages that would also still be a success. The middle one is usually the one that gets picked. The large one can be too much of a risk in the mind of prospects while the small one might seem like it’s not enough.
Pricing also comes back to telling a good story around the problems our product solves and then creating that believe in a prospect mind that the pricing and value actually align. Of course that needs to be authentic and true.
Publishing prices on your website might be OK but don’t publish a range. If you say that you will do something for $7,000 to $10,000 as a range the prospect will only see the $7,000 anyways. Might as well say this is typically $10,000.