How much should you charge?

How much should you charge for your products and services?

  • A little more than you are now – and perhaps you’ll make bigger margins, and increase your profits?
  • A little less than you are now – and perhaps you’ll make more sales, and increase your profits?

Whole PhDs have been dedicated to finding the best and most profitable price to sell an item for.

  • Economists have scratched their heads, and decided it’s about “supply and demand” – although there continues to be debate around even that!
  • Psychologists have developed theories on utility, and needs, and desire, and perceived value to explain how prices are driven.
  • Mathematicians have developed entire fields of study – like ‘game theory’ – to predict and measure the effect and impact of actions in a market.

Forget about the meaning of life!…

…It seems like more of the worlds’ smart people have dedicated their lives to unlocking the mysteries of pricing strategy than almost any other mystery.

I can understand why…

It’s all about how we value ourselves – and how others value us too.

Money is all about the value society places on something. If we can charge more, we must be worth more. And that’s perhaps the clearest signal of our status in society.

The Bigger Upside

Almost universally, I believe people undervalue themselves, and charge too little for products and services.

And I believe there’s far more room for financial improvement around profit in increasing prices than reducing them.

For those reasons, let’s avoid the “Voodoo Economics” of reducing prices to increase profits – and start raising prices.

Simple Raises

The easiest way to increase prices is to simply decide to increase them.

It’s scary – but the fear is only temporary.

A year ago a student of mine dug his heels in about applying this strategy.

“There’s no way our customers will pay more than $8,000 for our product.”

Since then, he’s made no mention of reducing his price back from $9,990 – a ~25% increase! The market proved it was willing to accept the new higher price, and his confidence in this price followed.

Simple Raises to Market Segments

If you’re worried about how existing customers will react if you raise your prices – don’t tell them yet.

Instead, raise your prices for new customers only.

Or for a particular industry segment.

Or for a single type of product to begin with.

How BIG Should The Raise Be?

Since we’re aiming for “10% wins” in the 7 Levers process, a 10% increase in prices is a good place to begin testing.

In most cases I’ve seen outside of highly competitive or commoditised markets, a 10% increase in prices results in no discernible decrease in customers – so 10% higher prices instantly increases profits by 10%.

You can always increase them by more than 10%.

“Sales Warlord” Gulliver Giles once said to me – “If you’re comfortable increasing your prices by $X, you should increase them by more – until you start to sweat a little.”

Worst case scenario, you’re going to bring your prices down – or better yet, increase the value of your offer so that it supports your new price point.

Sit Below Price Resistance

Be careful around psychological price resistance points.

Despite hovering around 99 cents for months, when fuel prices passed through $1 per litre in Australia, it made headline news.

When it passed through $1.10 per litre shortly after, it barely raised a whisper.

Certain prices evoke psychological resistance. Typically, it’s when the number at the front increases to a 1, 2, 5, or 7. (This is the reason why you see prices at $49, but rarely $50 – or $999 but rarely $1,000.)

So, as you increase prices, try to sit your price slightly below a psychological price resistance level (even if it means increasing it slightly to the next price resistance level point).

Spearhead Approach

There’s one other powerful strategy that I want to share with you – the Spearhead Approach.

This approach gives the customer the option of paying more – or down-selling themselves to a lower priced option.

But this is something for another day.

For now – I want you to get the 7 Levers and the Growth Paradox whitepaper (if you don’t already have it) and start implementing these strategies yourself!

Brent Hodgson

  • http://www.mynotetakingnerd.com/blog Lewis LaLanne – NoteTakingNerd

    I was just reading some notes I took on Dan Kennedy’s 7 Figure Academy seminar and I came across something really cool that he was saying about pricing having a ton to do with the perceived value of what is being offered.

    The people who earn 7-figures believe intangible, personal and unique elements of value are just as important if not more important than intrinsic elements.

    Dan talks about the real value in him having Gene Simmons (the lead singer from the band KISS) come to his super conference had less to do with any killer entrepreneur insights he could pass on to the audience and more to do with giving the audience and awesome I.P.U. (Intangible, Personal, and Unique) experience.

    He trusts that if Gene didn’t offer any entrepreneurial wisdom at all, the audience would’ve still have loved the experience of getting to see him up close, get things signed by him and get their picture taken with him.

    And this is bonus of bringing in celebrity speakers that give both kinds of value – wisdom and an I.P.U experience. It ensures people find value one way or the other.

    Kobe Bryant, the superstar Los Angeles Lakers basketball player, set up an alliance with a watch company and these watches start at $60,000 dollars. The intrinsic value of a watch is that it tells time and that it looks good.

    For $1,000 dollars you can get an amazing watch that does both of those.

    So the extra $59,000 you’re paying to get a “Black Mamba” watch is all attached to I.P.U. value – not intrinsic value.

    Value is value is value. One is not more valuable than the other.

    When people truly understand and appreciate this, they can start being just fine with charging what anyone who ISN’T the perfect prospect would consider to be way too much money.

    I love your pricing insights here Brent. It’s always nice to be reminded of timeless principles like this that you can never not appreciate seeing too many times.

about-pete
Pete Williams is an entrepreneur, author, and marketer from Melbourne, Australia.

Before being honored “Australia’s Richard Branson” in media publications all over the continent, Pete was just 21 years old when he sold Australia’s version of Yankee Stadium, The Melbourne Cricket Ground For Under $500! Don’t believe it? You will! Check out the story in the FAQ section (it really is our most asked question).

Since then, he’s done some cool stuff like write the international smash hit ‘How to Turn Your Million-Dollar Idea Into a Reality’ (+ the upcoming ‘It’s Not About the Product‘) and he’s created a bunch of companies including Infiniti Telecommunications, On Hold Advertising, Simply Headsets and Preneur Group.

Lots of other people think he’s pretty good too! He’s been announced as the Global Runner-Up in the JCI Creative Young Entrepreneur Awards for 2009, the Southern Region Finalist in the Ernst & Young 2010 Entrepreneur of the Year, and a member of SmartCompany’s Top 30 Under 30.

Download Pete’s First Book For FREE!

“Now that I've got the rights back from the publishers, if you enter your email address below, you can instantly download a free audiobook version of my first book, How to Turn Your Million-Dollar Idea Into a Reality.” - Pete
100% Secure ... We will NEVER sell or rent your details to anyone.